Prologis Stock

Sarah Cooper, Global Head of Real Estate Equity Sales and for various reasons, you have me moderating, but I would welcome all of your questions as we proceed, particularly around the things that I'm not allowed to mention.

So thank you to management. We have Tim Arndt, CFO; Justin Meng, Head of IR. That's all from your team, right? [indiscernible] as well here with us.

So to jump right in, maybe you can give us the latest updates on leasing and tenant demand into September, hit on what's changed since earnings and the pipeline as well, if that's okay.

Sure. Well, good morning, everybody. It's great to be here, be back in New York. Maybe I'll just even widen out a little bit further and touch on the quarter overall and how the business is performing. In a nutshell, things are going very well. If we just begin around the operational part of the business, all of the trends that we have been talking about for really, in my view, about the last 8 quarters now that I think the market has taken more notice the last 2 or 3. All those positive trends around our leasing volumes, the pace of decision-making, lifting of occupancies.

We've seen a couple of quarters of positive market rent growth. All those things have been continuing here into the third quarter. That's been great to see. It's something that is facilitating continued growth in our value creation business, namely development of logistics facilities for one part. That's an area of our deployment that had been more muted going back to, say, 2024 when conditions didn't really warrant. But with all the improved conditions and tightening that I'm describing here, that's picked up meaningfully together with a lot of the data center opportunity, which I'm sure we'll spend a little bit of time on.

That's all being fueled by two things really, our strategic capital business. We have nearly $70 billion of AUM, third-party AUM that is supporting all of that ownership and growth, but also our balance sheet in and of itself, where we just had an equity raise in advance of the SEGRO transaction, which is the cherry on top of all this, a very important transaction that's still underway for us in Europe, but a highly complementary portfolio and team that we are working through its closing. That's something that's going through various regulatory processes, including a shareholder vote at the end of this month and something we expect to close in the first half of next year.

So across the board, things are going great. Sarah, I think specifically on some more of the numbers, I think here in the third quarter, we'll probably see lease signings. We've had a number of records on overall lease signings for Prologis in the last several quarters. And that's been 60 million, 65 million square feet. It's been the hallmark of what's a record for us in terms of signings within a quarter. I suspect we're going to see a number in that ZIP code again this third quarter. We're not fully done, but the first few months have been great.

As we really more finally parse the pipeline, we're noticing that deals in our agreement stage are accelerating. Things are moving through the system a little more quickly. But the thing that we're always appending to this indication of activity beyond the signings is just whether the pipeline itself is getting replenished with new demand after we have a record quarter of new lease signings. And that trend is continuing. We're seeing our lease pipeline stay well over 100 million square feet in new inquiries, which has been great to see.

Can I -- I think there's a few things to dig in on there, but one of the things Caplan said this morning, I think, was that 15% of their logistics leasing was related to the DC build-out, and I know we talked about that at Nareit. Can you be seeing about the same or more or less?

We've seen -- we would call it about 10% of our new leasing has been dedicated to some form of support for the data center build-out. So yes, we think that, that is a new segment of demand that's probably longer standing than some people may think. There's going to be a couple of phases of it, one that will be fulfilling this new build-out. There's an ecosystem to build out. But the replenishment of these systems, the chips themselves, the hardware, the MEP, all of that is going to need repair, maintenance, replacement over time. And so there's going to be a long-standing demand addition from this segment for sure.

Okay. Did anyone else want to ask any questions relating to those opening remarks before we move on?

Okay. Maybe now we can just touch on the market, U.S. net absorption deliveries, vacancy and market rent growth as we look out for the next few quarters?

Yes. Many of you probably know we had a meaningful tick up in net absorption in the second quarter, 66 million square feet, I think. We haven't seen a number that high in quite a while. I would say, for me, the net absorption numbers we had been seeing for the prior 6, 7, 8 quarters had been almost inexplicably low. We would expect that a good productive market, net absorption in the U.S. should be around 225 million square feet annually, let's say. So that 66 million figure in the second quarter was in keeping with that, a little bit ahead of that.

But all the quarters we had seen where we were registering some 30s, 35, low 40 number have been quite low for the level of activity we had seen from our customers. And the explanation of all that was very clearly, it was just working through the overabsorption of the space that we saw early in COVID. We saw occupancies lift very high, customers take a little bit more space than they needed. So across '24, parts of 2025, that had slowed down.

We had been saying for a while, we thought that was running out that customers were getting their portfolios rightsized, and we're going to see new incremental demand. I do think Prologis saw that empirically, I would say you can see that in our numbers ahead of the market because we had these very strong leasing volumes since the end of 2024, really, building occupancy over the majority of the course of that time, while market occupancies were actually still declining for [indiscernible].

Now they've bottomed and they are growing. It just looks like we're a few quarters ahead of that due to where our portfolio is and its quality. These are conditions that are contributing to positive market rent growth. We're a global portfolio. We've seen positive rent growth outside the U.S. for a longer period of time, probably backing up about a year now, places like Europe and certainly LatAm. So we've benefited from that for a while.

The U.S. had been slower to get to that point. But in the first 2 quarters now of this year, the U.S. has been a contributor to that. And I'll add on the outlook on market rent growth, we describe our businesses rationally, we would say, inflation plus on market rent growth expectations for logistics. And the plus, I would just put in a pile all the secular drivers of logistics, which e-commerce is at the top of that list, but now it's becoming other things like advanced manufacturing, like the data center build-out. There's a number of things that add incremental demand beyond just inflation.

The other component there that's working that's kind of stayed wide due to the level of vacancies in the market is replacement cost rents. So I'll back up for just a moment, giving a long answer here, but we have our lease mark-to-market, which is just a measure of how much higher our market rents than the leases that we have in place. And we sized that at 17%. It's worth about $700 million on memory that if we do nothing else, just uplift the portfolio up to market rents as leases come due, we'll bring in that $700 million. But then there's another measure, what is the gap up to replacement cost rents? How much higher are replacement cost rents than market, and that's another roughly 20%.

Sorry, another on top of the 17% or just...

Another on top of the 17%. So you compound those numbers, you're getting 38%, 39% would be the total gap of rent to be collected. That phenomena, aside from all the inflation plus kind of theory on the case for market rent growth, closing that gap, which we've seen historically occur in real estate cycles would put market rent growth into a mid-single-digit kind of ZIP code, I think, for some years running until that gap closes. Now we're not here to say when that commences and at what pace it goes and how long it runs. But that's a lot of rent gap that is irrationally priced right now, and we think we'll need to close and we have seen close in past cycles.

Sorry, you said into mid-single digit?

Yes.

That is relative to the gap persuasively.

That's guide for an annual number. I'm just saying annually. I think if you put those -- pick an inflation number, and we all have our guesses now where it is and then a plus on top of that from the secular drivers, I think that puts you to 4% or 5%, pick a number. We're just saying that you also on top of that, this replacement cost rent gap and economics shouldn't exist for a long period of time. And it kind of depends on how quickly the markets tighten from here as to how quickly market rents will rise to close that gap.

Okay.

So yes, maybe to your point, Sarah, maybe mid-single digits is conservative. It could certainly be higher.

Okay. Maybe we can hit on where you're seeing the strongest and the weakest markets at the moment and talk about SoCal?

Yes. Look, the strongest markets are on a spot measurement, I would say, how well our markets occupied, how good has the market rent growth been recently. That remains Sunbelt kind of markets, Southeast U.S., Texas remains strong. I would say some of our Central U.S. markets have been surprisingly good for a long period now, Indianapolis, Columbus, Memphis. We are definitely seeing signs of that rotating back out to the coasts.

So you mentioned SoCal. SoCal we would say is definitely inflecting. It's a quarter or 2 behind the U.S. But for our holdings, which we have a lot of the Inland Empire, a lot of our holdings are in -- in Empire West, more modern product in the South Bay. All that product is doing quite well. We're very highly occupied in SoCal. We're over 96% occupied there, strong rent growth. So I say all that to have folks kind of zoom out, at least on our experience in SoCal, that it has been pretty good, frankly, for all of the discussion we've had over the last 3 years.

Our portfolio has actually performed quite well. New supply is limited there, as you all know, and they are benefiting from some of the growth we've seen in advanced manufacturing, defense, et cetera. Weak markets, if I go to that part, Seattle is still a little bit behind in the U.S. probably Central Pennsylvania is still a little bit behind where we would like to see it. I think they will catch up. And then globally, China is working through its excess vacancy.

You still got them?

Less than 1% of our portfolio is in China.

Okay. Can I ask your views on the European market and new SEGRO acquisition?

Yes. Europe has been a bright spot, I would say. I mean -- so I'll come back to SEGRO in just a moment. But beyond SEGRO, I think Europe is an underappreciated stabilizer of our portfolio. It's got very strong and steady operations. It didn't have the large oscillation in rents and vacancies that the U.S. experienced. So its normalization post-COVID was less extreme.

As I mentioned, its occupancy stayed high. It began producing positive market rent growth sooner than markets in the U.S. did. We love the markets there. SEGRO brings this opportunity to combine a portfolio that we've admired for decades literally. We've known that portfolio and that company for a long time. We have tremendous respect for the company and what they've built, got to know their team here in the process so far and really look forward to combining both our platforms and our portfolios, which are very complementary across these markets.

We have 100% overlap in terms of markets that we exist. Prologis is in some markets that SEGRO is not, but not the other way around. But the product offerings are quite different and the complementary state of that is going to be fantastic.

Sorry, just the question was, have you seen the impact of the defense spending and the impact of the de minimis rule on the 3PLs?

Yes. The answer is yes on both fronts, and this is in Europe. So yes, and it's hard to draw a direct line between defense spending and uses within our buildings, but just the nature of space that is being taken up across Europe. There has been increased spending as we've seen. And I guess as you look at the state of the world, the potential for that to increase more is certainly working.

And then, yes, look, the change of the de minimis ruling here in the U.S. and just of trade and tariff patterns generally, including not only Europe and China, but Canada and other places, we're seeing benefit our global portfolio indeed.

Maybe we can move on to the development side of things. It's been a pretty active year, particularly for build-to-suit customers. Can you talk about what you see is driving that? And if the momentum is sustainable, where it goes from here?

Yes. So I'd start by saying to understand the build-to-suit business, our product may seem like a commodity and in some ways, it is, but it's definitely not homogeneous amongst the submarket the product is in, if it's institutional or grade A quality, you need a particular size or shape of building, et cetera, certain functionality clear height.

So I think the belief that a customer can come in and just find a warehouse, particularly for a more sophisticated global customer of ours, it's often not the case and needing to build something becomes a solution that they pursue. Prologis having 14,000 acres of land under our ownership or control that we worked very hard through some slower years post-COVID to get pad ready and entitled everywhere that we could together with a very strong customer franchise, bringing those things together for the build-to-suit opportunities are like -- it's a very -- it's a winning strategy. And so we've been at the center of that for the last 6, 7 quarters, I would say.

Last year, we had a real incredible start in the first 6 months of last year, in particular, on build-to-suits, and that success has continued. There's been a lot of need for larger boxes, as many of you probably know, and those are a little bit harder to come by, and that's been a particular kind of subset of the build-to-suit business strength.

Sorry, sustainable?

Sustainable. Yes, I think so. Look, we have had -- on any year of starts, our average build-to-suit volume has been about 35% of our development starts, and we would expect essentially the same number going forward.

Okay. All right. Transaction markets, what are you seeing buyer appetite, sellers, cap rates, pricing right now?

Yes. So transaction markets have been strong, good, larger -- or maybe I should call midsized portfolios trading, a lot of focus on where the lease mark-to-market and near-term rental growth is coming from. So it's particular slices that carry the most strength. But we would say high-quality portfolio is still trading low 5s on market rents, roughly low to mid-7s on IRRs. Now it's acknowledged that the 10-year has been moving a little bit. I don't know if you noticed that, Sarah. So we will see how that plays out into values. I think in the short term, that could have some effect on discount rates and IRRs and pricing.

I think over the longer term, what rates are doing pinned really by what's going on inflation, inflation will move rents and values in the longer run. So that's why we invest in real estate, many of us. It's a very good inflation hedge. But in the short term, this rate move could affect pricing. We'll see. But I think that if that were to occur, values would be on the rise sometime thereafter.

I don't know if you heard it this morning, and obviously, he is positioned as logistics as his largest asset class, but Ken Caplan this morning was saying that now is the time to lean into real estate inflation hedge, hard asset, low obsolescence.

I'm very glad to hear that. I hadn't heard that. I believe -- I think it's a very underappreciated sort of talking point right now in this environment, especially when you see the way REIT stocks have performed in the last 2 weeks. I think in our business, in particular, where you need something like 15 to 20 acres of land to bring one of our facilities. The thing I would attach to that statement is the obsolescence are not making any more land. There's no more places to put this stuff and it all wants to be closer into consumers. So...

Were you a CFO when rates used to be much, much higher? Any lessons in terms of how that...

Well, I've been in real estate finance since the mid-'90s. So I've seen a number of rate environments at this point. I've always been involved in hedging and addressing the financing of real estate. So yes, I don't know if there's another question working there, but doing my best to manage through this environment.

Okay. Can we move on to data centers?

Yes.

Actually, just one more just on transactions. I mean, aside from the big one that I can't ask about global expansion. And I mean there's different things happening in other parts of the world, maybe more stress elsewhere. Any ambitions? I know you have a fabulous [indiscernible] doing things as well.

[ Claire ] getting special shout out. No, look, we are always looking at any kind of acquisition opportunity, individual buildings, small portfolios, companies. We see the benefits of scale. We see the benefits of high-quality complementary portfolios. What are things priced at? Are they for sale or not? Can everything line up and...

I mean there's a lot of stuff done. So you've been in China forever. I know it's only small. There's a lot of stress there at the moment, but you guys have stayed there. So you could probably clean up and buy a lot of stuff if you -- like is there appetite for that? Or have you got enough just to bid down with what you've got going on now?

No, there's appetite for -- there's no place that we don't have appetite and look at portfolios closely.

Okay. All right. Let's move on to data centers. Strategy expertise, maybe just a general update on what's happening.

Yes. So I mean, I recognize most everybody here, but if there's anybody kind of new to the story here, I would just back up by saying Prologis has always had a mindset towards higher and better use conversion of our real estate. We acknowledge we don't have the sexiest product type in warehouses. It's a low use of land, as I just described, takes a lot of land to deliver one facility.

But a big part of our thesis has been to buy product close into population centers where it's in high demand now from the advent of e-commerce and everything else, but it's potential to be upscaled and converted to some better use than logistics was always there. And I would say every year, we've had the occasional office conversion, some retail, life science conversion. Data centers have emerged as the most significant opportunity for that because it's not just one user or one case. It's a full industry that's being built where we have 6,000 buildings and 14,000 acres of land we own or control that all of it is quite suitable for data center use, provided you have power there and the market behind it.

So we've leaned into this opportunity very significantly in the last probably 4 years now, built a very capable world-class team around it. We're about 75 people strong. Importantly, aggregating power, of course, you all know we have about 5.8 gigawatts of power either secured or in advanced stages and have had a very good track record since I would say, our intentional run on this business of getting projects started. We started about $4 billion since, I would say, this formal launch of build-to-suit transactions, hyperscale credits. We approach this business in a derisked way, I would say. We acknowledge we are not a data center company on its face. We are a logistics company. We don't intend to own data centers on our balance sheet over the long term.

We may own residual interest in JVs. We'll see how that plays out over time, but we see a value creation opportunity to pursue and reinvest all those profits back into our core business. So in that mindset, we want to do it in a risk-mitigated way as possible. So that involves bringing power on as inexpensively as possible without going long power, if you will, only commencing vertical development when we have a high credit tenant lease in hand.

And then so far, our track record has been to sell assets post their completion and once again, redeploy back into our own business. So it's been going very, very well, and our outlook is very favorable. I'll mention the 5.8 gigawatts of energy that we have, that sits on less than 1% of our sites today.

So often, there's a question of, well, how much bigger can it be? And we've talked about 10 gigawatts. I think 10 gigawatts, if you ask me, well, why can't it be 20 or 30, I wouldn't have a good answer for you. It could be. If there is that long of a runway on this build-out, we have no shortage of sites and capability and capital to keep transacting on it.

Maybe you can just touch on the funding side because I think the data centers globally where people have been a little surprised historically. Now I think we will get it is that they need to be funded.

So how are we handling time being?

So the approach to that, whether funds and balance sheet, just capital recycling selling to do the next one?

That's right, mostly capital recycling. Look, we're blessed to have a huge balance sheet. I guess it's intentional. We got it to this place. But we can take on -- we've got billions of dollars of data center development ongoing at any point in time. We've got a debt-to-EBITDA in the low 5s. You've seen us sit in that range for a long period of time. It's a little bit hard to move the needle on our balance sheet. So we've been able to take all the volume on -- I don't want to say easily, but we arrange the sources and uses. That's my and my team's job to make that all work.

Now what we talked about in July was sort of the conclusion of an effort we undertook to explore the private equity markets to see what LPs may want to do in terms of different frameworks, really should larger opportunities come along that we would be less comfortable funding solely on our balance sheet. And we're talking about large turnkey kind of developments and we've established those relationships, some framework on how they would go, and that's a new tool in the toolbox to be sure we can chase those opportunities as well.

Would you announce those as they happen or just?

Yes, they would probably come along by deal would be my guess, and we'll certainly tell you if they have.

And that's only just super large?

At this point, yes. Like I said, we're quite comfortable doing powered shell, even turnkey -- I mean, we are doing turnkey transactions on our balance sheet presently as well. It's just -- if the opportunity set grows and the leasing pace accelerates, having a couple of alternatives in terms of capital funding that look accretive in total, we have lined up.

And if I just ask what that money wants in terms of return?

I'd rather not comment on that right now. Formally [indiscernible] E-commerce sales, any geographic comment on where do you see it going?

Sorry, just to repeat that question was on e-commerce sales and where that's going.

Yes. E-commerce in the U.S., I think we're about 24% of retail sales are occurring in e-commerce, somewhere about there. We still see roughly 1 percentage point, 100 basis points of growth per year in that penetration rate, at least through the end of the decade. So that's to say we kind of see 28%, 29%, of retail sales in e-commerce by 2030. Again, if you're newer to the story, the reason this is so important and exciting, and you're right, we forget about an important growth driver here, but there's a 3x multiplier on logistics demand for every dollar of retail sales that shifts those channels. And so that continued penetration is something we're always looking for and excited about.

Europe is around 16%, 17%. It's similarly growing, but at a slightly lower rate. LatAm is growing in big ways. We have large customers, not our #1 customer necessarily, but others in the e-com space who are growing significantly outside of the U.S. We're seeing e-com leasing in the high teens percentage of our new leasing. That had similarly stepped back a little bit in '23 and '24. It's come back. And we always like to highlight that, yes, we're a very big Amazon landlord. But in any given quarter, there's roughly 35, 40 individual names leasing from us in the e-commerce space. So it isn't bad is much more than people appreciate. Amazon, we're very active. They're active, and we are active with them.

I missed one question on the data centers, and I don't want to get in trouble from Samir, so I'm just going to get back quickly. But how much power is secured today versus how much you're potentially going to need over the next 5, 10 years? And you can touch on your solar as well.

Yes. Okay. So that's 5.8 gigawatts. I think 1.6 of that is secured. The remainder is in our advanced stages. And as you watch us, that secured number, I believe, dropped from our prior reporting of it. That's because we're monetizing that power bank. We had 2 big quarters of starts in the first half of this year, over $2 billion, fully built our guidance on data center starts. So we feel great about that. So that number is going to bounce around a little bit.

I already spoke to just how much larger that pipeline could be. So I won't repeat that part. Terry also mentioned just the solar side of our business. So we are generating or storing 1.4 gigawatts of solar power in our portfolio today, makes up about 8% of our portfolio. So it tells you there's a lot of runway there. The largest growth market for us remains the U.S., where we see we can continue to build out pretty significantly.

Okay. Moving now we can turn to the funds business. So fundraising versus redemptions, new capital in, promote opportunities?

Yes. Our business is going very well. Look, if I go back 4 years, I remember the third quarter of 2022 is when we had our first meaningful pickup in rates, discount rates, return requirements shifted for everybody, LPs, private investors, that was a moment where they're stepping back, reevaluating their investments. It's also at a time where I would say kind of a run on investment in logistics real estate from institutional investors. A lot of that run had taken place. A lot of people needed that exposure and filled their tickets. So we had denominator issues, blah, blah, blah. So that business has been softer in terms of capital raising for a number of years now.

But we haven't just kind of sat back and waited for it to come back to life. We've been inventing new vehicles to attract that capital. And you've seen that in the last 6, 9 months, we've launched a number of new vehicles that are spanning geographies. They're spanning formats. We've included more exposure to our development business, which I'll say for -- coming back to the balance sheet is very well timed with the fact that we have growing calls on our capital for both logistics development and data centers.

So it's welcome to have some development capital in the system as well. So I think our open-ended funds, their fundraising will get back to normal, but probably more in a maintenance mode, a little bit of growth. We'll see how that plays out. But we see LPs wanting to come in, on a more JV level with big sponsors like Prologis aggregate some exposure around GPs. And so we've been pursuing that quite actively.

[indiscernible] on the impact of U.S. treasury policy in terms of your U.S., maybe as Canadian on Canada, your views on Canada in that regard?

So I think last second quarter of '25, a little over a year ago and definitely into the third quarter, we started talking about like tariff exhaustion, right? We had a lot of questions from -- I forget what we call April 2, what was it called?

Liberation Day.

Liberation day. Liberation Day. I forget. And we are all concerned about what it meant and how would our customers behave, but it only took 6 months to see that customers were looking past it generally. For those very directly reliant on specifics on trade policy, they found different vendors and networks to reorient themselves around, but they can't forgo their logistics footprint, and we saw decision-making resume. I think that simply continued. Every quarter since then has brought new tariff news. I mean the situation with Canada is a bit more extreme, acknowledged.

I don't think it has us concerned on our logistics demand there because so much of the use of our space we found is focused on local consumption regardless. And so we're in -- principally in Toronto. It's a tremendous market, very supply constrained. So it's performing very well. It's fine. But yes, just generally in terms of customer behavior, I think they are looking past all that. They cannot rationally plan on the amount of changes in those policies.

I think everywhere, it's a -- academically, it's a sort of a positive in that I think the disruption that it brings, the notion of needing redundant supply chains like the premise of that, like these things tend to lean into demand for logistics. You may need more space. You may need a duplicative supply chain. It's not a significant part of our underwriting. But I think directionally, that's where this kind of noise takes you.

All right. We've only got 3 minutes left. So if it's okay, I'm going to do the next few questions of this rapid fire, but -- and a couple. So what do you think or is there anything that you think the market is ignoring or not appreciating that's going to impact you or real estate or logistics in the years ahead or year ahead?

I think it's probably this market rent growth piece that I unpacked a little bit earlier, just -- look, it's been -- we had a couple of years of negative market rent growth. Last year, I think we were a little over 4% down on market rents. I want everyone to be reminded and understand there's still positive market rent growth in all those years because we're still capturing the COVID era rents. But I think there's just been such a mindset that rents are depressed in logistics or their growth is at least.

So I think getting a little bit ahead on the thinking and just doing your own work, don't trust me, but just your own work on well does inflation plus makes sense? And do we see replacement cost rent gaps close over time, and we see that in past cycles. We think we see that. And I think the case that there is a day of mid-single digit, maybe better for some years running is very strong.

Okay. We've got 3 rapid-fire questions we're asking everyone, very short answers, please. But if long-term rates stay higher for longer, which is going to have the biggest impact on logistics. One, higher borrowing costs; two, lower transaction activity; or three, less new supply?

In the short run, less, I'll say, less new supply.

Okay. Over the next 3 years, will third-party capital become a more important source of growth for public REITs than balance sheet capital? Yes or no.

These are essay questions. Yes.

Very simple.

I put it in one word.

Three, for logistics, will '27 same-store NOI growth be higher, the same or lower than '26?

I think it will be about the same.

Thank you very much. Would you like to make any closing remarks?

No, great questions. We just feel great about every corner of the business right now. So thanks for listening in.

Greetings, and welcome to the Prologis Q2 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference also is being recorded. It is now my pleasure to introduce Justin Meng, Senior Vice President, Head of Investor Relations. Thank you. You may begin. .

Thank you, operator, and good morning, everyone. Welcome to our second quarter 2026 earnings conference call. Joining us today are Dan Letter, CEO; Tim Arndt, CFO; and Chris Caton, Managing Director. I'd like to note that this call will contain forward-looking statements within the meaning of the federal securities laws, including statements regarding our outlook, expectations and future performance. These statements are based on current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings and second quarter earnings press release for a discussion of these risks. We undertake no obligation to update any forward-looking statements.

Additionally, during this call, we will discuss certain financial measures such as FFO and EBITDA that are non-GAAP. And in accordance with Reg G, we have provided a reconciliation to the most directly comparable GAAP measures in our second quarter earnings press release and supplemental. Both are available on our website at www.prologis.com. I'd also note that in connection with the company's possible offer for Sabre under the U.K. Takeover Code, for regulatory reasons, we will not take or respond to any questions directly or indirectly related to Zebra or the possible offer. And with that, I will hand the call over to Dan.

Thank you, Justin, and good morning, everyone. Thank you for joining us today. As we look across the business, it's clear we're entering the next phase of growth where logistics, data centers and energy increasingly reinforce one another. We delivered another exceptional quarter, driven by strengthening demand, disciplined execution and the expanding capabilities of our platform. As a result, we're raising our outlook for the year. We signed a record 67 million square feet of leases during the quarter and after several quarters of sustained demand, we believe the market is entering its next phase.

We're putting that demand to work through disciplined investment. Our 14,000 acre land bank represents 240 million square feet of embedded development opportunity. That gives us the flexibility to meet customer demand while creating value through development. During the quarter, we started $1.6 billion of new projects. Our logistics platform is creating opportunities well beyond warehouse development, the same land, customer relationships and operating capabilities that have made us the leader in logistics are enabling our data center and energy businesses, creating 2 additional long-term growth opportunities for Prologis. Our power pipeline has expanded to approximately 5.8 gigawatts representing about $17 billion of powered shell investment potential or up to $87 billion on a turnkey basis.

While this opportunity has been years in the making, we believe we're still in the early innings. Importantly, the projects in our current power pipeline represent less than 1% of our global portfolio, underscoring the runway ahead. We're also seeing customers increasingly look to Prologis for more than real estate. They're looking for integrated solutions across logistics, energy and warehouse operations. Our scale and long-standing customer relationships give us a unique view into how their businesses are evolving. That insight helps us anticipate demand, shape our development pipeline and stay ahead of the market.

Finally, we continue to execute on our strategic capital strategy. During the quarter, we closed our $1.2 billion European joint venture with La case, further expanding that long-standing relationship and reflecting strong demand for high-quality logistics assets. Prologis remains the partner of choice for investors seeking scale, execution and access to the highest quality logistics portfolio in the world. Taken together, these results reinforce the strength of our platform and the opportunities in front of us. We're confident in where the business is headed and remain focused on creating long-term value for our shareholders. With that, I'll turn the call over to Tim.

Thank you, Dan. We delivered an excellent quarter with core FFO of $1.63 per share, including net promote income and $1.60 per share without, each ahead of our expectations. We generated $83 million of promote revenue in the quarter, driven by outperformance from 3 vehicles, underscoring the performance-driven nature within our strategic capital business. We ended the quarter with 95.5% occupancy, a 20 basis point improvement over the first quarter. Rent change on rollover exceeded 36% on a net effective basis, realizing $16 million of incremental NOI and rent change on a cash basis was 22%. Notably, our portfolio lease mark-to-market remained unchanged from the prior quarter at 17% on a net effective basis, fully replenishing our embedded NOI opportunity of nearly $800 million available without any further market rent growth. .

In the end, we delivered same-store NOI growth for the quarter of 6.4% on a net effective basis and 8.5% on cash. Overall, these results continue to demonstrate the strength of a global platform in a portfolio highly curated to outperform. Turning to capital deployment. As Dan mentioned, we started over $1.6 billion in new development during the quarter including approximately $800 million in logistics properties. As market conditions continue to strengthen, our starts and logistics have spanned our global footprint, representing markets such as San Francisco, Vancouver, the U.K., Milan, Berlin and Chennai, all were demand and rents for modern, well-located warehouse facilities support new development.

We acquired $1.8 billion of real estate during the quarter at an estimated discount to replacement cost of approximately 20%, executing on our strategy to go deeper within our existing markets. This allows us to leverage our teams, infrastructure, data and customer relationships to drive scale and operational outperformance. Our disposition activity totaled $800 million during the quarter. Stepping back, the underwritten IRRs on our acquisitions have exceeded the IRRs on our dispositions by 140 basis points year-to-date, achieving both ongoing portfolio optimization while enhancing long-term returns. And finally, contributions totaled $500 million for the quarter, demonstrating continued execution of our business model, which crystallizes value creation, recycles capital and grows AUM and revenues within our strategic capital business.

As an update on data centers, we had an exceptional quarter with advancement of our priorities in every facet of this growing business. We started a 260-megawatt build-to-suit campus with total expected investment of approximately $800 million. Our year-to-date data center starts now totaled $2.1 billion, exceeding our full year guidance. We now commenced nearly $4 billion of data center development, all build-to-suit for the highest quality digital infrastructure customers with more than 50% of this capital invested in turnkey projects. During the quarter, we also completed a 100-megawatt power land sale, generating an 82% margin and illustrating our disciplined approach to maximizing risk-adjusted returns by monetizing projects at the stage where we see the greatest profit margin.

And lastly, we expanded our power pipeline to approximately 5.8 gigawatts, which has now more than doubled over the past 2 years. Approximately 85% of this pipeline is positioned to support development starts through 2030. The breadth of this activity demonstrates that our data center business is driven by an integrated platform that consistently originates, develops and realizes value. We see over 10 gigawatts of development opportunity over the next 10 years.

Turning to our market conditions. As we've been discussing for over a year, the market has been working through the stages of inflection, and we see overall conditions now geared for growth. U.S. net absorption totaled 66 million square feet in the second quarter, a strong result and the highest level since 2022. This contributed to vacancy declining to 7.2%, while market rents increased approximately 70 basis points. Customer demand is broadening with notable and growing strength across e-commerce, advanced manufacturing and increasingly customers supporting the build-out of digital infrastructure. Our research estimates that each $1 trillion of data center CapEx will generate 30 million to 40 million square feet of incremental logistics demand creating a durable multiyear source of growth. Alongside these secular additions, demand from our largest segment, basic daily needs and the logistics that support them remains healthy.

Taken together, these trends reinforce our view that the market has transitioned into its next phase of growth with additional upside potential when cyclical sectors such as housing, autos and furnishings recover towards their historical levels. Europe has been ahead of the U.S. with its market recovery now nearly 12 months in the making. Demand remains robust and vacancy has been stable and relatively tight at 5.2%. This has been translating to rent growth, which increased approximately 60 basis points during the quarter and 160 basis points from the trough last year.

Finally, we are seeing the strength across all size categories. Large-format space remains in tight supply, creating upward pressure on rents and adding depth to our build-to-suit pipeline. We have very limited availability in spaces larger than 500,000 square feet and no availability whatsoever in spaces larger than 1 million square feet. At the same time, occupancy is improving across smaller units in nearly all of our markets.

Moving to the capital markets. Sentiment towards logistics real estate continues to lead other property types, supported by improving operating fundamentals. Transaction volumes are increasing year-over-year with broader buyer participation across our target markets, though capital remains selective with a clear preference for high-quality, well-located assets. Appraised values across our strategic capital platform increased approximately 1% quarter-over-quarter. Market cap rates remain around 5% with in-place cap rates in the mid-4s and unlevered IRR stable in the mid-7s.

And turning to the balance sheet. During the quarter, we completed approximately $3.4 billion of financing activity, accessing capital across the U.S., Europe and Asia in multiple currencies. Our debt-to-EBITDA ratio ended the quarter at 4.7x, building tremendous borrowing capacity, especially when considering the scale of our balance sheet. And now turning to guidance, which I'll review at our share. We are raising our outlook to reflect the strength of our operating performance and continued visibility into earnings growth. We are increasing our forecast for average occupancy to a range of 95.25% to 95.75%. This increase, together with our second quarter outperformance drives our expectation for net effective same-store growth of 5.25% to 5.75% and cash same-store growth of 6.75% to 7.25%.

Strategic capital revenue, excluding promotes, remains unchanged at $660 million to $680 million, while net promote income is now expected to be flat on the year. G&A is expected to remain in the range of $510 million to $525 million. We are increasing development starts and this on an own and managed basis to a range of $5.5 billion to $6.5 billion, reflecting strong demand and expanding opportunities. This incorporates the $2.1 billion of data center starts in the first half. We are also increasing acquisitions to $1.5 billion to $2 billion and expect contributions and dispositions to range from $4.25 billion to $5.25 billion, consistent with our strategy of recycling capital and optimizing portfolio returns.

Putting it all together, we are raising our net earnings guidance to $4.40 to $4.55 per share. Core FFO is now expected to range between $6.22 and $6.30 per share, including and excluding promotes, representing a 100 basis point increase at the midpoint of our prior guidance.

In closing, we believe the business is exceptionally well positioned. We are executing across every part of our platform from operations and development to strategic capital data centers and energy at a time that market conditions continue to improve. Occupier and investor demand is broadening. Rent growth is reaccelerating and our customers continue to turn to us for increasingly integrated solutions. Combined with the strength of our balance sheet and the scale of our platform, we believe these trends position Prologis to continue creating value today while extending our long-term growth opportunity. And with that, I will turn the call back over to Dan.

Thanks, Tim. As Justin said, we're not going to take questions on Sabre for regulatory reasons. What I would say is this, we've been very consistent over time in how we think about M&A. The bar is high, it has to be the right asset and it has to be the right strategic fit, and we'll always be disciplined on price. On Sgro specifically, we put forward a very compelling proposal. It offers a meaningful premium to where the stock has traded and values the business above its stated NTA. As importantly, it gives Sgro shareholders the opportunity to participate in the upside of a stronger combined company and the value of the Prologis enterprise and everything it offers should not be overlooked. Beyond that, there's not much more we can say today. We'll stay disciplined and if and when there's something to share, we'll share it. Operator, we're ready for questions.

[Operator Instructions] Our first question comes from Tom Catherwood with BTIG.

Maybe, Tim, the blue sky scenario for logistics real estate that you'd always talked about really seems to be playing out. And this quarter specifically, record leasing again and customer retention started coming down, which is usually a sign of pushing rents. So our question is, how much market rent growth is needed for your embedded mark-to-market to start expanding again? I know it's stabilized this quarter. And is your portfolio ahead of the curve in any way such that you're able to capture higher rents before your competitors in a given market? .

Tom, well, first off, I appreciate you acknowledging the realization of the call that we've been, I think, in a silver way, just predicting over the last really 6 quarters now. It's been a really steady level of improvement in execution, and we're as pleased as anybody to see the market also coming along. In terms of seeing an expansion of the lease mark-to-market from here, one, I'll just underline again, this was an interesting quarter to see it fully level out. Now that's not necessarily something to expect. We know that, that number will come down. We've talked about that many over time -- many times in the past, it should normalize at some point in the future in a run rate in the low-double-digit kind of range. But the specific answer to your question is if we see market rents achieve a growth level that exceeds rent change in any given year by role, right? That's just going to be the math of when we would then turn to see it expand again.

And we would hold out the possibility that, that could occur, especially when we look at not just the standing lease mark-to-market that we have, but when we evaluate replacement cost rents as well, which you know are very favorable.

And then I'll just pile on as you also asked around the Prologis portfolio. I think what you should look at is just the continued outperformance in occupancy and you're seeing us just take more and more market share every quarter.

Your next question comes from Michael Griffin with Evercore ISI.

Maybe just going back to sort of leasing demand of the portfolio broadly. Can you give us a sense in your conversations with customers? Is this more kind of pent-up demand, maybe customers have been dragging their feet over the past couple of quarters, realized that inventory is getting tighter, they needed to execute on some of these leases? Or are you seeing maybe newer customers you weren't expecting start to enter the market given what seems like maybe more certainty around kind of their business needs or demand for logistics real estate.

Thanks, Michael. Let me get started and then I'm going to hand it over to Chris. I think the headline here, again, is really 2 numbers. We signed 67 million square feet of leases in the second quarter here. That's our fourth record in the past 7 quarters. We also saw 66 million square feet of net absorption across the United States. We've also seen our pipeline. We've talked a lot about our pipeline over the last couple of years to have that level of leasing and the replenishment of the pipeline rolling where it is. It just shows where this trend is. You put that together, the tone of the customer conversations continues to improve. We started talking about them making decisions a few quarters ago. Companies are very focused on growth. They're investing in their supply chains. They're making these longer-term decisions. You've heard us talk about our big box availability. We have only a few -- just a small handful of buildings over 500,000 square feet and our 1.3 billion square foot portfolio that are available. And we're actually seeing that now migrate into the midsize and smaller spaces as well. So all very positive. And Chris, would you want to give some more color there?

Yes. In terms of the rationale for growth, let's look at some of the industries that are driving the growth. We have 3 or 4 points here. Number 1 is e-commerce. And -- this is not just 1 company or 1 geography. It's international in nature. It's a range of size category. So e-commerce is for sure driving growth. Second is broadly advanced manufacturing, whether it's data center construction support, whether it's defense, whether it's the semiconductor space, that's a growth driver. And then Dan touched on supply chain reconfiguration. Companies are just getting more comfortable investing in their supply chains, competing and winning for revenues. And then there are categories that reflect growth opportunities in the future that are under -- sort of under punching their weight, broadly, housing comes to mind. So whether it's construction materials or the furniture or appliance space, -- this is roughly 1/4 of our customers that are just not on their front foot quite yet but represent a growth opportunity.

Your next question comes from Jon Peterson with Jefferies.

I just want to make sure I understand the development start guidance correctly. So you increased it by about $1 billion that matches the data center development starts this year. So I guess if we just think about the difference between what you started year-to-date, and getting to guidance. Does that mostly imply warehouses? And anything you do on data centers is upside to that? Or I guess, how are you baking in data center starts into the guidance? And then also, maybe just can you talk to us about like a maximum number of starts you think you can do in a year, given your strong balance sheet?

Jon, I want to be sure I understand your question. Yes, we took up the overall starts guidance meaningfully. Last quarter, if you unpack to the components of our guidance, it had predicted $2 billion of data center starts, which we have now achieved. So yes, the uplift, I think you're trying to infer is that coming from logistics, that would be correct.

And when you see the improving market fundamentals across so many of our markets, we're talking over 2 dozen markets that we could see spec this year where the rents have caught up -- and so that's really great momentum. And also the build-to pipeline continues to increase. It's up about 10%, 12% quarter-over-quarter. So a lot of momentum on the logistics side.

Next question comes from Vikram Malhotra with Mizuho. .

I just want to clarify, I guess, 2 things. One, can you just specifically give us what was the market rent growth in the U.S. in the quarter and your expectation and then do you mind just updating us on your latest net absorption view given the uptick you mentioned in 2Q, like what are you anticipating for the year?

So let's start with the market fundamentals and then jump into the rent growth dynamic. I want to be clear, we're upgrading our view on market fundamentals. And really, this is a natural progression of the view that we've held over the course of the last, like Tim described 6 quarters. We're moving through this inflection phase that we've been talking about and a broader recovery is taking hold. Market rents and occupancies have stabilized and begun to grow again. The specific numbers you're looking for net absorption, we see that amounting to 220 million square feet in the U.S. this year. And it's all the things Dan described as it relates to the dialogue we're having with customers, our pipeline and the breadth across markets and sizes.

For completions, we anticipate 195 million square feet this year, and that should allow market occupancies to rise a total of, let's say, 30 basis points this year. So putting it together, the markets are entering a new phase of growth, and it sets us up to see more consistent and sustained rent growth going forward as the occupational recovery emerges.

In terms of rent growth, in the quarter, the United States was 70 basis points. It was -- and we're thinking -- we're not thinking we're anticipating that growth has the position to become more consistent going forward as this operational recovery becomes more broad-based, we could see inflation plus style growth emerge over time. given where market rents are relative to replacement costs.

Your next question comes from Michael Goldsmith with UBS.

Can you provide an update on the Southern California market? It looks like lease percentage picked up 110 basis points sequentially above the overall average of 30 basis points in the U.S. So can you just talk about the pace of recovery of that market relative to the rest of the portfolio.

Michael, it's Chris. Yes, good call out. Southern California also bottomed and is moving towards early recovery. We've talked about these 3 phases of an inflection phase. So let's hit those real quick demand that's become more consistent and broad-based across customers, across submarkets, across sizes. Net absorption in the quarter in Southern California amounted to 9 million square feet, led by the Inland Empire. But we also saw a vacancy inflection across the marketplace. Vacancies were down 30 basis points quarter-on-quarter and are now below 7% in that geography. Market rents are stable with some notable increases in a few pockets occurring this year. So bottom line, Southern California is early in the recovery, but the cycle advanced this quarter just as you're asking, Now looking forward, barriers to supply, both at the municipal and at the state level should help accelerate the recovery as conditions firm.

And let me just pile on there. Tim mentioned earlier about us delivering this forecast over the last several quarters as to what was going to happen in the market. We look at the overall broader market, we talked about this inflection period. We now see these numbers. We see that inflection in the rearview mirror. And we've also been talking over the last several quarters about Southern California following that by 2 or 3 quarters. We'll hear you have it. It's playing out as we had suggested. And then I would just pile on when it comes to our outperformance, I think you need to take into consideration the quality of our portfolio, the location of our portfolio and why you see that recovery show up in our numbers.

Your next question comes from Caitlin Burrows with Goldman Sachs.

Maybe a follow-up from earlier on the development side. So it sounds like you're expecting $2 billion of industrial starts in the second half. Can you talk about the appetite for build-to-suit versus spec at this point? It sounds like it's both. And to the extent there's more spec included, what's your take on the rest of the market? Is it just Prologis picking up spec developments? Or is it the industry as a whole?

What I would say is, again, just to reiterate, we're seeing market improvement across many markets. And so you'll see more spec from us. The build-to-suit pipeline is growing. Build-to-suits are binary, right? These are -- they take several quarters often to come to fruition. And so -- and then we always have to look back and see where that percentage shakes out. And it's usually somewhere between 40% and 50% of the overall volume. I feel very good about that build-to-suit volume and just where our customers are. And just the fact that there are so few large-format buildings available. And then when you have 14,000 acres of land and 240 million square feet of opportunities, it really plays out well for us.

Your next question comes from Vince Tibone with Green Street. .

I wanted to follow up on the comment that you think of the current 5.8 gigawatt data center power pipeline could be started through 2030, which I think is the first time you shared that time line. I just want to get a sense of how we should think about kind of the mix of powered shell versus turnkey data centers going forward just to help kind of narrow down a reasonable range of the potential capital investment here? Because obviously, it's a huge swing factors you outlined depending if it's all one versus the other.

Yes. It is a wide range for sure. The numbers that I quoted in the script from $17 billion to $87 billion worth of opportunity. The number will shake out somewhere in between those 2 numbers. That's all I can tell you. We'd like to say we want to do turnkey for all of these because it's a better situation for us and our whatever vehicle or whatever -- however we capitalize this business. But the reality is this is a customer-led business. And we're going to deliver what our customers. We've delivered turnkey and we've delivered powered shell. You saw us actually sell Howard land this last quarter as well because the risk-adjusted return at that point was so attractive to us to not have to spend any more capital yet to get an 82% margin on that so significant.

So really hard to peg where it is, but you see where our mix has been so far. And much like build-to-suits, it's hard to see where those shake out, but it's going to be somewhere in the middle there.

Your next question comes from John Kim with BMO Capital Markets.

It's Eric on for John. I was just hoping you could provide some more detail on the 160 basis point decline in development yield starts quarter-over-quarter. Is that primarily a function of deal mix? Or are you seeing changes in pricing due to increased competition?

That is entirely mix. I think you just need to look at the overall development book over time to really track what that is. But it's really just a mix and it can be lumpy quarter-by-quarter.

I might pile on there and just highlight as well the margin is what best contextualizes that mix then together with our expectations on stabilized cap rates and that looks very strong in the quarter, clearly.

Your next question comes from Michael Carroll with RBC Capital Markets. .

Tim, you indicated in your prepared remarks that PLD sees 10 gigawatts of data center development opportunities over the next 10 years. How does this differ from how PLD was thinking about the space during the 2023 Investor Day? I know during the Investor Day, you also highlighted the same 10 gigawatt number over a longer period of time. I mean is the company -- is the outlook similar? Or should we read that PLEs just more confident on its ability to execute on that 10 gigawatts over the medium term?

Michael, this is Dan. Maybe Tim is something to pilot what I've done, but -- what I would say is Tim also made a remark about the fact that our power pipeline has doubled in the last 2 years. What I'm very proud of is the fact that we told you all what we were going to do in 2023 with this data center business. And that was around building a pipeline. That was around building internal capabilities. That was around round tripping properties. And we've done all of that and continue to do so. And we have dozens, if not hundreds of applications out there and across all of our geographies, our 6,000 buildings and literally hundreds and hundreds of land sites, building a power bank. So we put the 10 gigawatts out there as a projection that we're very confident that we're going to deliver. But again, just look at the size of the sandbox that we get to play in here, you're going to see a lot more megawatts or gigawatts behind that. So it's grown since 2023, and we'll see how this team is able to continue to outperform.

I might just add on to that very critical ingredient here is not just all the real estate, all the power, but it's clearly the capital as well. And I've certainly had to get my head around together with the rest of the company how to take on the entirety of this opportunity. And you've seen us kind of preparing ourselves for that. We talked about opening up capital availability via our logistics development ventures, et cetera. And we're really clearing the decks for having all of the capital availability here that will be necessary to take advantage of what has indeed been a growing opportunity. .

Your next question comes from Nicholas Yulico with Scotiabank.

In terms of the data centers, as you're ramping up development there, can you just give us your latest thoughts on the plan to either sell assets outright versus doing JVs or fund? And then I'm also wondering how you're comfortable underwriting residual cap rates and values for these assets to achieve the 20% to 50% expected margin you've talked about.

Well, I'll start there. Look, there's no change on the decision that the view we have to sell these assets at completion. We've been doing that. We have some stabilized assets on the balance sheet that will await some some related campus projects, and we'll take another package out to sale probably in the next 6 to 9 months. So that remains the go-forward plan right now with the regard to a broader discussion around capitalization, we've been looking at that for a while. I would say we've essentially completed a review of what's available in the market. We talked to a lot of large global LPs what's become clear is that our opportunity set is so vast and the product type here is, of course, so unique that no single structure is likely to optimize that full potential. .

We've also seen that with those investors, we've been speaking with their preferences vary as well, some on powered shell, some want to just pursue turnkey opportunities, some want to hold long term. somewhat more capital focused on development. So since the -- our opportunities span all of those preferences, what we've now seen -- we've done is we've formed relationships and frameworks within range of partners. And we'll be looking to pursue opportunities with them potentially where that alignment is strong and it best fits the deal and importantly, checks all the boxes for Prologis. In the meantime, as is, I think, very evident from the growth in the business and even the year-to-date starts you now see over $2 billion. We're very capable of handling this on our balance sheet. That's where the largest component of nominal value creation resides and we feel very good about our capacity to do so.

And then you also had a question there around the margins and the durability of those margins, I believe. What I would say is through this process of looking at how we're going to capitalize the business and then also just executing and round tripping these assets so far. We're seeing that market mature for stabilized assets. We have a very good handle at any given time what these assets are worth, either on a powered-shell basis or how far down the turnkey spectrum you take it. To ensure that we can generate those acceptable margins and more than acceptable margins. And then keep in mind, a couple of facts here. All of these deals are build-to-suits long-term leases with hyperscale customers. So great durable income streams. And then lastly, our land basis is a logistics land basis. So these deals have a tremendous uplift and land basis to get to fair market value for Power land.

Your next question comes from Dave Rodgers with Raymond James. .

Wanted to tie 2 concepts together. Tim, thanks for your comments on the cap rates during your prepared remarks. You guys also beat on the promote, I think, your own expectations versus The Street. So can you talk a little bit about the change in cap rates, the change in asset pricing that you're seeing kind of coming into this quarter and then also kind of what drove that from -- was it income? Was it the cap rate? And will we expect to continue to see more promotes as they came somewhat of a surprise this quarter.

Yes. I think the way you unpack the cap rates and returns and valuation uplift from my prepared remarks is that all of those yields and returns have been relatively stable, right? We've been talking about low to mid-5% market cap rate for a while. We've been talking about a low to mid-7 IRR for a while. Valuation uplifts manifest because portfolios are chewing through their lease mark-to-market and the cash flow streams are increasing amidst constant return requirements, so the values are rising. The promote was predominantly out of Mexico. That portfolio, our FIBRA vehicle there is excellent and has outperformed the market meaningfully generating a promote. That's been a pretty perennial occurrence as you've seen lately. So we feel very good about it and look forward to its future. .

Your next question comes from Todd Thomas with KeyBanc Capital Markets.

Maybe, I guess, following up a little bit on that last question but more geared towards acquisitions and maybe acquisition cap rates. You increased the guidance for acquisitions by $500 million. But can you comment a little bit on the competition you're seeing and whether competition has really changed at all over the last few months? And can you comment on the 4.1% stabilized cap rate for investments in the quarter and just speak to pricing and cap rate trends there?

Yes. With regard to the acquisitions in the quarter, we feel great about what was bought there. Incidentally, we don't focus a lot in detail but you see a good chunk of assets bought on the balance sheet. That cap rate is reflective of some deeply below-market rent leases that come attached to those assets and they're in premier coastal markets. I mentioned a deep discount to replacement cost, and these would be a large driver of that. You could even unpack the price per pound there, if you like, and you'll find that basis with the knowledge that those are in SoCal and Southern Florida. I'm telling you now that there's a very attractive basis that we bought those assets at.

And we've said this for years, we are in IRR focused -- total return-focused investor. So you can get wrapped around the axle on a going in cap rate that may have a substantial lift right around the corner here. So we're always going to focus on that total return.

Your next question comes from Blaine Heck with Wells Fargo. .

It's Jamie Feldman sitting in for Blaine. You commented several times about entering the next phase of the cycle or moving into the next chapter. Every cycle is different. So from what you're seeing so far and the platform you have today, if you look out the next couple of years, what do you think you're going to throttle up the most across the Prologis platform to drive that growth or to see the opportunities? And then just anything else you can provide that just tells you to tell us like what feels different this time in terms of the demand you're seeing or the opportunities you're seeing?

Jamie. I'll get started, maybe Chris has some color here. What I'd say is just focused on the Prologis platform. What's different this time is we have the portfolio -- we continue to refine the portfolio. look at the market share that we're taking every quarter when you look at the occupancy, look at the rent growth opportunity we have between the mark-to-market of 17% and then there's another 19%, 20% to hit those replacement cost rents. So as you look at the direction of travel for rent growth in our core base portfolio, it's significant, and we're going to enjoy that for years to come. And then look at our development platform. We just adjusted up our development starts for the second time this year, given the confidence that we have in the markets that we selected were to buy this land and develop out our logistics business.

Then we go to data centers, look at our continuous growth in data centers and what will come of that. We have been round tripping the is taking the profits, there's significant margins and putting that back into the core business now for the last few years as we told you all we would do back in 2023. And then look at strategic capital. strategic capital. We've built a few new vehicles already this year. We've talked a bit about what we're doing in data centers. So the growth prospects in these core businesses is so substantial. We as the CEO here, maybe it's hard for me to say that I love all my kids the same, right? And you need to look at all these great growth opportunities. I haven't even mentioned energy. 1.3 gigawatts of power that we have on top of our roots with only 8% of our roots covered, right? And then operating Essentials continues to be a key driver in leasing. So really great growth opportunities.

Your next question comes from Nick Thillman with Baird.

Maybe a question for Chris, Focusing on the U.S. overall. -- like the PLD, as you've been looking at rent growth forecast over the last couple of years, range has been pretty tight between markets, maybe excluding like Southern California. As we sit today, between the top and the bottom markets on the next 12-month market rent growth, has that range widened at all? And maybe could you provide maybe your top 3 markets that you're expecting over the next month or next year from a rent growth perspective.

Sure. So as we pass through this as we put the inflection point behind us, and we enter the next phase of growth, there is a fair amount of consistency across markets. So there has been a wide dispersion and it's narrowing. And so part of the answer to the Dan gave part of the question that Jamie is looking for also is I think we could, over time, be talking about a rotation back to the coast around coastal outperformance. It's a bit early now. We see it in the greater San Francisco Bay Area by way of example. And then in terms of different geographies in the spread, I don't know that we'll have any markets with a decline over the next 2 months and then the best geographies will definitely outperform inflation.

In terms of the strongest markets right now, that's going to be in Texas, across the Southeast and even in the Midwest and then the Bay Area, like I mentioned, the softest is probably Seattle. I pick Seattle is the softest. So putting it all together, we're really entering this next phase of growth where replacement cost rents are versus market presents real upside to some of these geographies, especially the coast. And it may take some time really to emerge to this space, but we're moving through it much like we've been describing over the last 6 quarters, and we'll continue to keep you current on it.

Next question comes from Brendan Lynch with Barclays.

There's been a lot of positive commentary about the data center opportunity on the call today. Maybe you could talk a little bit about some of the elements of nimbyism that are rising, kind of like with the moratorium in New York and seeing a large project being rejected in Northern Virginia. Can you just talk about how you're anticipating dealing with these dynamics as they seem to be getting more talented.

Yes. No question. The approvals and entitlements continue to be a growing issue and is certainly a meaningful barrier to supply. All of these projects are super complex, multiyear processes where you start with the land and the power, you're securing the entitlements. And I would say that's really where Prologis differentiates in a big way. We have 110 offices globally. These are local people executing our businesses that many of them born and raised in those markets. They're part of the fabric of the communities. They understand what makes these communities click.

So our goal is to get out as far in front of these issues as we possibly can and ensure the education is there for the local municipalities for the local communities. So people actually understand what's happening in these data centers. And what -- how they benefit from these projects, not how they're impacted negatively. There's just so much misinformation out there. We saw this moratorium. We're not impacted by it. We've seen similar type issues in logistics over the years. We don't see that as something that is necessarily going to continue throughout the country or I guess, countries in which we operate, but it's just the evolution of how these things play out. And it's on us to be as far out in front of these as we possibly can and be the most responsible data center developer there is.

Next question comes from Blaine Heck with Wells Fargo.

Great. It's Jamie again. So I know you had commented that you think the European markets are at least 12 months ahead of the U.S. on the recovery. You tend to see a relatively rapid supply reaction in warehouse over cycles. What gives you comfort that Europe still has room to run? And can you talk about the competitive landscape, maybe that would be helpful.

Jamie, I'll get started. Europe is an attractive marketplace. It's comparable in some ways, but it has a lot of differences. And so I'd start by saying, look, the demand picture there is really attractive. There's healthy secular demand drivers. It's not just e-commerce, it's modernizing the supply chain. So the demand picture there is equal, if not better, than U.S., particularly on the continent. Something that you may not be familiar with is the stringent barriers to supply. The focus on green space, the entitlements, the planning requirements are greater there. And so Jamie, I don't know that I agree with sort of how you phrased the question. I don't know that supply comes on as quickly as you're describing. This is a complex business, particularly given the size and scale of the projects that are now more commonplace in the marketplace.

So that -- so it's our experience on the ground. We've been in the market more than 25 years. We've seen multiple cycles there. We have a diversified business. That's what gives us our confidence. Jamie.

And our final question for today comes from Vikram Malhotra with Mizuho. .

I just want to clarify 2 things. Was the 70 basis points you quoted? Was that Q-over-Q or year-over-year? And do you mind just giving us some color like what actually happened to average occupancy that dipped in the quarter and then the build required in the back half seems a big uplift. Just can you give us some context how we think about occupancy in the back half versus your guidance?

Vikram. So in terms of market rents, yes, it's 70 basis points quarter-on-quarter. The one thing that we're committed to is visibility in the marketplace. And it's a couple of quarters mature now. We have introduced a consensus source for you to be able to see this. It's on the Prologis IR website. It's on the prologis.com website. where we go out to 4 brokerage wonderful partners who build out a consensus with us. And those numbers perfectly match the figures we're describing here, so 20 basis point improvement in the market vacancy. So take a look at that and there's historical trending. So those are some of the details to the question you're asking.

Vikram. And nothing noteworthy on the average. It's a pattern even if you look at our supplemental, where we have average indenting occupancies together in a chart, you see a pretty typical pattern that average is always a little bit lower than ending. It's just the way leases roll often at the beginning of the quarter. We have some elevated role this year from all the COVID leasing that's being marched through. What's important is we're getting that occupancy rebuilt -- as you saw, we're very proud of the build that we had over the quarter and feel great about the balance of the year. .

And we have reached the end of the Q&A session. So I'll hand the floor back to management for closing remarks.

Thank you all for joining us, and thank you to our Prologis colleagues around the world for yet another incredible quarter. We look forward to speaking to you all after the third quarter results. Take care. .

And with that, we conclude today's call. All parties may disconnect. Have a good day.

Well, thanks, everyone, for joining us today. Clearly, this is -- when I think of REITs overall and the biggest players in the space, Prologis is one of the first, if not the first that comes to mind. So super excited to have this conversation.

I'm Michael Goldsmith, the U.S. REIT analyst from UBS. I'm joined by Dan Letter, the CEO of Prologis; Tim Arndt, the CFO; and Chris Caton, MD of Global Strategy and Analytics. List of questions that we're going to go through and just have a discussion to better understand the company and the current trends that are impacting the industrial warehouse space right now.

So maybe for those who are new to the story, can you provide a brief overview of the company and highlight what differentiates Prologis?

Sure. Thank you for being here. So Prologis, we're the global leader in logistics real estate. We own 1.3 billion square feet of logistics facilities in 20 countries in the world's most dynamic consumption markets. We serve over 6,500 customers in these markets.

What differentiates Prologis is really our scale, the quality of our portfolio as well as all of the platform capabilities we've built adjacent to our business. Let me start with the quality. Our focus over the last 40-plus years has been curating the highest quality portfolio in the highest barrier to supply markets globally. We're in about 100 markets around the world.

And again, the most dynamic consumption centers, the economies represent about 78% of the world GDP. We complement this portfolio with adjacent businesses. We have a scaled strategic capital business. We manage $68 billion of third-party capital through our strategic capital vehicles. We also have an unmatched development platform. We currently own or control 14,000 acres of land that we can build out another 225 million square feet out of that land bank, which represents about $42 billion in total investment.

We also have built an adjacent energy business where we now have over 1.3 gigawatts of power that we generate through our Solar and Storage business. And we have a growing data center platform where we now control 5.6 gigawatts of power. And this model itself has allowed us to compound earnings and intrinsic value through cycles. It's a very unique platform. And given just the size of the opportunity in all aspects of our business, the future is very bright.

That's an excellent overview of a lot of the topics that we're going to discuss today. But maybe just let's get this one right out there. There's obviously a lot of geopolitical and economic uncertainty right now. What are you seeing in leasing activity and customer decision-making today? And how would you compare this period to last year when there was tariff uncertainty?

Yes. If you look back at our last 5, 6 quarters, we've actually continued to break records for leasing other than second quarter last year in 2025 when tariff uncertainty was introduced. We've continued to put up some really significant leasing numbers. We actually broke a record in the first quarter this year, leasing 64 million square feet.

We continue to see our customers very constructive, where we do see them have to take into consideration a lot more decisions, a lot more issues in their decisions given the macro backdrop. We're seeing them continue to make decisions and leasing continues to be as we expected throughout the year.

And I think one interesting thing that came out of the first quarter earnings call was that data center suppliers appear to be a growing segment for warehouse demand, a new demand driver, if you will. So can you provide a bit of color on what you're seeing from this segment?

Certainly a bright spot. Great to see another demand driver here. We had, I believe, about 10% of our leasing -- our new leasing in the first quarter came from these suppliers, these companies focusing on the current data center build-out. You're seeing it in the markets where you're seeing the largest build-outs in Texas, Illinois, Virginia. And again, these are users that are supplying the equipment, the cooling, and they're signing long-term leases. We're seeing at least market term leases. These are not short-term leases to just service the construction. We see this as a potential growing demand driver.

And just kind of given what you -- we have built up to this point, do you believe the market has reached an inflection point in vacancy and fundamentals?

We do, I think, in short, we've described the nature of inflection because it's a complicated term to get everyone's a uniform definition around, but we said we will believe in inflection when we see demand grow and sustain itself, see that translate into occupancy stabilizing and growing. And then in the third phase, that, in turn, translating to positive market rent growth across our markets.

Dan described a general demand environment in the last 6 quarters that's been very productive in that regard. In our portfolio, in particular, we've had growing occupancy over the last 4, 5 quarters now. And that last stage I described is positive market rent growth, which we now did see on a full global basis this last first quarter. So we feel very good about all that reflecting inflection.

So starting to see market rent growth, what needs to happen for that to reaccelerate from here and for pricing power to return in size?

You're going to hit that.

So I'd start by saying that we're facing a phase where vacancies are at a -- we're entering this next phase with vacancies not at a very elevated level, actually at a rather low level, 7.5%. So that presents recovery opportunity. But demand is still not up to a normal level. So it's running 70%, 80% net absorption as a share at normal levels.

So I think the combination of customers increasingly moving on to their front foot. They've absolutely had to navigate a ton of cross currents over the last 2 or 3 years. So I think the demand story is part of it. But then the vacancy story really sets you up for an earlier transition through this inflection phase as compared to prior cycles.

It looks like we have an international investor base in the room today. You have an international portfolio. So maybe you could talk a little bit about where you're seeing the most strength and weakness across your markets globally today.

Yes. The strength has been pretty present over a few years now in LatAm. I would call that out in particular. We're located in Mexico and Brazil. Both have been very strong markets from a perspective of occupancy, market rent growth, also interestingly, development build-to-suit activity.

Japan has been a good market for us in a similar regard. Europe, also interestingly quite stable. I would say about Europe that it has -- had a similar path that the U.S. had going through COVID and its normalization, but all those trends less severe, so it had a better base to recover from.

Around the U.S., Southeast markets have been the strongest. Our more interior central markets have also been surprisingly strong and well poised for -- to lead market rent growth out of this inflection, where some of the coastal markets are beginning their recovery and on their way.

What do you think is driving the stronger markets? What are the factors that are driving like the strength in Latin America, some of the other markets that you called out?

Well, I'd say the primary driver that's really driving most markets, including the U.S. is e-commerce. E-commerce has been a story in the U.S. for 15-plus years now. We continue to see about 100 basis points of penetration a year in e-commerce and retail sales.

And then if you look around Latin America, you look at Brazil, you look at Mexico, they're just 5, 10 years behind. Same thing in Europe. Europe is just -- it's catching up, and that's a major demand driver. I don't know, if you have anything else to add, Chris.

Yes. I'll build on that by just saying the professionalization of supply chain as a global capability where not only is e-commerce bringing the sort of modernizing the retail experience, but also just how supply chains work in Mexico City, in Sao Paulo, even in Europe, right? Europe has really low levels of modern Class A penetration. So I think it's a combo of that e-com being a catalyst, modernization of commerce and then the supply chain to meet those -- that global standard.

And one topic -- one market I wanted to dig in a little bit further into is Southern California. Can you just talk about how you're thinking about that market right now, particularly given its importance to trade flows as well as the broader logistics market?

Sure. We're seeing Southern California improving. We still see it lagging the overall market by 2 to 3 quarters. We've already talked about the U.S. market making its way through this inflection period. And so SoCal is a bit behind there, but I look at our large format space in Southern California.

As a matter of fact, go back to your question a couple of questions ago around strength, large-format spaces, 500,000 square feet and above in the Prologis portfolio globally are over 98% leased and nearly sold out in large-format spaces. We're seeing that same trend in Southern California, where large buildings in the Inland Empire are full. And we look at that market, 24 million consumers.

Our thesis is have the best warehouses close to the consumers, and there's a $2 trillion economy in Southern California. So we see it's improving, and we think it's a good story for the long term given the land scarcity and regulatory barriers to supply.

That's helpful. And then maybe on the topic of development, how are you approaching industrial developments right now, particularly the balance between build-to-suit and speculative projects?

We're encouraged that all this backdrop is giving us more avenues to put that land bank that Dan described to work. Interestingly, in 2024, I mean, supply across the markets generally has been low. Folks should know that, probably about 35%, 40% of pre-COVID levels. That's been increasing again gradually, but supply remains low.

We similarly were quite measured in our development starts. I think of 2024, we only had about $1.5 billion of starts globally for Prologis. And to put that in context, you ought to think of us as developing something on the order of $5 billion per year with $40 billion of opportunity available to us.

So we in the market have been pretty disciplined. Areas of development have been predominantly outside the U.S. in recent years and in build-to-suits. But this is a year where we've increased our development guidance in recognition of these conditions improving. We'll see more spec in the U.S. We expect to get a fair volume of build-to-suit activity as well. And I'm sure we'll get into this in just a moment, but that's all complemented with avenues for development starts in data centers as well.

Yes. So if you're into buzzwords, this is the time to really start to pay attention as we dig into data centers here, how does your push into data centers build on Prologis' core capabilities? What sets your strategy apart?

Yes. When you think about data centers, data centers start with land and then land and power. And we have been focused on energizing our land and our buildings now for a number of years. We've built a large energy team. We have synergies across our platform between our development and our entitlement skill sets, our procurement network that we've got way out in front of procurement for our logistics buildings going back to COVID.

It's a tool that we've built and honed over the years, and that's working very well for us as we get out in front of the long lead items on data centers. So we also built this platform close to these consumption centers, and that's where data centers need to be in the long term. So it really is a very complementary adjacency for us. And we see demand as insatiable right now.

We've got a large customer franchise. We're very proud of our customer franchise. We've really been leaning into these relationships on the hyperscaler front. We've been doing only build-to-suits on the data center front. And basically, all the power that we have control of right now is in some discussion with an investment-grade user. So it's a very natural fit for our development and capital stack.

Maybe sticking with the topic here, how large could data centers become as part of Prologis over time? And how do the returns compare to the logistics business?

I want to finish Dan's remarks with just a plug for the balance sheet, too. Obviously, A-rated balance sheet, huge balance sheet, tremendous access to capital. And in this business, the capital needs are not really for the faint of heart, of course. So we're approaching it in a way that there's a range of dollars to spend here between powered shell and turnkey, as you probably are familiar with those numbers that you can think of it as roughly $3 million a megawatt on the powered shell side, up to $15 million or more on the turnkey side.

So with the gigawatts of power available to us, there's a very large pallet of investment opportunity that we're taking on in the risk-mitigated way that Dan described and build-to-suits and selling assets thereafter. But we are -- with all that capitalization, we've described that we are in exploration of pairing it up with our asset management platform is a better mousetrap to put the opportunity together.

And keeping it going on the data centers, what do you see as the biggest constraint to scaling your data center business? Is it power? Is it capital? Is it execution? Is it a combination of those?

Really, it's power, it's the barriers to entry, certainly more community pushback. So you really need to have a differentiated scaled platform in order to handle all of these issues. I certainly don't -- to Tim's point, don't see capital as a constraint. We're able to diversify that. And as Tim mentioned, we're out exploring as to what the best setup is for the long term. But really, it comes down to power and execution.

Got it. And obviously, a lot of excitement around the data center business, but you have a lot of other ancillary or connected businesses that are important to the narrative here. For example, you have a growing energy business. So can you remind us what that opportunity entails and why you're pursuing it?

Sure. We are unique in the fact that we approach our real estate business with a customer focus. We put the customer at the center of all our decisions. We've heard for years our customers' issues around labor. We see our customers lean into automation. We see them lean into robotics and electrification of their fleet.

And with that comes the need for more power. So with our scale, we're able to take on these challenges. And we've built a large solar and storage business from there. We've got 1.3 gigawatts, as I mentioned earlier, and that's only covering 8% of our roofs globally. So this is a double-digit IRR business.

And again, it's there to service our customers ultimately. And as our customers' demands for power, our logistics, our core logistics buildings go from 5 kilowatt hours per square foot to 25 to 50 with all of these automation and EV and otherwise. It's important for us to be out there solving those problems for them.

And so we've talked about data centers. We've talked about energy and maybe moving to your asset management business. You've launched several new funds in recent quarters. So can you walk through how this business supports the broader platform and what kind of additional vehicles you are pursuing or exploring?

Yes. So at $235 billion of assets, there's really a need to tap all quadrants of capital. And strategic capital or asset management more classically is really the origin of our business back to 40, 45 years ago. So we grew up in that business as we went public and became an owner operator, we kept that business model as a central part of how we create and harvest value.

Typically, you can think of us in most years as developing the volume of real estate I mentioned earlier, let's call it, $5 billion. Our business model has been to build those assets and offer them up to these core vehicles to own them thereafter, recycling capital, and that's been the methodology for harvesting not only that development value creation, but adding fee streams, et cetera.

So it's a core central part of our business. It is something that very much differentiates us. At the same time, it's a landscape that's been evolving. The flavors of capital wanting to come into the business have evolved. The nature of how LPs want to consolidate around individual GPs has evolved.

So we've been very much aware of that. That's what's given rise to a number of the new vehicles that you've seen us launch pretty successfully, I'll say, 5 new vehicles in the last few quarters. And it's all in an effort to continue to grow that business over time as a real differentiator on long-term compounding of growth.

Got it. And we've talked about a lot so far today. Maybe just putting it all together, how do you think about Prologis' long-term earnings growth potential from here?

Yes. We've -- look, we've described it as high single digits long-term earnings growth potential begins with the foundation on same-store growth at its simplest, of course. That is the core of our business. It's the bulk of our revenues. We feel great about where that business is today, not only the inflection that we're seeing we're seeing occurring, but also the secular drivers here on the demand side from continued growth in e-commerce and on the supply side, continued challenges.

So all of those inputs to same-store growth, we feel good about. We will lever that through the balance sheet, both financially and in operations. Those are the core building blocks on your way to high single digits. But the real differentiator is the value creation engine. What we can add in terms of value creation, investing that value back into the balance sheet and the compounding and recycling model I described is a differentiator.

And then the adjacent businesses that you've done a nice job of helping us highlight here are all incremental to that growth. So we feel very good about the mousetrap that we've built and built an engine here that also is very favorable to the customer at the same time.

Well, we've touched on a lot of the key things here today. So I'll just kind of pass it back to you. Is there anything else that you want to message to this audience? Anything else that we missed that you think is important or anything else that you'd like to share with the group?

I just think the sheer size of the opportunity across our platform, 1.3 billion square feet, we have a 17% mark-to-market in that portfolio. Just churning through our leases over the coming years, $750 million worth of revenue will drop to the bottom line.

Huge growth, just executing our business, our core business. The development platform, it's unmatched. It's 14,000 acres of land in cities closest to these consumption centers. And $42 billion worth of opportunity at our historical margin of 29%, that ends up being $54 billion worth of logistics buildings on top of our $235 billion worth of AUM.

5.6 gigawatts of power, 1.8 gigawatts of that is secured, 3.9 gigawatts is in its advanced stages. So we'll have that ready for development in the next year or so. All of this power is in some sort of discussion with an investment-grade customer, a hyperscaler, all with a build-to-suit approach.

Our strategic capital platform at $68 billion and growing. We talked about a few new vehicles. That's a huge growth engine as well. So the opportunity set across all aspects of our business is like we've never seen before.

That was amazing. So let's leave it right there. So please join me in thanking the Prologis' team here today.

Greetings, and welcome to the Prologis Q1 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Justin Meng, Senior Vice President, Head of Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Welcome to our first quarter 2026 earnings conference call. Joining us today are Dan Letter, CEO; Tim Arndt, CFO; and Chris Caton, Managing Director. I'd like to note that this call will contain forward-looking statements within the meaning of federal securities laws and including statements regarding our outlook, expectations and future performance. These statements are based on the current assumptions and are subject to risks and uncertainties and that could cause actual results to differ materially.

Please refer to our SEC filings for a discussion of these risks. We undertake no obligation to update any forward-looking statements. Additionally, during this call, we will discuss certain financial measures such as FFO and EBITDA that are non-GAAP. And in accordance with Reg G, we have provided a reconciliation to the most directly comparable GAAP measures in our first quarter earnings press release and supplemental. Both are available on our website at www.prologis.com. And with that, I will hand the call over to Dan.

Thank you, Justin. Good morning, and thank you for joining us. We entered 2026 with solid momentum, and we saw that continue in our first quarter results. While the geopolitical backdrop has become more uncertain in recent weeks, our business continues to perform at a very high level, supported by resilient demand, disciplined execution and the strength and scale of our global platform. Last quarter, we outlined our top 3 priorities for the business. Let me highlight how our strategy is translating into results across operations, value creation and capital formation. First, we delivered another quarter of record leasing with 64 million square feet of signings supported by both strong retention and healthy new leasing activity. Occupancy exceeded our expectations, and we are raising our full year outlook. Second, we are putting our land bank to work across logistics and data centers with $2.1 billion of starts in the quarter, of which $1.3 billion was data center build-to-suits. The depth of customer interest for our data center offerings is significant, and we believe our ability to bring together land, power and development expertise is a key differentiator for our business and positions us to capture a growing share of this opportunity. And third, we are expanding our strategic capital platform. We announced a $1.6 billion joint venture with GIC and subsequent to quarter end, a $1.2 billion joint venture with La Caisse. These partnerships reflect strong investor demand for our platform and our ability to deploy capital into high-quality opportunities worldwide.

Taken together, these initiatives reinforce a simple point. We are building a broader, more resilient platform, one that is positioned to compound growth over time. Before I pass the call to Tim, let me briefly address the geopolitical backdrop. The conflict in the Middle East has introduced yet another source of economic uncertainty, most directly through higher energy prices and renewed pressure on inflation and interest rates. Rather than speculate, I'll focus on what we are seeing in our data, what we're hearing from our customers and how we are operating the business. Our lease signings, proposal volume and build-to-suit pipeline point to continued strength in underlying demand. In fact, March was a very active month for new leasing. By comparison, when our business faced abrupt tariff-related uncertainty in April of 2025, the pause in leasing activity was relatively immediate before flowing out in the following weeks and months. At the same time, our customer insights are grounded in direct ongoing engagement with hundreds of real-time interactions each quarter. Seven weeks into this conflict, most are actively monitoring the situation and they are telling us 2026 business plans are unchanged.

The risk today is that uncertainty slows customer decision-making. We have not seen meaningful evidence of that to date. That said, we're operating with a heightened level of awareness guided by the same discipline that has defined our business for decades. This is a time-tested platform and the structural drivers of growth across logistics, digital infrastructure and energy remain firmly in place. And with that, I'll hand the call to Tim to walk you through our results and outlook.

Thank you, Dan. Turning straight to our results. We delivered a solid quarter, executing well against our strategic priorities in a dynamic environment. First quarter core FFO was $1.50 per share, including net promote expense and $1.52 per share, excluding this expense, each ahead of our expectations. We ended the quarter with occupancy of 95.3%, reflecting the seasonal drop we telegraphed and typically experience each first quarter. Retention remained very strong at nearly 76%. Net effective rent change was more muted this quarter at 32%, driven primarily by market mix. Our expectation for full year rent change to approach 40% on a net effective basis remains unchanged. Our lease mark-to-market ended the quarter at 17% on a net effective basis. The rate of decline has slowed meaningfully, due in part by an uptick in market rents this quarter, the first increase in 2.5 years. Our lease mark-to-market represents approximately $750 million of embedded NOI at spot rents, which, of course, do not reflect the replacement cost rent upside, which should materialize over time as occupancies improve.

Same-store NOI growth was 6.1% on a net effective basis and 8.8% on cash. In addition to the year-over-year occupancy increase and the growing contribution of rent change, the period also benefited from unusually low bad debt. In terms of capital deployment, we had a fantastic quarter. We started $2.1 billion of new development, including $850 million in logistics and $1.3 billion in 2 data center projects. Within logistics, approximately 75% of the starts were speculative, reflecting improving fundamentals and our confidence in the need for new supply across many of our markets. Our data center starts totaled 350 megawatts between 1 ground-up development at an existing campus and 1 conversion out of our portfolio. Both projects are pre-leased on a long-term basis to leading technology companies with strong investment-grade credit. Customer interest in our powered sites is exceptional with 1.3 gigawatts under LOI and all of our power pipeline in some level of discussion.

We ended the quarter with 5.6 gigawatts of energy either secured or in advanced stages which reflects the stabilization of another 150-megawatt facility during the quarter. Simply assuming a power cell format at $3 million per megawatt, our current pipeline could provide well over $15 billion of investment and multiples of that in a turnkey format, creating significant potential for value creation. Continue to scale our solar and storage business, meaning customer demand and completing 42 projects during the quarter, bringing us to a total of 1.3 gigawatts of installed capacity. In terms of capital recycling, we sold or contributed approximately $1.2 billion of assets during the quarter. This included initial activity within the U.S. Agility Fund announced last quarter as well as seed assets for our new venture with GIC.

Before turning to our markets, I'd like to take a moment to highlight that we marked the 10-year anniversary of Prologis Ventures, our corporate venture capital arm. We've now invested $300 million across more than 50 companies providing visibility to emerging technologies and solutions in the supply chain to stay ahead of disruption, drive innovation and discover new opportunities. Overall, we progressed further through the stages of inflection with demand strengthening vacancy topping out and an increase in the number of markets providing positive rent growth. Our U.S. markets absorbed 45 million square feet, a solid result on a seasonally adjusted basis, slightly ahead of our forecast and consistent with our own leasing experience in the quarter. The U.S. vacancy rate was flat sequentially at 7.5%, aided by lower completion levels as the construction pipeline remains favorable at just 1.7% of stock compared to a 10-year average of 2.6%. We still expect a relative balance between supply and demand, which would allow vacancy to drift lower over the year.

Globally, market rents grew 30 basis points during the quarter. And barring an economic slowdown, we expect growth to continue, although it may be uneven quarter-to-quarter as conditions firm. In the U.S., the strongest growth remains in many of our Central and Southeast markets, while Latin America, Western Europe, the U.K. and Japan stand out internationally. Southern California is performing in line with our expectations, which is to say it is improving but will lag other markets. We're seeing stronger leasing activity and a more constructive tone from customers and vacancy has increased modestly and rents have declined slightly, again, both consistent with our outlook as the market continues to progress through its earlier stages of inflection.

Moving to our customers. Our recent leasing has been supported by a broader mix of transactions across both size category and geography. Even after delivering record leasing in the quarter, our pipeline has not only replenished but in fact, reached new highs reflecting strong underlying and ongoing demand. With large space format now essentially sold out in our portfolio, we're seeing activity broaden into other unit sizes alongside strength in our build-to-suit demand where our pipeline continues to be healthy. From a segment perspective, demand remains strong in essential goods and e-commerce, with increasing momentum among data center suppliers. Decision-making is marginally slower, the leasing activity remains robust, and we have not seen any meaningful evidence of pullback. In capital markets, transaction volumes have increased with an encouraging amount of product currently in the market across core, core plus and value-add strategies and spanning both single asset and portfolio transactions. What stands out is the pricing premium for quality. Assets with strong locations, functionality and credit are attracting the deepest buyer pools with cap rates on market rents around 5% and unlevered IRRs in the mid-7s.

Turning to strategic capital. We closed commitments for 3 additional vehicles, including a new venture with GIC, which will develop and hold U.S. build-to-suit opportunities and an expansion of our relationship with La Caisse through a pan-European venture focused on both development and acquisition strategies. We also launched a new acquisition vehicle in Japan. Between these ventures as well as the Agility Fund and CREIT closings announced last quarter, we've raised over $2.6 billion of third-party equity, aligning capital with growing investment opportunities in a more accretive format. And finally, on our balance sheet, we raised $5.5 billion in new financing during the quarter at a weighted average rate of approximately 3.75%. This includes the $3 billion recast of one of our 3 credit facilities at a spread of just 63 basis points, the lowest of any REIT. Turning to guidance, which I'll review at our share. We are increasing our forecast for average occupancy to a range of 95% to [indiscernible]. This increase, together with our first quarter outperformance drives our expectations for net effective same-store growth to 4.75% to 5.5% and cash growth to 6.25% to 7%. And Strategic capital revenue is now expected to range between $660 million and $680 million, and G&A is expected to range between $510 million and $525 million.

As for deployment, we are increasing development starts to $4.5 billion to $5.5 billion, this on an own and managed basis with approximately 40% allocated to data center build-to-suits. Acquisitions will continue to range between $1 billion and $1.5 billion, and our combined contribution and disposition activity will range between $3.5 billion and $4.5 billion, all at our share. Putting it together, our strong start has us increasing our outlook on earnings. Net earnings will range between $3.80 and $4.05 per share. Core FFO, including net promote expense will range between $6.07 and $6.23 per share, while core FFO, excluding net promote expense will range between $6.12 and $6.28 per share an 80 basis point increase from our prior midpoint.

In closing, the strength of our business is evident against the backdrop of ongoing volatility. We are anchored by a portfolio of irreplaceable assets generating durable and growing cash flows, a disciplined approach to capital deployment, a scaled asset management platform and a fortress balance sheet. At the same time, we continue to expand in our adjacent businesses in energy and data centers, providing additional avenues for growth. We're excited by the strong start we've had, are proud of our team's execution and are well positioned to deliver excellent results over the balance of the year. With that, I'll turn the call back to the operator for your questions.

[Operator Instructions] And your first question comes from Ronald Kamden with Morgan Stanley.

Great. Congrats on the record leasing in the quarter. And I think I heard you mention that the pipeline is also back at record. I guess my question is just on the leasing spread. That looks like slightly [indiscernible] in the quarter. Just any comments there and how you guys are thinking about occupancy versus pricing going forward for the rest of the year?

Ron, yes, the quarter, I mentioned there was some mix going on in the numbers you see about 40% of the role by happen stands happen to be in our West region in the U.S. where we have some softer conditions and lower lease mark-to-market, as you're aware. So that impacted both rent change and things like free rent that you'll see in the SEP. In terms of balancing around occupancy and rent change, it's really not only market by market, it's really deal by deal. I would say out there, we have a pretty wide mix of market conditions, as you know, some exceedingly tight and some still soft, and that can happen at the submarket or even the unit level. So I'd say, in aggregate, we are in a mode of pushing rents in a number of markets and situations. But still preserving for some occupancy.

Your next question comes from Michael Griffin with Evercore ISI.

Just wanted to ask on the data center development leasing front. It obviously seems like some good news announced in the quarter. But mean is there a worry we've heard things in the news around data center development opportunities around the country, getting shelved the local municipalities pushing back. Is that a risk for this pipeline? Or do you feel for these projects you've got underway even with the secured power that you're able to go forward and lease these and ultimately create that value that you've been talking about?

Michael, this is Dan. So our pipeline in the build-to-suit for data centers is very strong. You saw these 2 starts that we announced this quarter. We've been guiding for the year for the first time on what we expect to see. We've got 1.3 gigawatts of deals under LOI, and we're making further progress converting the pipeline I feel really good about what we have going. And I think that accounts for the next 3 years' worth of business and everything we're hearing from our customers is they need the space.

The next question comes from Craig Mailman with Citi.

It's Nick Joseph here with Craig. I appreciate the added disclosure on the data centers what we assume development margins on the new starts this quarter? I think in the past, you've talked about 25% to 50% margin. So how do these starts compared to that range?

So when you look at our start volume for the quarter, then obviously the blend of both our logistics that includes build-to-suits. It includes spec, where we've more spec going on this quarter than we've had the last several quarters. And then on the data center front, I would keep it within the range that you've heard us talk about the last few years, it's 25% to 50% better or higher than what you see in our typical logistics margins.

Your next question comes from Blaine Heck with Wells Fargo.

It seems as though average occupancy outperformed expectations during the quarter. I know you guys raised the guidance slightly, but given that the occupancy guidance doesn't lead much upside from Q1, is there anything kind of timing related that happened such that where we could see some more downside in Q2 than was initially expected? Or is there just maybe some conservatism in that guidance since we're still early in the year. And as Dan mentioned, visibility is somewhat more challenged.

Blaine, we outperformed average occupancy by around 20 basis points in the quarter. You see a lift in our full year using the midpoint of our guidance of around [indiscernible] points. So in excess of that, that reflects 2 things. There is one, some pulling forward of occupancy, mainly that's going to manifest in the form of surprise renewals, that kind of thing. And then also reflects the strength of the pipeline. As I mentioned, we had a lot of activity both in signings. That's half of it, but then the overall size of proposals standing today is large enough that gives us the confidence for the rest of the piece of that race.

Next, we have Andrew Berger with Bank of America.

It sounds like 1Q net absorption was a bit ahead of your expectation. Can you just share your latest views on the fundamental outlook for 2026?

Sure, it's Chris. So our view is unchanged. We're moving through the inflection phase, as Dan and Tim described in the script. There's very little change to our view. That's net absorption on pace to approach 200 million square feet and completions, 190 million square feet this year. So that will see rents and occupancies, market rents and occupancy is improving over the year. So like you proposed there, like you described, Q1 was modestly better. And -- but we're going to hold our core assumptions. This is a macro landscape that's going to evolve over the course of the year. It will be shaped by the magnitude and duration of the conflict in the Middle East. And so our outlook is balancing that risk against what we see which is resilient customer demand, as Dan described in his prepared remarks, we also leveraged the economic consensus. And they have been marking to market their view, taking it down sometimes 40 basis points in the back half of the year. But look, stepping back, the baseline view is intact, and there is ongoing momentum in the marketplace.

Next, we have Nicholas Yulico with Scotiabank.

I just want to turn back to some of the market commentary on -- which was helpful. Wanted to see if we could get a little bit more details on some of the U.S. laggard markets. I know you already talked about Southern California, but perhaps New York, New Jersey, other markets that maybe aren't outperforming what kind of needs to change to get better rent growth there. And then in terms of the Europe exposure, if you could just also talk about non-U.K. countries and sort of latest feeling you're hearing from customers since there is a lot of questions about how energy prices in Europe could affect the economy over there.

It's Chris. I'll jump in. So first off, in the U.S., there are 3 or 4 things to reflect on. Number one, there is a growing range of healthy geographies in the U.S. Places like Texas generally, South Houston and Dallas are either strong or healthy, Atlanta and increasingly some of the Midwest markets, something about Columbia, something about Indianapolis. So there's that strength that Tim described in his prepared remarks. Yes, specifically after soft markets, the 2 softest markets are probably L.A. County and Seattle in the United States. Those are areas where vacancy rates are very elevated relative to history. The pace of incoming demand is muted. And so the recovery is yet to play out there. In terms of some core markets, you asked after New York, New Jersey, I'd also throw in San Francisco Bay Area. These are areas where we're upgrading our views. In general now, we're entering a phase where we're upgrading our assessment of markets and New York, New Jersey is a great example of it.

Is it time for rent growth there? No, not quite yet. This is a year where we're going through a transition phase like we've talked about, but it's just worth knowing that we have a bias to upgrading areas. Vacancy rates have peaked are beginning to come down toning customer demand is positive. Turning to Europe. So first off, the Western European geographies of like Germany and the Netherlands are leading that marketplace. And we have the dialogue that was described in the prepared remarks, we have it globally, and that includes your Euro and the tone there is positive. Business plans are intact and customers are moving forward with their real estate requirements.

Maybe one thing I would add on here is just focusing on the unit size or building size, anything over, call it, large format, 500,000 square feet or above, we're nearly sold out. We're 98% leased across the globe at that size. So you'll start seeing rent growth there, certainly.

Next, we have Vikram Malhotra with Mizuho.

Congrats on the strong quarter. Just 2 clarifications. So I think last quarter, you had said as we enter the back half of the year, we'd like to see some markets where annualized rent growth could maybe eclipse your rent bumps I'm just wondering if you can give us a bit more color, like what -- which markets are you seeing real rent growth on an annualized basis? And then if you can just clarify on the same-store NOI outlook, the cash outlook, given the number you had in it does suggest a decel. So what's sort of driving that? Or I guess, what drove the big pop in 1Q versus the guide?

Vikram, I'll start with market rent growth, and Tim will take some of the same-store questions. I like the way you worded the question there trying to get really specific numbers out of me. I don't recall that we would have put it that way. But let me just tell you the healthiest geographies including in Atlanta, Dallas, Houston, Columbus, also outside the U.S. places in Latin America like Sao Paulo and the Mexico City, these are the leading geographies for rent growth.

And Vikram, on the cash piece, yes, our guidance reflects our expectations clearly, the first quarter is benefiting from some occupancy comps a bit more favorable in the first quarter about the cadence of 2025. We built occupancy over the course of that year. So those comps get to be a lesser effect and then rent change, of course, is powerful rolling through the portfolio. But on a year-over-year basis, as spreads get a little bit more relaxed, that contributes lesser to quarter-over-quarter -- well, sorry, year-over-year for the same quarters in terms of same-store.

Next, we have Tom Catherwood with BTIG.

Excellent. Maybe going back to the data centers for a second. Even when power is secured, it seems like there's a supply chain crunch on the equipment side, which is creating bottlenecks, especially with turnkey developments. Are you able to get ahead of that by preordering material and equipment similar to what you did during the pandemic? And if so, is it giving you an advantage when it comes to your build-to-suit negotiations?

Thanks, Tom. The short answer is yes, absolutely. Procurement, our fortress of a balance sheet and ability to get out in front of these long lead items is absolutely a differentiator for us. And what I'd say is just overall, this machine we've built and that we focused on so much over the last 3 years around building these capabilities across this company, whether it be procurement, data center expertise we've built in a big way over the last few years. It's leading to this pipeline that you see and the confidence that we have in putting these numbers out there and I'll actually correct something I said earlier on today and an earlier question around margins. Margins are actually 25% to 50%, not 25% to 50% better than logistics. And these are very profitable deals. Keeping in mind, our pipeline is built on the foundation of logistics basis, buildings and land.

Next, we have Caitlin Burrows with Goldman Sachs.

You might have touched on this a bit in the prepared remarks in terms of 3 points of focus. But Tim, you mentioned the new GIC and La Caisse JVs the acquisition vehicle in Japan, the Agility Fund. It just seems like a lot. So I'm wondering if there's some new increased focus on the strategic capital business, are those coincidental timing? Or is there some bigger push kind of on the fund side? And is there any core differences between these new funds and the existing ones?

Kate. Look, we're really proud and excited of the number of vehicles. We've launch now in the last 2 quarters, 5 new vehicles, spanning geographies and formats, but also risk appetite. One thing that you see between the U.S. Agility funds launched last quarter, as well as the venture announced here is spanning into some development activities. And it's very purposeful. We're getting ahead of what we see as growing deployment volumes on one part in logistics, you see us ramping up our guidance there as markets are improving. This is a machine that ought to be able to do $5 billion to $6 billion pretty easily, I would say, with our land bank and the size of our platform. But that's being matched up with this incredible data center opportunity that Dan is speaking to. And we are looking at the capital needs there and finding the right ways to get to all of those opportunities. actually in a smarter, more capital-efficient format that can yield fees and promotes. So you're seeing that branching now to exhibited in the announcement of these vehicles.

Next, we have Michael Goldsmith with UBS.

Lease proposal pipelines picked up quite a bit in the first quarter here. So can you provide a little bit more context around it? What's driving it? What sectors is coming from, what sizes and how should that translate to actual leasing in the current quarters.

It's Chris. So what's underpinning that is customers have been deferring growth requirements sitting through -- sitting on their net needs and they're increasingly responding to the growth in their businesses, the opportunity to invest in their supply chains and as far as slices, it's diverse. So there are a couple of different ways we can look at it, whether it's by size. And so there's growth, say, for example, both above and below 100,000 square foot unit sizes. There's growth, for example, in terms of organizational types. So say international scale customers versus our local scale customers. Those are both growing as well as both renewal and new requirements. So there is diversity there.

Next, we have Vince Tibone with Green Street.

I wanted to follow up on your comment that data center suppliers are increasingly taking down logistics warehouse I just wanted to get your perspective on how material this demand driver could be in the coming years and also how sustainable? Like is it all tied to construction and this could be shorter-term leases? Or is this about servicing existing data centers as well. So I just -- yes, I'm trying to get a sense of like how -- is this a new structural demand driver for the space, what percentage of new leases maybe it's represented in last quarter or 2, if you're able to share. I just wanted to kind of pick your brain on that kind of seemingly new side of warehouse demand.

Yes, Vince, you're right. It is a new structural driver of logistics real estate demand. It has gone from, say, less than 5% of new leasing a year ago to now 10% of new leasing, and it's an even greater share of the forward-looking pipeline. So there's absolutely upside over the near term as a consequence of this driver. In terms of the breadth and duration, I suppose, number one, we see them signing deals with really healthy term. There is a shift in their own supply chains going from -- I think you could think about it as unbundling manufacturing and distribution to having distribution, a more regionalized and close than production of the data centers. And so there's really solid momentum here, and you're right to describe it as a new structural driver for logistics real estate.

Next we have Michael Carroll with RBC Capital Markets.

With regard to the data center opportunity, how do these tenants discussions progress when deciding between pursuing a power base or a turnkey build-out I'm assuming these are different tenants that would want the power base builds. Is that fair? And how much of the opportunity that you kind of quoted in your prepared remarks could potentially be turnkey.

Every discussion, every deal is different, let's put it that way. And different users have different mindsets at different periods of time. So -- what you see from us, we were heavily focused on the powered shell side of this as you start these discussions. And then we've -- you've seen us deliver some powered shell plus really, we're trying to just work through the customer what they need from us and about how we capitalize this business longer term, maybe you see some more turnkey from us over time, but really, it's just a matter of who your -- what customer you're talking to and what's on their mind at the time. And...

Yes. And yield, what is their respective cost of capital is the other thing I see us coming up against because the migration up to turnkey can be expensive.

Next up, we have Nick Thillman with Baird.

Tim, I wanted to circle back on some of the commentary you had on the acquisition side and cap rates. Obviously, varying degrees of demand from a fundamental standpoint and the leasing side. understand your comments on just core portfolio transactions and quality buys, but it seems historically relative to historical trends, just cap rates by market or historically tight. I'm wondering if you guys could provide a little bit more commentary on markets where maybe you're seeing cap rates expand a little bit more? Or maybe you're seeing a little bit more compression on the transaction side.

Nick, I would say cap rates certainly expanded over the last few years. They've been holding pretty steady for the last 5, 6 quarters or so. We obviously dive deep into this volumes. Volumes themselves are actually, I would say, normalized. And so -- and those cap rates at a market it's going to be a range between 5% and 5.5% depending on the location quality. You're seeing more of a divergence of Class B and C than obviously that collapsed during the last cycle. And when you look at -- when we look at it, what we are an IRR-based investor, we're not focused necessarily -- of course, we're focused on it, but we're looking at the total return of these assets, quality, total return location. And so cap rates can be a bit confusing at times.

Next, we have Mike Mueller with JPMorgan.

For GIC and La Caisse. Can you give some color on how you determine what developments will be done in those ventures versus on your balance sheet?

Mike, we go through an allocation policy that is long-standing at the company. Now as you can imagine, our 40 years as an asset manager. We've had overlapping vehicles with mandates that need to be managed, so we have an allocation policy in that regard that deals will cycle through. It could find any of those vehicles, including the balance sheet has been the ultimate developer of some of these assets, and it's dependent on a variety of conditions that are run with good governance I think that makes your lives difficult if you were left only that which is a way of saying you're going to be increasingly reliant on the PLD share of these development volumes. So that will cut through all that noise for you because ultimately, that's the thing that's going to matter economically for the company.

Next, we have Brendan Lynch with Barclays.

It looks like turnover costs per square foot are coming down, I think now about 7.3% of lease value, but free rent has ticked up a bit. So how should we think about the evolution of concessions going forward?

Well, I'll start. Concessions are still a bit elevated right now. We've seen free rent, as you highlight, stepped up. I said earlier, so I'll say it again, some of that influenced by the greater amount of roll out of the west where those conditions are softer and concessions are a bit more elevated. We do expect concessions to normalize as occupancies build, which that's on the free rent metric would be more in the order of something like 3% of lease value versus a little bit of a bulge that you see at the moment.

Next, we have John Kim with BMO Capital Markets.

On data centers, I wanted to see if there was an update on the timing of your data center vehicle. And also if you can just clarify the 5.6 gigawatt of capacity, is that on growth or leasable power?

Sure. So let me start with the capitalization fees, maybe hand it to Kim -- or Tim, for some color. But bottom line is we've had very constructive conversations with global investors over the last 2.5 quarters or so. And interest remains very strong. We feel like we're in a very good position with multiple options. And we're just taking the time to evaluate what makes the most sense for us right now. Our current model of building on the balance sheet and then selling these stabilized assets has worked really well the last couple of years, and we see it working quite well going forward. I'd like to actually step back at this point and realize what we've done over the last few years, and I already mentioned it at the front end of the call, but the pipeline we've built, the capabilities we've built and the progress we've made since we embarked on this officially call it Investor Day 2023 has been tremendous. So feel great about what we're putting in front of these investors and where we're going to take it from here. But Tim may have some additional color on the capitalization piece.

Look, I think you covered it well. Happy to take other questions. I think the second part of your question dealt with clarification on the megawatts that is utility load that we're reporting out, and there's going to be -- probably 2/3 of that will be critical, so you can apply math based on those numbers.

Next, we have Todd Thomas with KeyBanc Capital Markets.

I just wanted to go back to the discussion on market rent growth, and I appreciate some of the color and good to see the first increase in, I think, 2.5 years, as you said. Do you expect market rent growth to persist just given where conditions are at this point in the cycle? And then I know you touched on SoCal, but can you share a little bit more detail on that market and a bit of a real-time read on what you're seeing and how conditions are currently and how the market is performing relative to expectations so far this year?

It's Chris. I'll start and Dan may add remarks as well. So first off, on market rent growth, one, underline the word stability. We did have a bit of growth in the first quarter is pretty incremental. And that is really a market-by-market exercise, with most markets enjoying stable to slightly rising. But with there being pockets of real strength like we discussed earlier on the call, as well as some pockets of softness like we also discussed. So I think what you should think about is our call is unchanged, but we're passing through an inflection. Rent growth is still a little bit uneven, and it's just a bit too early for broad-based and sustained growth. I'll offer a few details on Southern California. That is a market that is moving through the bottoming process. We're seeing the demand pick up. Vacancy is near a trough, but it's just a bit too early for rents to increase on a broad base. but there are pockets that are firming.

Yes. Let me just pile on a little bit here in Southern California. I feel like I've said this quite a bit over the last 1.5 years or so in various meetings. But I think it's really important to emphasize just how big of a market Southern California is and what are Os in these markets. We're focused on being close to the end consumer. There are 24 million consumers in Southern California. It's a $2 trillion economy down there and it's just getting more and more difficult to build down there. So the supply backdrop is really shaping up for that market quite well. And so we're -- we feel good about the projection we've made about Southern California kind of tailing the overall market by 2 to 3 quarters.

That was the last question. So thank you all for joining the call. Just a big thank you to our colleagues around the world for another exceptional quarter. We look forward to seeing you all at upcoming conferences and speaking again at the next quarterly call. Thank you.

Thank you. And with that, we conclude today's conference call. All parties may disconnect. Thank you.

Good morning, everyone. Thanks for joining us for the presentation of Prologis. My name is [ Dave Rodgers ], I'm a senior REIT analyst here with Raymond James. And happy to introduce Prologis' CFO, Tim Arndt; and Director of Investor Relations, Abhishek Kastiya in the audience as well, and they'll be available for the breakout session afterwards. But I want to turn it over to Tim for a presentation, and I'll jump back in with Q&A later. But Tim, thanks for being here.

Yes. Thanks, Dave, and good morning, everybody. Very happy to be here. We love this conference. As Dave mentioned, I'm the CFO of Prologis. I've been with the company for little over 20 years at this point, so seen a lot of the evolution of our space. And I can tell you, the company is at a very exciting point right now.

Just to describe the company in a bit, we are the world's largest logistics REIT. We have 1.3 billion square feet of distribution and warehouse facility around the globe. We're situated in 20 countries. And we find ourselves at a point now where we've become very critical to both logistics infrastructure, but also increasingly around digital infrastructure, which is to say data centers, and we'll talk about the value creation opportunity we see in that business. But both of them also combining and creating a very interesting opportunity around energy. And in the data center business, energy is very thematic and critical, but it's also in logistics. And I'll talk a little bit about the ways that we're participating in that value creation and providing solutions to our customers.

Just a snapshot of the company. We're a very large owner of real estate. We have about $240 billion of AUM today. About $170 billion of that is on our own balance sheet is in our enterprise value. The difference that $70 billion is in third-party equity capital in an asset management business we refer to as our strategic capital business. I'll talk a little bit about that.

But when you look at our footprint, you can see we cover a major part of the global economy. We estimate that about 3% of global GDP passes through a Prologis facility. So we have an incredible footprint to leverage the growth of all of these businesses off of.

If you think about like, well, who are we serving, just a snapshot of the kinds of customers in our logistics business that are in our rent roll. Our largest customer is in Amazon, so you're going to think about them as about 5% of our rent roll. In our view, I think we believe we are their largest landlord on the flip side, but a very diversified footprint of customers.

And we think of demand in our portfolio as really stemming from 3 broad areas. The first is just around consumer spending, basic daily needs, food and beverage, apparel, small electronics, et cetera. That probably drives about 40% of our leasing volume. Also the associated transportation and third-party logistics providers that serve those businesses.

The next segment would be more around secular drivers of demand that would deal -- I'm sorry, cyclical, rather -- that would deal with lifestyle upgrades, housing, auto-related. This will probably be a component that is undercontributing at this point. And you can imagine that in the state of the economy right now, the first of those is strongest. And the last will be around secular driver of demand, which is really to say e-commerce, where we continue to see penetration in e-commerce as a percentage of retail sales.

And the reason that it's important, if you don't know, is that the intensity of warehouse space use in e-commerce is much higher. So every time you have migration of sales moving out of brick-and-mortar over into e-commerce, there's this multiplier on the space need, which is what has been propelling our space for the last 15 years or so. But it's continuing to run, and we're seeing e-commerce drivers of demand, very strong in our business still.

Our portfolio, this is a snapshot of the U.S., which is our largest market. Europe would be second, followed by Japan and LatAm. But using the U.S. as a prototype, you see the kind of markets we're focused in. There's been a lot of discussion in recent years, of course, around tariffs and how do tariffs impact trade and demand in our space.

What you need to know about Prologis is that we're focused on the end consumer in the end. And so while the tariffs affect the macro and we're watching all those headlines, when the questions come at us around, well, what does it mean to where goods are produced? And is it moving from China to LatAm to Europe? How does that affect your business? You can see, well, we are relatively agnostic to that because what matters to us is that goods are continuing to be consumed at the highest rates in the markets we're in, L.A., San Francisco, New York, Tokyo, London, Paris, et cetera.

And the other characteristic of these markets is that we're going to tend to favor higher barrier to new supply markets, either on the market itself or with regard to the submarkets. When we are in close in submarkets in any of these locations around the globe, we like to highlight that they're not making any more land. And logistics is a very high land use for what it is. So the ability to get competitive product in and around our standing 1.3 billion square feet is very, very difficult.

In addition to our operating business, we are also a very large developer of logistics space. This dovetails with a discussion we'll have around data centers here in a moment. But on logistics space, you can see we've built out an incredible amount of our portfolio, about $30 billion. I'm sorry, $50 billion, $30 billion outside of the U.S. I would think of Prologis as developing on the order of $4 billion to $5 billion of new logistics facilities every year. That's going to be 80 to 100 projects around our markets.

What's important is that we own or control through options, a land bank where we can develop the next $43 billion of logistics facilities, which is 8 to 10 years of runway on development, which is very high. We used to target having maybe 3 to 5 years of land bank to build out. But the opportunity that we have in front of us is very large. And when you compound that investment, when you match it up against the track record on margin realization, the 29.1% below there, that's a very strong amount of value creation embedded in growth ahead for the company.

So let's talk about data centers, and I'll start just by saying that we are not a data center company per se. We are a logistics company. But what we see here is an incredible opportunity to develop new assets or convert logistics assets to data centers. This has always been a profile of our investment strategy. We always believe that logistics will have a good case for higher and better use opportunities given where our assets are located, not only in premier markets, but close into consumers. And we've seen that episodically over the last decades where a logistics park will become a Facebook's campus. They come in and buy the warehouses, tear them down and build a new office campus, have these conversions in retail, life science, et cetera, over the years.

It just so happens that the opportunity in data centers is the most prolific, profound opportunity where the demand is so large. And also, it probably does not entail tearing down the logistics building because most of these buildings look and feel like a data center. Anyway, they're just in need of energization and then certain mechanical cooling, HVAC power upgrades to facilitate the data center use. And we have 6,000 buildings as a palette to look for opportunities on and 14,000 acres of land, as I just referenced on the previous slide.

So if you think about companies out there engaging in data center development, it is very rare that any of them would have such an incredible palette of -- you need a few ingredients, real estate, power and then the development capability. The real estate, we just have income producing in our portfolio. And any time we see a higher, better use opportunity, we're going to engage on it.

The second piece is the data -- I'm sorry, the power piece. And that's what you see here. We have now amassed 5.7 gigawatts of power, 1.8 gigawatts of that secured, the remaining 3.9 in advanced stages. You should think about the time horizon on those categories as roughly 3 years in the former, maybe 5 to 6 years in the latter. But that's plenty of runway. And all of these gigawatts are in some phase of discussion with large hyperscalers predominantly for use.

Now -- and I'll come back to Q&A in just a moment. I'll just say that this not being our core business, the way we're executing on this strategy and getting to the value creation opportunity that we see here, some illustrations of what that could be is we're executing this in a build-to-suit format only. So we're not building data centers speculatively. That's a very critical way that we're derisking what this business could be for Prologis.

And then similarly, in terms of the long-term use of the facility that's not been our core business, we're exiting these assets at their stabilization. So after we energize it, lease it and build it and the customers moved in and has stabilized, we have been taking these assets back out to market and selling them to a long-term owner.

I mentioned earlier, asset management business that we have at Prologis. You can imagine -- and banks approach us all the time with their ideas to kind of combine these business lines, which may have a lot of merit, which is to utilize third-party capital to sell down the interest instead of an outright sale, generate a fee stream, keep some residual option value in the assets for the future, particularly well located data centers that have ample power. That may be an asset we indeed want to have some foothold in over the long term. So we are in exploration of strategies to capitalize the business in our strategic capital business as well.

I think what I'll do is just come back to Q&A at the end, if that works. And I'll go pretty quickly here. Part of the reason that we've had a large amount of success here is that we also stood up an energy business at Prologis 5 or 6 years ago in earnest on a 1.3 billion square foot footprint of logistics facilities. We have an incredible amount of roof space, roughly -- similarly, 1.3 billion square feet of roofs, which are a great place to generate solar power. We are the largest on-site producer of corporate solar energy in the U.S. And that's on just about 5% of our portfolio today. We just crossed 1 gigawatt of power production and storage in our portfolio. You can see our ramp going back about 5 years, where we began investing in the business more in earnest and are now at a really good run rate to expand our energy capabilities here, heading towards 2 gigawatts, we think by the end of this decade.

I highlight all that here because you can imagine, hopefully, the synergy between this kind of business providing renewable energy that's very much needed out in the energy jurisdictions and of the major power providers and also storage solutions, et cetera. So we have a strategic relationship with major utilities, such that when we have applications and our hand out to them for power and data centers, we have a very strong relationship to build from, and it's been an important part of our success in aggregating the 5.7 gigawatts that we had.

Another really important ingredient to the business overall, but in particular, the ability to capitalize on the data center opportunity is the strong balance sheet that we have. We have the best rated balance sheet of any U.S. REIT, A/A2 rated. When you look at a lot of the coverage or leverage metrics here, they are very good. I would say what is really heralded by fixed income investors, it's not the strong ratios on their own, but when you multiply these ratios by the incredible scale that we have, $200 billion roughly. When you just then start to compute the sheer amount of excess EBITDA this represents or the sheer amount of wholly owned unencumbered assets on our balance sheet, we are a very secure investment from that perspective. There's a lot of debt capacity for us to leverage, fueling our growth from here.

A few statistics here on the strategic capital business as well, which goes back to our founding, but it's a very important part of the way we grow the business from here. The combination of those two things having the effect of us not tapping equity markets for any of our growth, it has been pretty incredible over the last 15 years through any follow-on equity raises.

This is just a description of then how historically, our business model has worked. We have typically developed new logistics assets on our balance sheet and then use the strategic capital business to take those stabilized assets after they are completed as a means of recycling capital back into next year's development, harvesting the value creation and building a fee stream on top of it. And it's been this synergistic business model that has generated and will continue to generate the potential for high single-digit earnings growth going forward.

One thing that is in play right now with regard to the potential for that high single-digit earnings growth that a lot of REITs are going through right now is just the adjustment to interest rates that are now present in most of our jurisdictions. We have a very low installed base of interest rates from the past cycle, and some of those rates are marching upwards. So that's been a headwind on earnings growth. We'll have 5% or 6% earnings growth this year, for example, contemplated in our guidance.

But the go forward, once all that is normalized, should provide a business model that would provide that high single-digit earnings potential with a, call it, a 3% dividend on top of that in terms of total return. It's a business model that's generated returns. I don't need to dwell too much here in terms of cumulative shareholder return and dividend growth. They've been quite strong.

And then just I'll leave the conversation here on just a conversation we've had with investors about how much of this is in the stock price today, how do we think about valuation. Because the REIT industry, for those of you who are familiar, has had a history of looking purely at kind of dissolution value. What is the value of all the assets against the debt, what's left for the shareholders, and hasn't had a strong practice of looking at franchise value and platform values that I think are very much in play for Prologis given all the things that we do, either in logistics development, strategic capital, the data center opportunity, et cetera. So we make this case a lot as much as we can.

I'll spend 2 more minutes just on the logistics business generally, just to give you my sense of where things are this quarter. Obviously, it's our main business. 90% of our overall earnings come from the basic rental and operations business. Logistics performed exceptionally well early on in COVID. Many of you will know, the supply chains were seized up. Many of our customers were taking down large volumes of space. In the U.S. market, vacancy dropped to about 3%. It was very, very low. And that's at a time when customers were talking about building much more resiliency in their supply chains and taking more space than they needed at the time, providing room for growth.

As things begin to turn out of COVID and recovery was emerging, most customers led by Amazon -- kind of famously, they made some announcements around this -- wanted to turn against that strategy and start to tighten up their supply chain and their cost structure again. So that led to a period across the back half of '23, '24 and much of '25 where net absorption demand in our markets was slower. And it's now grown vacancy to a little over 7% in the U.S.

And so there's -- most of the discussion in our business has been around inflection in those conditions turning, which we have been vocal about in the last few quarters, we think, is really happening. We've had a number of record leasing quarters in the past 6 quarters now. I think we've had 3 all-time records out of the last 6 quarters. We've seen rents stabilize and begin to grow in many of our markets.

What to think about in terms of cash flow growth is that even with all that said, we see market rents today as 18% above rents that are in place. So if we do nothing else, just migrating rents up to market as they expire year-by-year -- and our lease terms are about 5 years in length, so that's the pace it will occur under -- we'll have that NOI coming. But the next factor beyond that is well, what are replacement costs? What does it take to build a new logistics building? And what rent would be required given that cost? You can infer that rent, you see that another 23% above market.

So when markets stabilize, that would be the next economic force driving rents upwards, which is what really excites us in the business as well. So we're seeing that inflection carry out. We're very encouraged by it. Headlines, of course, we're all launching numerous headlines that could affect the macro. But putting it aside, we feel really good about what our customers are doing.

So move over to Q&A. I know we have one out in the audience.

Yes, I've got some questions, but since there were hands up, let's go out there and take the questions that you guys have.

Did you have one still?

[indiscernible].

We'll address it. Okay.

Maybe one of the things you can talk about is you talked about not raising equity, right? And that's -- you have a unique source of funding for the business globally, really. So maybe talk a little bit more about that and how you've been able to do that? The demand, to continue to be able to do that from the Prologis side and the funds that are out there?

Yes. There's a couple of sources. The first -- I was Treasurer at the company for a long period of time, so I'm always thinking about the debt side of the balance sheet and holding ratios. The credit rating I described, we hold very dear. I should say we're -- I'm not going to put that in harm.

So if I think about solving to something like debt to EBITDA and we have EBITDA growth that is sitting in the high single digits, you can just think mathematically like, well, if that moves at that rate and the debt portfolio, which is $45 billion of debt on $200 billion of assets or so growing at high single digits as well, if nothing else, there's about $3 billion, $2.5 billion, $3 billion of debt capacity just growing for us organically year in and year out. That's one important component. So that provides a base sign of growth.

But the other piece is the utilization of the strategic capital business. We leverage LP investments, both in core assets and also increasingly in development side of the business to grow the asset base, but to also recycle capital. So the combination of those two things is what facilitates new investments in logistics assets between the roughly $5 billion of development I mentioned. We also acquire maybe $2 billion of new assets a year. We can do all of that without tapping external equity markets, then holding the balance sheet and leverage levels at very strong numbers.

Awesome. Question?

Just on the power and the data centers, did you show how much was the U.S. versus [indiscernible]?

Yes, it's predominantly the U.S. We have -- do we have something, Abhishek? It's -- I don't think it breaks it out by -- this is -- it's hard to see. We've kept it secret there. There's a map of the U.S. -- of the globe behind there. This is just kind of an indication of markets where we have power in these categories. You can see -- this doesn't give you where the gigawatts are, but you can see the locations are more numerous in the U.S. and the overall levels are higher here as well. Europe is a bit more challenging here on the entitlements and power aggregation. But we do have such a large portfolio there that we'll see redevelopment opportunities there as well.

Maybe just -- do you know how much more power you would need, facility in the U.S. [indiscernible]?

I would say in most any case that I can think of, the current power at almost any of our facilities would not be sufficient. So almost everything has -- I remember looking at this because it's not that really new to us. We've looked at this opportunity for a decade or so. It's just gotten much more interesting recently, of course. But we always look at the intersection of where is their power and where is their fiber. And 10 years ago, it seemed like the gating item was more around well, where is their fiber. Now it's completely flipped. That's of ancillary importance. It's much more about where the power is.

So I think as we see more inference use versus the language model training center use, we see more inference around metros and in our [ closer-end ] facilities where some of the power consumption will naturally be a little bit lighter. We may see that there are facilities that actually today have more adequate power. But my going-in assumption is that most users are going to require some upgrade.

One thing I didn't mention and should is, of course, topical now is also the prospect of bring your own power or bring your own generation, and we'll see how that evolves over time. But it's another thing that's very unique to Prologis. I can't think of other logistics or even data center players who are engaging in this. But by right of having this energy production business, which has historically been around solar production and storage, it also had a business we built around it on EV charging, which is in different phases. It's a little bit slower in the U.S. as you can imagine from administrative changes there, but Europe is still quite strong. But the combination of all those capabilities has led us to an on-premises power solution as well that we've now installed 1 use case in Southern California and 1 in the Netherlands.

Now these are around logistics uses where the time line to power was extended and customers wanted to see if we could put something on premises, which think of as typically liquid natural gas. And we've been building those solutions as well. There's a question, how much will be the capital in that business from here. That's something in evaluation. But we have the expertise to bring those solutions on board. Which -- if bring your own power, bring your own generation becomes much more the state of play, we are ready to facilitate that need. Yes?

Just [indiscernible], would you know what the [indiscernible] generation source?

By what?

Generation source there is.

It's all dual-fed utility. That is going to be dual-fed utility power at this point. So none of what I'm describing about on-prem. Or we get asked about SMRs and other things down the road. We're not in that world yet. So this is traditional grid power.

There's been a lot of talk on [indiscernible]. Can you talk about what you're seeing [indiscernible]?

Yes. Yes. The question is around the state of logistics market in Southern California. Of the markets that needed some adjusting through the COVID run-up and then normalization, SoCal was the poster child. And for anybody unfamiliar -- I'm indexing numbers here. But if rents in SoCal were $10 per square foot a year, just kind of close to what they were, they became $26 in our markets for our property type and relaxed down to maybe $16, $17, something on that order. So there's been a lot of focus on the change from $26 to $16 or $17, but we still are rolling a lot of leases from $10 up to that $16 or $17. So from our -- for the incumbent perspective, it's still a pretty strong market. There's still very positive rent change.

But that level of rent growth, going from $10 to $26, was so exceedingly high in a short period. It repelled a lot of users, a lot of demand left the market. SoCal was plagued with a port labor strike for about 15 months that went on very long, and there was a lot of new supply in the market. So it's been the most challenged of all the logistics markets, it's very topical from that perspective.

I would say for the last year now, maybe even a little more, it has been on a more positive trend. Now it's not to say that vacancy hasn't continued to build. It has. It's probably peaked out as well. It's also had rent declines over that period, but we also think that is probably around its bottom and will be inflecting soon.

The tone is much better. We've had some improving occupancy numbers. We have a much better located portfolio in Southern California than others you may follow. Our holdings are principally in the Inland Empire. And of that overall submarket, it's Inland Empire West as well, and that has been the submarket that has been improving the most quickly. It's more modern stock. And so rents have come down. Users are finding they can actually move into Inland West, get a more modern, larger, higher clear height building out of -- or what are some cycle lows on rents. So we've been benefiting and turning the corner a little more swiftly, I think, than the market has in large.

But we feel great about the market. It's our largest market, about 20% of our portfolio there. And serving 24 million square feet at the end of the day in a very supply-constrained market. So we feel very good about the prospects of SoCal.

So less than 2 minutes left. Let me close with one question. Hamid Moghadam, Chairman and CEO for many, many years, founder of the REIT industry in many ways in the industrial space, certainly, has retired. And you and Dan have taken over the helm. So maybe talk about what's changed, what's the same and the plan going forward?

Yes. Hamid's great. He's with us still in an Executive Chair position. Many of you will know, but -- so Dan Letter is our new CEO, he took that role at the beginning of the year. He, like me, has been with the company for 20 years or so. We both started in 2004, had been a developer before that. And in his post, he's run a number of regions, was our global CIO, was our President for a while.

So Dan and I and all of the EC really have grown up with Hamid. I wouldn't just say we're sort of trained by him, but I think we're very strong believers in everything that this company is and it does and the stewardship we provide the balance sheet in the sector. So I think you're going to see -- Dan and I hope to execute with the new [ ECM ] company even more swiftly. There's a lot that we aim to do. There's a lot of opportunity to seize here in data centers and growth of our strategic capital business.

But you're not going to see any strategy shifts, anything that moves away from our knitting of consumption-based infill, logistics real estate, focus on the customer, utilizing strategic capital and creating a lot of value through development. Like that's the core of this company, and that will continue.

That's great. Well, Tim, thanks for being with us today. Audience, thank you for being here. Cordova 3 is the breakout session. Everybody, have a great day.

Thank you.

Welcome to Citi's 2026 Global Property CEO Conference. I'm Nick Joseph here with Craig Mailman with Citi Research. Pleased to have with us Prologis and CEO, Dan Letter.

This session is for Citi clients only, and disclosures have been made available at the corporate access desk. [Operator Instructions] Dan, we'll turn it over to you to introduce the company and team, provide any opening remarks, let investors know the top reason to buy the stock today, and then we'll get into Q&A.

Great. Thanks for having me.

You just -- yes, press the red button.

It was on. There we go. All right. Thanks for having us. Again, I'm Dan Letter, CEO of Prologis. To my left here is Tim Arndt, our Chief Financial Officer; and to his left is Justin Me Justin Mang, our Global Head of Investor Relations.

Prologis, we are the global leader in logistics real estate. We have over $230 billion of assets under management. That's 1.3 billion square feet, 6,000 buildings in 20 countries in markets that represent 78% of the world GDP. We have about 7,000 customers in our portfolio. And our value proposition is quite simple, actually. We grow operating income ahead of inflation with the best portfolio and the best platform in the business. We create significant value through our development franchise.

We have an unmatched development franchise going back nearly 30 years, best-in-class long track record that puts up consistently 30% margins. We allocate capital with discipline. It's supported by our A-rated balance sheet. And we have a scaled asset management platform, about $70 billion of third-party capital that we manage. This combination is really built to compound earnings and intrinsic value over the long term. And we're also positioned for what's next. AI is driving major demand in data centers.

We own or control 14,000 acres of land in these markets. And we've been heavily focused on energizing that land bank and our portfolio for conversion opportunities. We see these as very large durable opportunities with our energy business, we've built an energy team over the last 5 years, heavily focused on the solar and storage business, where we generate 1.1 gigawatts of power, growing to north of 2 gigawatts by 2030. And that power team helps us energize our data center opportunities globally.

Why own the stock today? Really 3 reasons. One, the occupier market is improving. We -- two, we have very meaningful upside in our rent embedded in our mark-to-market. And there's significant value creation ahead in both logistics and data centers.

So with that, why don't we get into questions?

So it's been about 1.5 months since you had your 4Q call. Could you give us an update on leasing activity and tenant discussions? And if you wouldn't mind, how is this compared to budget so far?

Yes. So I think the best way to think about it is we are performing in line, maybe even slightly better than our report from 1.5 months ago, tenant discussions continue to be constructive. Customers were seeing them really just see past all the noise in the market. They've become desensitized to all the headlines and really focusing on -- they seem to be much more on their front foot than they had been the prior couple of years.

And it's interesting that people keep pointing out that our conference always coincides with macroeconomic event pandemics. We had Iran over the weekend. And I'm just kind of curious, this time last year, we were feeling pretty good. You guys were starting to see a little bit of -- or at least express some hesitancy around tariffs. So I guess at this point, the inflection seems to be kind of here.

But what keeps you up at night that we've seen this movie before where things look good and then something pops up in the macro that slows demand. Is there anything right now that could be the bogeyman here that could derail the recovery?

Like I said, we're hearing from our customers who are leaning in. They're making decisions. Our leasing pipeline is elevated. It's been elevated for the last year despite having 3 of the last 5 quarters, our largest leasing quarters ever. So that pipeline remains strong. Customers, again, after a few sluggish years, they really started making decisions.

And when it comes to the chaos or the noise of tariffs, they just -- they see it as more of a feature of today's environment than any sort of bug. And it's not keeping me up at night. What would keep me up at night is what is the next exogenous market impact that we just can't control. So what we do is we wake up every day focused on what we can control, and that's really driving value creation through superior leasing and our development business.

What impact, if any, does the Supreme Court ruling on tariffs have on industrial broadly or kind of leasing conversations?

Again, these customers are not phased by this current -- the current decision. I don't think anybody is expecting to get a rebate or anything from the tariffs that they paid out over the last year. And again, we haven't seen anything slow by any means from our customers.

And on the call, you guys had highlighted that market vacancy has likely peaked and you're beginning to see some market rent inflections across a few markets. I don't know maybe we could just dive a little deeper and just give us some thoughts on markets that are improving the quickest and highlight some that could continue to lag maybe from both an occupancy and market rent perspective.

Yes, sure. So right now, we look at the overall market rent and we look at markets where we're seeing development take place because we see market rents growing at a replacement cost rent trajectory, and those are right now sitting about 23% above market rents. So it's about a 45% jump from where we are in place today to the replacement cost rent.

We're seeing some building going on in the Sunbelt markets. So that's where you're seeing those market rents have improved. And we, again, see that as a trajectory for the coast in the next couple of years.

If you were to highlight a couple of domestic or even foreign markets where you're seeing kind of leasing activity accelerate the most versus the least. What are like 2 or 3 that you'd point out that are...

2 or 3, I would say Houston is very strong right now. We're seeing the Southeast really carrying more than its fair share of the weight. Europe itself is -- occupancy is better than the U.S. So seeing really strong demand drivers across Northern Europe, for instance. Latin America, Mexico continues to be strong. Brazil, we can't build fast enough. And actually, Japan, we're having some success to outperforming the market.

And I guess I'd be remiss if I didn't ask about L.A. You guys had sort of mentioned on the call that I feel like it was more directed at the Inland Empire seeing some activity, but correct me if I'm wrong. Like where do you guys stand on SoCal overall? And then maybe as you break it out between the IE, maybe East West and L.A. County?

We've been consistent for the last couple of years saying that we see Southern California itself recovering 2 to 3 quarters after the rest of the country. We've seen large format space in the Inland Empire. Really, we're sold out of it. And now we've seen some growing demand in smaller spaces as well.

As you get into the L.A. Basin, really, it's Class A that's outperforming the more commodity space, if you will. Keep in mind, with Southern California, there's 24 million people in Southern California, a $2.3 trillion economy. It's like the 10th largest economy in the world itself. So long term, in a market like California, where, of course, there's headlines every day, it just shows how much harder it is to build in California, we like it for the long term.

The question that I get from clients a lot, and I'm sure you guys get a lot as well is around the mark-to-market. I know when I talked to Tim, the cash mark-to-market only came down about 100 basis points sequentially. So it's been a bit stickier, but there's always that concern about the pace of erosion.

Could you walk us through maybe the math of how your mark-to-market may be a little bit more durable than maybe the market anticipates. And how you guys also look at kind of stabilized cap rates versus going in cap rates given this backdrop?

Yes. I mean the lease mark-to-market, if we just think about an inflationary or market rent growth environment that provides 3% or 4% over time, and we just held that constant, you would expect the lease mark-to-market to sit around high single digits, low double digits percent, and we are at 18% or 19% today.

So whenever that question comes, I think that's the first thing that needs reminding is that we are at an abnormal and very favorable place today. And in the process of moving from about a 67% lease mark-to-market where we were for -- those invested with us at the time, we've together scooped in about $1 billion of NOI, bringing it from that number to where we sit today. There's still another $800 million or $900 million of NOI to clip we see in the lease mark-to-market today that will come through the portfolio as we roll leases. But I don't think you should look at the company and expect it to grow again meaningfully or have any concerns. Likewise, if it's at in the lower double digits, that would be what one would expect mathematically.

If we do have an environment where this gap on replacement cost rents closes more significantly, more swiftly, where we have market rent growth in the mid-single digits, let's just say that's not a forecast. I'm just saying if it did, we could see the lease mark-to-market expand again. But in the meantime, there's plenty of cash flow and NOI to harvest.

And then you asked around stabilized cap rates.

Yes. Just like -- I guess this is more a valuation of public market valuation question. It's -- you're going in cap rate has come down, but when the mark-to-market comes in, it feels like, at least on our numbers, you're still in that low to mid-5% range on a stabilized cap rate. And sort of in your markets, how would that compare for a portfolio of your quality to what a private market transaction could go off at?

I'll tell you right now, very active private market transaction volume last year was normalizing. And we saw cap rates on a mark -- market basis, excuse me, in the low 5s. So depending on quality and size and market, so say, 5% to 5.25%, we saw that in unlevered IRRs in the low to mid-7s.

So that is on the mark-to-market, you're typically going to be in the mid-4s then obviously, based on an actual in place, trying to capture that upside in the mark-to-market.

And not to dwell on the mark-to-market, but one more quick question because people sometimes view it as linear, but between your legacy development pipeline, what you bought with Liberty and what you bought with Duke, like as we think about '27 and '28, can you round numbers how much of that expiration in a given year is -- could be this older vintage development leases that were signed well before the pandemic highs and rolled over to get a sense of like as we think about what '27, '28 mark-to-market could be, like how it could surprise some people to the upside given this development embedded?

Yes. Without getting into the individual portfolios, we have a very good way to get at what I think you mean there, which is we have detail on our expiration schedule in our supplemental, and you can unpack that at any time. Take that schedule, take with it the knowledge that we see market rents is about 19% above those in-place numbers.

When you multiply that out and compare the expiring rent in each of the vintage years you just said, you see meaningful roll up in '26, '27, '28, '29. It continues for a longer period than most appreciate, and that would be without any market rent growth today. That's just at spot rents.

Does anyone in the audience have any questions?

Maybe shifting over a little bit. You had mentioned development is coming back on the margin a bit depending on the market, depending on the size range. You guys clearly are going to continue to deploy capital where it makes sense. I think of the $3 billion to $4 billion, you had said about 60% of that is industrial, 40% data centers.

How geographically, how much of that ends up in the U.S. versus in your other non-U.S. markets, which ultimately could end up in funds, right, and you recycle some of that capital? And how much spec risk are you willing to take versus build-to-suits, which has been a higher component of that pipeline for you?

It really is a market-by-market, deal-by-deal analysis that we do. This 14,000 acres of land is in dozens of markets around the globe. Our teams, while we've had slower start volumes the last couple of years, have been getting the land ready to go, so we can truncate those development periods when customers are ready to lease space.

So right now, I think you should think of our build-to-suit volume as trending towards normal, more like 40-ish percent. That's probably a better number. Last year was rather high because we did start much less spec. So it was more of a denominator issue, but it was also a very big build-to-suit year. But we absolutely have the appetite for spec, and we've already started some spec this year, and you'll see us continue to do spec in some of the markets we've already mentioned, Southeast. There's certainly some pockets also where maybe the headline vacancy in the market may be higher, maybe it looks like it's a 7% or 8% vacant market.

But then we have a very focused submarket strategy. And where you may see a headline, like I said, 8%, the market or submarket may be 1% or 2%, and we're going to build into those. And just given the basket of opportunities we have in so many markets around the globe, it bodes well for our start volume.

And I guess -- and this is a harder question to answer because it is submarket specific. But as one of the biggest developers in the country and the world for industrial, it feels like maybe there's a push and pull on, yes, you want to deploy that capital and get that incremental growth. But on the other side, if you hold back development, the markets could tighten quicker and you could get better market rent growth in a certain market or geography.

I guess how much of that is really true on holding back and tightening fundamentals quicker versus it's just smarter to put product in a market where your leasing guys have no space so you don't lose tenants and maybe retention doesn't go down? Like talk a little bit about that push and pull.

We're not sitting there trying to hold back the market or think that we have that much control of the market. If you look at even in the U.S., where we own 800 million feet, that puts us at like, what, 6%, 7% of the overall market, right?

Now maybe it's 10%, 12% of the addressable market. But when you take out a lot of the B and C quality stuff that we don't really compete against, if you think about institutional grade. So it is not a strategic mindset that we bring to these deals to say we can control the market by not building. We want to go build when the market fundamentals that we see 9, 12, 18 months out are sound, and we want to have space to deliver for our customers.

So that's where our customer franchise comes in, and we do get that view of their pipelines, and we're going to just start when we think it's prudent and we can lease it per plan.

A question that came in through live QA. I guess, specific to the data center opportunity that you're seeing today. And the specific question is, how can you compete with the data center REITs? Or how do you think about your ability to compete there?

Look at our company, right? We're in 100 markets around the globe. We've curated a land bank close to 78% of the world GDP, right? We've got hundreds of people in our construction team, our entitlement team. We've got this energy team that we've built over the last half a decade or so. We have the internal capabilities.

A few years ago at our Investor Day, we said we're going to focus on building a pipeline and building a team internally. We have brought in experts from the data center industry to round out the team to ensure that we could enjoy as much of the upside in this business as we can. And so I don't see us -- I see us as a leading data center developer in the world, not somebody that's following anybody else.

And as we think about it, you guys kind of break out the different buckets of where you are in the power allocation process, right? And I think you're up to, I think, 1.4 gigawatts that's either under construction or...

We have 1.8 secured and another 3.9 in advanced stages to total 5.7.

Okay. And could you just talk about or clarify like when you have something in that 1.8 gigawatts, right, the under construction stuff is under construction. But the power that is in that allocated bucket, like is that -- you have an agreement with the utility and you could go tomorrow on that if you have a tenant in hand, everything is set up. And then the stuff that's in the 3.8 is you're close, don't have full allocation, don't have a tenant there. Just trying to get a sense of like the time frames and what those exactly mean.

You described it quite well. We have lease negotiations underway, as Tim had talked about in our earnings call in January, every megawatt we can deliver over the next 3 years is accounted for in some discussions of some sort. So that's -- the advanced stages is really probably a year or 2 out.

We're spending time, money. We have an allocation agreement with the power company. It just hasn't fully been codified at that point. So we expect all of that power to be fully secured within the next couple of years.

And then I know the initiative from the administration is sort of the bring your own power. How would that impact the cost estimates that you guys have given, I know it's more of a merchant building model, but right, if you have to bring more of that on your own, build a substation, do all of that, does that change the economics at all for you guys? Or do you get paid back by the tenant and through the sale of the asset?

It's interesting in most of these situations, we are already building major infrastructure substations, upstream power generation and otherwise. So it's significant and built into the economics today. Where I could see this being actually a benefit to Prologis is we actually have this energy team that's built an on-premise power solution. We've actually delivered that for a couple of customers in the last year, and we have a program that we're launching that has actually helped us win business, helped us win business in logistics where power -- excuse me, where companies are looking for redundancy, they're concerned about fires or any sort of natural disasters. That's helped us win business. It's helped us win business on the data center front as well.

We're able to throw our hat in the ring because we can actually generate the power on site. There's -- it's a different cost in different locations. We just launched a building in the Netherlands, for instance, and that power is coming in pretty close to what the market power rate is, but then it may be a little bit more expensive to do it in Southern California, for instance. And at the end of the day, it is the end user that's paying for it.

And the best way to think about the build-out kind of 65% to 70% shell, that kind of 30% to 35% turnkey. Is that sort of where you think it averages out over time?

Yes. He mean our mix of how much we might engage in power shell to turnkey. And yes, that's about right, 70-30, maybe 75-25, something on that order.

And then just on -- I know you guys talked more about the private capital business on the call. The data center fund has always been a potential solution. How far are you away from coming up with the final structure that you guys feel comfortable with, with the data centers, either fully outright sales or a fund with a stub ownership piece? Like where are we in the evaluation process? And maybe where are you trending?

We're in about the middle of the game, I would say. We've been at it in earnest for a couple of quarters now, dialoguing with large capital providers who see the advantages that Prologis has here, and we have a pretty robust slate of options, I would say, up against them, all is just continuing in the format we've been in, which is developing on our balance sheet and selling, like that's a perfectly acceptable way for us to move forward.

So it's viable and one of the many things that we'll look at. But if you unpack my commentary on time, I would expect in the next 1 or 2 quarters, you will know from us what we intend to do here.

And then just more broadly on the fund business because capital queues have struggled here the last couple of years, but I don't know if the increased commentary on the call suggests that our capital queues getting better, and we should expect kind of an uptick in this business.

And if so, maybe just remind us what the earnings power from the private capital business at not full tilt, but a much better velocity could be for you guys?

I would say the capital flows are getting better in the sense if you look at it in aggregate. So it's true that for a segment of it, which has been regular way core investing, that has been a more challenged pocket of our overall strategic capital fundraising.

But that's also at play and why we've pretty greatly expanded our offerings going new public routes as we did at the end of last year in China and some new private joint ventures that we've announced in recent quarters, and we'll announce more over this year. It's keeping pace with the direction of the market and the preferences of LPs to actually align with fewer GPs and ones with reputations like Prologis has. So you're going to see that as a long-winded way. You're going to see some new funds out of Prologis.

And in terms of growth, we've always said the return we can expect on core real estate is heightened by 100 to 150 basis points in a strategic capital format beyond all of the diversification benefits it brings in terms of more investments, more customers and a broader swath of capital to access.

One of the topics we're exploring with every company is the ability internally to deploy AI for efficiencies or other opportunities. So I guess what -- where are you today? Where are you seeing the opportunities internally within Prologis?

And I think the second question is, how do you think about getting those deployed? Is it from building? Is it buying? Is it partnering? Where is the opportunity? And how are you actually going to execute on it?

Yes. We have been very forward looking in our AI deployment. We were an early customer of ChatGPT at an enterprise level. We're a few years into this. One big effort that we did about 5, 6 years ago was really organize our data as a company with 12,000 leases and 6,000 buildings and using the proprietary data that Prologis has as a differentiator for us and then deploying that now with the AI layer has been really, really significant.

We use it in many different ways. Think about revenue management. We're able to work with these various models, and we've got a team of data scientists that have really built this model. So it helps us track and keep our local teams focused on what the best possible rent outcome can be. So revenue management, we're using it in underwriting. We're using it in our design as well. So I'm really pleased that I don't think I've ever seen adoption.

I think we've got 98%, 99% of the company using ChatGPT on a daily basis. And then we're pushing for how we can use it to make better decisions. We're able to analyze 200,000 buildings across the United States with a certain model of scoring on each of those buildings as to whether or not we want to own that building long term. I mean we're really leveraging all these various tools that we've built the last couple of years. What else?

I would just add, I think you also asked about build versus buy. It's all of the above right now. We're definitely building models at individual level can occur, but also some enterprise-wide tools. But there is certainly, especially as we get into areas that deal with financials or other components of the IT infrastructure, vendor-provided AI solutions are going to be relied on more heavily. We're looking to use it all.

Have you guys seen like immediate cost savings on either legal or quicker gestation to the leasing pipeline on your end because you're getting stuff through different departments, like trying to just gauge the actual savings versus the theoretical savings that we all think is there, but trying to put real dollars around it. Have you guys been able to measure that at all on an ROI basis?

In a word, I would say no. We are early innings on that. I think by a year from now, we will have had ways that we can quantify that and figure out how we're redeploying those resources back into the company. I think that's a theme that we expect to be more productive at the end of it all, and then that will require its own calculation on what it means to the bottom line, but we're still a little early on measuring it as it stands today.

And I guess some of the headline risk the past couple of weeks has been on headcounts and I'm kind of curious as you guys are deploying this internally, is it something that legitimately could slow or reduce headcount? Or does it just, at least in the process that you're putting forward, free up people's time to do things that are more valuable, more strategic?

Yes. I look at it as -- look at how we run this company right now, we're at 35 basis points of AUM right now. So on the margin, how much can you really pick up in savings? What I see is tremendous growth for this company in the coming years and us being pretty flat as to what that means from a headcount perspective, certainly much more flat than we would have been otherwise.

And that's why we've been early adopters in this technology, and we have a very rigorous G&A policy around how we're viewing net new jobs, and it goes through the whole AI filter as to what that job could look like in 2, 3, 5 years to ensure that we don't overload with too much G&A at a point when the whole market and economy is adopting to this new way of working.

And you guys do a lot of these tenant panels and checking in and Amazon is clearly one of your largest tenants. Like from a tenant perspective and just industrial usage, the benefits or risk to AI, I'm just kind of curious what your tenants are saying as it relates to either agent commerce?

Or are you seeing tenants who are actively taking space to support data center build-outs in certain markets? Like how is the AI initiative sort of impacting demand at least early on or through early conversations with tenants about how they may change their usages?

Yes. So what we have seen -- over the last 10, 15 years, there's been all this discussion around automation and automation will somehow reduce the need for our customers to take down their -- a certain amount of space or they'll slow their growth in their footprints. But what we've really seen and AI is just another layer on top of that, the supply chain is very complicated, right?

And AI automation before it have really only helped solve the complex issues as service levels have continued to grow. Think of the end consumer. In the U.S., 70% of GDP is consumption, right? And service levels of getting your product that you order now in 3 hours versus 2 days from now. And that's where we continue to see our customers say, we're not slowing the need for more space. We're just using these tools to help us navigate all of these complexities.

Did we have any other -- we have our rapid fire, but any other questions in the room?

All right. What will same-store NOI growth be for the industrial sector overall next year in 2027?

Cash, $5 million to $6 million.

And then will there be more fewer or the same number of industrial companies a year from now, public?

Same.

I told Dan, we should say many more. It would be double.

Dozens more.

Dozens more.

Dozens more. Perfect. Great. Well, thank you so much for your time. We appreciate it.

Thanks guys.

Greetings. Welcome to the Prologis Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. And I will now turn the conference over to Justin Meng, Senior Vice President, Head of Investor Relations. Thank you, Justin. You may begin. .

Thank you, operator, and good morning, everyone. Welcome to our fourth quarter 2025 earnings conference call. Joining us today are Dan Letter, CEO; Tim Arndt, CFO; and Chris Caton, Managing Director.

I'd like to note that this call will contain forward-looking statements within the meaning of the federal securities laws, including statements regarding our outlook, expectations and future performance. These statements are based on current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a discussion of these risks. We undertake no obligation to update any forward-looking statements.

Additionally, during this call, we will discuss certain financial measures such as FFO and EBITDA that are non-GAAP. And in accordance with Reg G, we have provided a reconciliation to the most directly comparable GAAP measures in our fourth quarter earnings press release and supplemental. Both are available on our website at www.prologis.com. And with that, I'll hand the call over to Dan.

Thanks, Justin. Good morning, and thank you all for joining us. We delivered a strong fourth quarter and closed the year with solid financial and operational momentum driven by disciplined execution and deep engagement with our customers across our markets. As we build on this momentum, I want to start by recognizing our teams around the world. Their dedication, creativity and customer focus are central to Prologis' success.

In a few minutes, Tim will walk you through the details of our results. Before that, I'd like to share a few observations about the business. Across conversations with customers, investors, business partners and our teams, a consistent theme comes through. Prologis' leadership goes well beyond scale. It's about how we operate, our commitment to excellence, the strength of our long-term relationships and our ability to anticipate what's next. That mindset defines our culture and continues to guide how we lead.

Looking ahead, we're building on that foundation with a clear focus on 3 priorities: First, extending our leadership as a best-in-class operator, whether it's using data analytics to drive better decisions, deploying site-specific energy solutions or advancing venture initiatives that enhance our platform, our objective is straightforward to continue widening the moat that differentiates Prologis.

We do that through unmatched service, innovative solutions and the mission-critical reliability our customers depend on; second, capturing the significant value creation opportunities ahead of us in both logistics real estate and data centers. Our track record in warehouse development is well established, and we're positioned to deliver the next generation of modern, strategically located facilities.

At the same time, advantage today is defined by location, power and scale. With the growing power pipeline, deep customer relationships and multidisciplinary expertise, we are well equipped to develop critical infrastructure few can match. We will approach data centers with the same discipline and long-term perspective that has defined our success over time. And third, enhancing shareholder returns through continued growth in assets under management.

Our private capital partners are increasingly seeking fewer managers who can deliver consistent performance across geographies and strategies. And we are perfectly suited to serve as that partner of choice. We are developing new vehicles and strategies that build on our track record of performance, transparency and partnership, and we're making strong progress.

As we enter 2026, we do so from a position of strength and with the strategic initiatives in place to extend our leadership and compound value for our shareholders. With that, I'll turn the call over to Tim to walk you through our results and outlook.

Thanks, Dan. As mentioned, we are very pleased with our results and closed the year with strong momentum. Our teams performed exceptionally well, signing 57 million square feet of leases in the quarter and driving occupancy toward 96%, further widening our outperformance versus the market. Improved customer sentiment, together with better-than-expected market conditions, reinforces our view that vacancy has peaked and rents are beginning to inflect across many markets.

Momentum extended across the growth areas of our business as well. Our development platform, particularly in build-to-suits, continues to outperform, exceeding expectations and capturing meaningful market share. In strategic capital, we formed 2 new investment vehicles in the U.S. and China. In our data center business, the power pipeline continues to grow, and we expect a solid year of starts.

Turning to our results. Fourth quarter core FFO was $1.44 per share, including net promote expense and $1.46 per share, excluding net promote expense, finishing the year at the top end of both our most recent and inaugural guidance ranges. On an own and managed basis, average occupancy was 95.3% for the quarter and 95% for the full year with period end finishing the year at 95.8%.

Results were driven by strong new leasing and healthy retention of 78%. And in the U.S., we expanded our outperformance versus the broader market to 300 basis points, reflecting the quality of both our portfolio and operating platform. Net effective rent change was 44% for the quarter, contributing approximately [ $60 million ] of annualized NOI and driving net effective rent change for the year to more than 50%.

Our net effective lease mark-to-market ended at 18%, representing nearly $800 million of embedded NOI yet to be realized without any increase in market rents. The rate of decline in our lease mark-to-market has slowed considerably in many markets, including several in the U.S. and most across Lat Am in Europe are once again seen expansion as market rent growth begins to outpace portfolio churn.

Finally, same-store NOI growth was 4.7% on a net effective basis and 5.7% on a cash basis, each ahead of the midpoint of guidance. And for the full year, net effective same-store growth was 4.8%, hitting the top end of our range. Turning to capital deployment. It was another active quarter. We sold approximately $900 million of value maximized assets and acquired $625 million at attractive discounts to replacement costs, generating between them a positive 150 basis point spread in expected IRR.

On the development front, we started $1.1 billion in new buildings in the quarter, which were all logistics projects and over 48% build-to-suit. For the year, we started $3.1 billion where build-to-suits represented an impressive 61%. It's worth reemphasizing that this success is driven by a deliberate and differentiated strategy, matching well located entitled land with a strong customer franchise, allowing us to generate attractive returns despite the derisked nature of the projects.

In our energy business, we delivered another strong quarter, lifting total installed capacity to 1.1 gigawatts, achieving and surpassing our 1 gigawatt goal set 4 years ago. We will build on this progress adding additional capacity given the significant untapped potential across the portfolio. Before turning to market conditions, I'd like to highlight that Prologis recently led the creation of an industry snapshot developed in partnership with JLL, Cushman & Wakefield and Colliers. This collaborative effort combines our proprietary research with timely and transparent brokerage data across 34 U.S. markets. You can find the report in the research section of our website.

Overall, we are progressing through the 3 stages of inflection we outlined last quarter: Evidence of enduring demand resulting build in occupancy followed by an inflection in rents. We are now seeing all 3 at varying stages and paces across our geographies, setting up a constructive 2026. Fourth quarter net absorption was 59 million square feet in the U.S., a strong finish to the year and further evidence that demand is both visible and building.

Higher absorption levels, which exceeded completions for the first time since 2022 resulted in a decline in U.S. vacancy to 7.4%. The result is that market rents declined at their slowest rate since 2023 with many markets posting positive growth. Across our portfolio, demand remained the strongest in large space formats, but it's encouraging that occupancy increased across all of our size categories. The tone of our conversations with customers is increasingly forward-looking.

While uncertainty is always top of mind, including tariff policy, it is now treated more as a planning assumption rather than an impediment. E-commerce remains a meaningful driver of this demand, representing approximately 20% of our new leasing activity over the last year, making 2025 its best year since 2021.

Large retailers with significant e-commerce operations continue to expand and diversify their networks to shorten delivery times and improve efficiency. Their ongoing innovation and growth combined with a threefold multiplier in the space required for e-commerce, continues to provide a powerful tailwind for our business. Finally, outside of the U.S., our international markets continue to outperform.

In Latin America, consumption trends in both Mexico and Brazil remain robust supporting high occupancy and ongoing rent growth. Europe delivered another solid quarter, maintaining strong occupancy and posting its first quarter of positive rental growth in 2 years. Japan also performed exceptionally well with occupancy above 97% and outperformance relative to the market of nearly 600 basis points.

Together, these results highlight that our global footprint is not only strategic and valued by our customers, but also a key driver of the diversity and resilience of our platform. Turning to capital raising. We achieved 2 important milestones in strategic capital. First, the IPO of the ChinaAMC Prologis Logistics REIT, as we call it the CREIT on the Shenzhen Stock Exchange marking our third publicly listed vehicle.

Similar to NPR in Japan and FIBRA Prologis in Mexico, the CREIT broadens our access to capital, diversifies our investor base and strengthens our presence in one of the world's most dynamic logistics markets. Second, we added a new vehicle focused on development, redevelopment and value-add opportunities, a strategic complement to our open-ended funds focused on stabilized investments. In the fourth quarter, we held the anchor closing for the U.S. Agility Fund, yet another endorsement of the Prologis platform in a competitive capital raising environment.

We have a deep pipeline of capital-raising strategies in various stages of formation for this foundational business line. We look forward to sharing additional updates with you as the year progresses. Moving on to data centers. At its core, this business is centered on 4 priorities: procuring power, securing build-to-suit lease transactions, delivering world-class facilities for our customers and harvesting value through asset sales.

We continue to make clear progress on each front. During the quarter, we expanded our power access to 5.7 gigawatts, stabilized 72 megawatts of projects and sold a state-of-the-art turnkey facility at compelling economics. In terms of leasing, demand is exceptional and every megawatt in our pipeline is in some stage of discussion, including 1.2 gigawatts currently in LOI or pending lease execution.

Our data center team and capabilities are expanding and executing at a very high level, and we're extremely excited by the significant value creation opportunity ahead. Turning to guidance, which I'll review [ at our share ]. We are forecasting average occupancy to range between 94.75% and 95.75%, which includes the expectation for a seasonal drop in occupancy in the first quarter before rebuilding over the year.

Net effective same-store growth is forecasted to be in a range of 4.25% to 5.25% and cash in the range of 5.75% to 6.75% with rent change being the predominant and enduring component of this growth. Our G&A forecast is for $500 million to $520 million our strategic capital revenue forecast [indiscernible] $650 million to $670 million.

As for deployment, we are forecasting development starts to range between $4 billion and $5 billion on an owned and managed basis. As mentioned earlier, we have increased visibility and confidence around new starts in our data center business. So we've included those volumes in this guidance at approximately 40% of the activity.

Acquisitions will range between $1 billion and $1.5 billion, and our combined contribution and disposition activity will range between $3.25 billion and $4.25 billion. In total, we are establishing our initial GAAP earnings guidance in a range of $3.70 to $4 per share. Core FFO, including net promote expense will range between $6 and $6.20 per share while core FFO excluding net promote expense will range between $6.05 and $6.25 per share.

In closing, 2025 brought unexpected challenges and periods of uncertainty. and we're very pleased with how the company performed throughout the year. Our teams once again demonstrated the strength and resilience of our platform and the discipline of our world-class operations delivering strong operational and financial results. Equally important, we use the year to strengthen the foundation of our business by advancing development entitlements, expanding strategic capital and accelerating our progress in data centers and energy.

As a result, we enter 2026 from a position of strength with operating momentum and a setup that supports durable long-term growth. With that, I'll turn the call back to the operator for your questions. Operator?

[Operator Instructions] And the first question comes from the line of Blaine Heck with Wells Fargo.

dan, can you speak about any changes in strategic initiatives that may come with your leadership at Prologis and specifically, any thoughts around the strategic capital side of the business and when you might expect to add additional strategies, including a potential data center focused fund, any information on the scope potential timing and earnings impact would be really helpful.

Yes. Thanks, Blaine. I highlighted our strategy pretty clearly in my opening remarks here. And what did I say there? First, our focus is centered on compounding the core logistics business, while continuing to broaden and strengthen the platform. Logistics is and will remain the foundation here, serving the consumption centers around the world, capturing the embedded rent growth and lifting rents as markets recover and then we'll start leaning more into development where supply is constrained.

Data centers and energy, high-return adjacent businesses here, where our land positions, our power access, and our customer relationships really give us that edge. We have a very strong customer franchise. And yes, I expect to grow the strategic capital AUM significantly, both through existing vehicles and new vehicles. And really, at the end of the day, it's all about the hyper focus on execution for this team. But Tim, maybe you want to add on something on the new vehicles.

Yes, on the data center fund and its prospects, as you know, over the past weeks and months now, we've been dialoguing with some of world's larger investors. And they are ones who would have interest in co-investing in this business. And we've had a very productive couple of months in that regard. There definitely is a lot of interest such that we see capital isn't necessarily the constraint here. And what we're really after is determining what capital structure makes sense for this business that allows us to take full advantage of all the development opportunities in the portfolio, diversifying projects, but growing the AUM that we're talking about here and enhancing it with fee streams, et cetera, driving ROE.

I'd say we're meaningfully through that process at this point. We expect to know more in the coming weeks and months. But it's something at the same time, I'll say we're taking care to get right, given the scale of the opportunity. So in the meantime, the balance sheet's been comfortably carrying out the program that we have. It's been very profitable. So we'll compare these alternatives to that status quo. And as we have more news for you, we will share it out in the coming months.

The next question comes from the line of Michael Griffin with Evercore ISI.

Tim, I appreciated your comments kind of walking through the puts and takes of your expectations in 2026. Wondering if you can dive a little bit deeper into your assumption around market rent growth and maybe if we're able to kind of quantify it for us in terms of what you're forecasting for the year ahead? It seemed like -- some markets are hitting an inflection point. You've still got a healthy mark-to-market. So is this a scenario where maybe market rents are down in the first half of the year and then improve as we get to the second half? Just maybe walk us through some commentary there, that would be great.

Yes. Let me pass that over to Chris.

Michael, let me give you the full fundamental forecast for '26 so that you have all the context you need to make that judgment. The key message here is market vacancies are poised to improve over the course of the year. Now that already began in the fourth quarter when at absorption outperformed completions, and I anticipate '26 will play out the same way. New demand is a key variable here, and we expect net absorption to approach 200 million square feet in '26 versus 155 last year.

Decline in supply is helping. Deliveries are on pace to be 185 million, 180 million square feet in 2026 down from 200 million square feet last year. So that will take vacancies, which were at 7.4% at the end of last year towards 7.1%, 7.2% at the end of this year. And so you're right, markets are advancing at different rates. Tim described rent demand improving, occupancy levels beginning to improve across a greater range of markets and ultimately rent. So we expect positive rent growth in aggregate to begin to emerge in a more clear way over the course of the year.

The next question comes from the line of Craig Mailman with Citi. .

P Just want to hit on the data center piece real quick. I think, Tim, you said that you have 1.2 gigawatts in LOI or advanced negotiations. Can you just walk through kind of how many projects that would be? And how that's reflected in the development start guidance, I noticed you guys for the first time, aggregated warehouse and data centers. So give us a sense of like how much of that start guidance is data centers versus warehouses and if this 1.2 gigawatts is sort of a near-term opportunity or '27 and '28 too?

Yes. I won't break it down by project for you, Craig, but we have a small handful, I'll describe it that way of starts that feel relatively imminent given the stage of leasing I just described them in. So I expect you'll see something this quarter in starts and certainly in the first half, maybe a couple there.

In the guidance, I described that 40% of our overall owned and managed range of $4 billion to $5 billion. We expect 40% of that roughly to be in data centers, so you can unpack that and understand the logistics piece. And I think -- I will say I think there's -- we've left some opportunity to outperform this in a few ways, both in logistics and in data centers. On the logistics side, I would say that what you infer there on logistics starts is still below what a very strong run rate would be for us.

We could see that the environment for spec starts continues to improve, and that would be a means for outperformance on those starts. And on the data center side, I would bear in mind that it's not only going to be in project count, if you will, that we execute on, but also format. We have a mix that we think about between [indiscernible] turnkey and the appetite for turnkey projects is quite high from our customers. And if we choose to execute more in that format, the aggregate dollars would rise as well.

Let me just pile on here. We've often talked about a wide range of deployment that we can do throughout the year. We own land in over 70 markets around the world. And as we talked about, $42 billion worth of opportunity in that land bank, of which nearly 40% of that is ready to go so we can really make a decision in a moment's notice as it relates to starting. So we have a lot of opportunity, as Tim mentioned.

Next question comes from the line of Caitlin Burrows with Goldman Sachs.

Maybe another data center question. So just a year ago, on the 4Q '24 call, you guys mentioned that you could reach 10 gigawatts of power in 10 years. I guess now we're one year later and you're already at almost 6 gigawatts. So I was just wondering if there was any update on that kind of 10 gigawatt outlook or trajectory? And do you think the pace of increase could keep going? Might it slow down because future increases in power are increasingly more difficult? Or just how do you expect that to trend?

Caitlin, I would say, when we talked about the 10 gigawatts of power, what we talked about is just the universe of opportunity that we have. We own 6,000 buildings adjacent to the world's most dynamic consumption centers. We own or control 14,000 acres of land. And it's really lumpy as to when these sites will be ready, will be energized. And that's why we're updating you as soon as we know what's coming.

But I'm very comfortable stating that 10 gigawatt pipeline, and there's just a lot behind that, that is further down the road, but no update further from that number.

The next question comes from the line of Vikram Malhotra with Mizuho.

I wanted to just clarify 2 things just based on your comments, which seemed like we're moving from this bottoming to an inflection phase. So one, I guess it's been hard over the last 3 years to predict sort of this inflection in occupancy. So what gives you strength as you see this downtick in the first quarter to build a fair amount of occupancy to hit your guide. And then related to that, as you get this strong core growth, what -- can you walk through some of the offsets that limit the FFO growth this year?

Vikram. Well, look, on occupancy, I think the first thing that is worthy of remembering is that the past few years now of absorption is what has been the outlier. We've had very low years of annual absorption in our markets. So even with Chris' forecast of approaching [ 200 ], we'd still call that not fully normal or robust. So I think that's useful context perhaps. .

The remainder is, look, I think our guide is for about 25 basis points increase in average, also maybe not as extreme as you might be reading into. But finishing the year at 95.8% and building occupancy over the course of the year. To answer your direct question is what gives us a good amount of confidence in the forecast that we have here.

The next question comes from the line of Samir Khanal with Bank of America.

I guess, Tim, occupancy had a nice pickup in Europe and Asia in 4Q. I think you talked a little bit about Japan, but maybe can you provide some color on kind of the big pickup there in occupancy and sort of what's driving that?

Samir, I would say I would look back across the year, probably '25 the Europe story and definitely the Japan story are not new. We've tried to highlight that a few times in recent quarters. Occupancies there in the market have been pretty strong in Europe, at least, Japan is a different story at the market level. But our portfolio in both cases, has been quite high and has been that way for quite a while now. Anything you add, Chris?

That's right. I'd say momentum is building around the world. So ex U.S. has more momentum, healthy demand, lower vacancies.

The next question comes from the line of Ronald Kamdem with Morgan Stanley.

Great. Just I had a broader question on capital deployment, both on the data center and the traditional sort of industrial side. If you could just walk us through just what that potential pipeline looks like in terms of the ramp and what you need to see to sort of increase the run rate, specifically on the industrial side?

Yes, Ron, I'll start and maybe Tim will chime in here. But as I mentioned, we have a significant number of opportunities. Good news is we saw this real estate cycle continue in the fourth quarter. As Chris mentioned in his prior remarks, we're seeing really starting to see better activity in really all size ranges. It's not just a big box story or at least fourth quarter wasn't just a big box story. So we can watch these markets literally by the week and month and make decisions on the fly and ramp accordingly.

Yes. I would say that's precisely right. And Ron, and maybe I would give a different context, it really is built up week-by-week and investment committee as teams are deciding conditions in their respective markets are appropriate. It's not something that we govern top down. .

The next question comes from the line of Nick Thillman with Baird.

Maybe touching still on the development starts on the industrial side. Is it fair to assume that you still have a little bit more bias ex U.S. in that market? And then as we think of the land bank overall, you guys have alluded to the mark-to-market upside, but then replacement cost rents. I guess as we look at the bank -- land bank overall, what percentage of that bank do you think is in the money when it comes to new construction like barring or if the demand is there, like what percentage of that would you say is in the money at this point on new starts here.

Well, I'll take the second part and Dan can pick up the geographic mix maybe after. It's challenging question [ on PAC ], the way you're phrasing I guess what I would tell you is that we evaluate the valuation of the land bank every quarter, and we continually read out to you how we see that. Presently, we see that around 110% fair market value to book value. So that is going to be a mix of projects that are more deeply in the money than others, but I can only provide you the information on that aggregate basis.

As it relates to geographies, about 2/3 of the starts that we're assuming for the year on the logistics side are in the U.S. for 2026. That's up about 10%, 15% year-over-year. And then we're seeing strong markets in Latin America between Sao Palo between Mexico, I'd say, not the border markets in Mexico, but Mexico City and then if you go over to Europe, we're seeing -- we'll see some starts in Germany, Netherlands, Northern Europe, mostly. .

The next question comes from the line of Vince Tibone with Green Street.

I have a few more questions on the data center opportunity. On the 1.2 gigawatts you mentioned are under LOI, would those be mostly powered shell or turnkey. I'm just trying to get a sense of the total investment [ for that hour ]. And then could you also clarify just what exactly it means to be kind of in advanced stages of procurement for power? I mean it's just everything we hear that's taking longer and longer to get power from the utility. So I'm curious like how far out that stuff that's in advanced stages may take before power could be delivered? Like is it -- because you have commitments to that power, but it may be 3 to 5 years, if not more, until it's actually delivered? Just trying to get a sense of both those points.

Vince, I'm going to answer your first question in a more generic way that we think of the program overall as likely being on the order of 60% to 70% powered shell and having some amount in our forecast reserve for full turnkey. The deals that are in the near future are still working through those discussions. And we've seen -- it may be surprising, but we've seen even in late stages or mid-build customers decide to transition from power shell to full turnkey. So that's why it's a little squishy right now.

But to widen you out to think about the entire initiative, think about 60% to 70% powered shell.

And Vince, to your question around what defines advanced stages, what secured. Advanced stages, it's the point when a project has a preliminary utility agreement that really signals progress towards like a firm power agreement, it's really just pending the final design and construction with the utility. There's significant capital that's been outlayed at that point, and it's definitely a defined path to securing that firm power. That often happens after many 12, 18, 24 months of negotiations with these utilities. And then it typically takes another year to 2 to get to that secured stage. And then we consider secured power is when the data center project has a binding agreement through the form of an energy service agreement with the utility, and that's guaranteeing power delivery and committing to build that necessary infrastructure. .

The next question comes from the line of Michael Goldsmith with UBS.

Despite what was a particularly volatile year in 2025, you still ended up at the high end of your initial core FFO like [ promote ] guidance, which suggests stability in the algorithm, but the spread for the outlook in 2026 is even wider. So is there anything that would add more sensitivity or a wider range of outcomes this year? And then as well, Southern California lease percentage picked up 140 basis points. So if you could touch on the health of that market that would be appreciated.

Michael, it's Tim. On your first question, I would think of it more as math, to be honest. We're just getting to earnings per share FFO per share here. That's quite a high number crossing over $6 now. And if you just think of variability in percentage terms, the penny range that we provide needs to move with that growth and widens out is just natural.

Michael, it's Chris. On Southern California, a great pickup. There has been a tone shift in Southern California worth discussing. So look, let's acknowledge Southern California has been a soft market and market vacancies are elevated there, but there is a new direction in customer demand, and it's giving us confidence in the call that we've been consistent in making in terms of the opportunity for cyclical recovery to emerge.

What I'm specifically looking at is in the back half of the year and so both in the third and fourth quarters, gross absorption and net absorption went in a different direction in an improved direction Customers are engaging earlier in renewals. There is a broader discussion of new lease requirements across all submarkets from a wider range of customers. And as it relates to submarkets, we often get asked that question, and there is still some nuances we pass as we approach this inflection point.

Inland Empire is clearly outperforming Los Angeles. There's great improving net absorption in that geography. Class A over Class B is outperforming. That's a positive for our portfolio. In fact, there are a couple of pockets where there's some scarcity and healthy customer demand that's leading to firming and improving pricing. So thinking really big box Inland Empire. Putting it together, the cycle is progressing and short-term weakness is dissipating.

The next question comes from the line of Mike Mueller with JPMorgan.

Do you have fund contribution expectations for '26 reflect just ongoing development activities for warehouses? Or does it factor in any contributions for the new vehicles?

The only thing included in the contribution guidance is -- well, that we contemplate for the year is that the Agility Fund that I mentioned in my prepared remarks before it starts some of the development activity it will undertake in the year. It will take some contributions of land from Prologis marked up to fair value is the way that will operate, and that is reflected in the guidance. .

The next question comes from the line of Nicholas Yulico with Scotiabank.

Tim, in terms of the guidance on same-store growth this year, I was hoping you could just unpack that a little bit in terms of the acceleration in same-store growth this year, is that just being driven by easier occupancy comps or are you also expecting some improvement in mark-to-market that you can capture?

Yes, it's going to be -- let's break it apart. On the rent change piece or the mark-to-market, as you mentioned, that will be a decreasing factor as rent change amounts get a little bit more normalized we had 50% rent change in 2025, as I mentioned, and you can unpack and infer by looking through the supplemental, will be in the high 30s or roughly 40% in 2026 as you evaluate market rents for our discussion of where they sit in our lease mark-to-market.

So that will be a smaller contributor, a long way of saying. -- occupancy drag will be a little bit less. One of the predominant factors is just lighter FDLA really from the Duke acquisition. That does have a long tail. I'll say that is still dragging net effective same-store growth by 75 to 100 basis points, and it will be with us for a few more years, but it does slowly reduce over time.

The next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

I wanted to go back to the capital deployment, ask about something at a little bit of a higher level. You previously talked about deployment drag in '26, just given lighter levels of starts in '24 and '25, which has impacted FFO growth to some extent in the near term. Can you talk about the cadence of stabilizations during the year and comment on whether you see that accelerating or increasing as the year progresses. I'm just wondering if you can talk about the magnitude and impact of that drag within the '26 guidance and whether you expect that to begin alleviating as '27 approaches?

Yes, Todd, I think the best disclosure on this is present in the sup with regard to the pipeline overall, and [ we do demark ] what years of stabilization of projects fall into. We don't provide it out by quarter. That's just a lot of detail for one. But on the speculative side, that's going to be subject to when leasing is being achieved.

Perhaps just to help you, if you wanted to unpack some breadcrumbs from prior year starts, which we give you quarterly, I'd say our spec business is typically leasing up between 7 and 9 months. Long-term average would be 7. Our recent years have been a little bit longer. I expect to see that tighten as market conditions do and then build-to-suits, of course, come online immediately at project completion.

The next question comes from the line of Brendan Lynch with Barclays.

Another follow-up on the data center side. Can you discuss the 5-plus gigawatts of power that you have access to and how fragmented that power is dispersed either geographically or even conceivably by asset and where the largest blocks are that you have? .

Yes, sure. So our land and the power bank, if you will, it is distributed across Tier 1 and Tier 2 markets across the U.S. and Europe. That's Northern Virginia, Silicon Valley, Chicago, New Jersey, Dallas, Portland, in the U.S. is Tier 1. It's the FLAP-D markets. Literally, we've got Amsterdam, London, Paris, Frankfurt, Dublin that we're working. And then Tier 2, we've got a number of sites as well, Austin, Las Vegas, Phoenix, Salt Lake City, Boston, Denver and then Madrid, Milan and Berlin in Europe. So very dispersed, a wide range of opportunities here.

Our final question comes from the line of John Kim with BMO Capital Markets.

I Wanted to follow up on what's incorporated in same-store guidance in terms of the occupancy growth of the U.S. versus international markets? Will that international outperformance continue? And also what you're expecting from solar contribution given there wasn't much contribution last year, but [indiscernible] closer to the $1 billion Essentials revenue target that you're expecting by 2030.

Yes, John, the occupancy gains that I would see in same-store are relatively dispersed across our geographies. There's more weights coming out of the U.S., generally, of course, but the levels of improvement even at the market level as we think about Chris' absorption or kind of uniform and basis point terms between those geographies. Solar revenues, I'm glad you highlight, it is -- it is in NOI. We're very proud to have surpassed that 1 gigawatt goal, by the way, I'd like to mention again -- the growth you see there, while impressive on its own is just at a nominal level, to be frank, that it kind of pales in comparison to the $6 billion, $7 billion of NOI from rental operations we have now, but that will continue to grow from here and become a much more meaningful contributor in future years.

This now concludes our question-and-answer session. Now I would like to turn the floor back over to management for any closing comments.

Thank you for joining us today. We appreciate your interest in the company. We look forward to connecting throughout the quarter or during next quarter's call. Take care.

And ladies and gentlemen, thank you for your participation. That does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.

Greetings, and welcome to the Prologis Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Justin Meng, Senior Vice President, Head of Investor Relations. Thank you. You may begin.

Thanks, Jamali, and good morning, everyone. Welcome to our third quarter 2025 earnings conference call. The supplemental document is available on our website at prologis.com under Investor Relations. I'd like to state that this conference call will contain forward-looking statements under federal securities laws. These statements are based on current expectations, estimates and projections about the market and the industry in which Prologis operates as well as management's beliefs and assumptions. Forward-looking statements are not guarantees of performance, and actual operating results may be affected by a variety of factors. For a list of those factors, please refer to the forward-looking statement notice in our 10-K or other SEC filings.

Additionally, our third quarter earnings press release and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP and in accordance with Reg G, we have provided a reconciliation to those measures. I'd like to welcome Tim Arndt, our CFO, who will cover results, real-time market conditions and guidance; Hamid Moghadam, our CEO; Dan Letter, President; and Chris Caton, Managing Director, are also with us today.

With that, I will hand the call over to Tim.

Thanks, Justin. Good morning, and thank you for joining our call.

The third quarter marked another period of solid execution with many encouraging signs across our business. We had a record quarter for leasing with signings of nearly 62 million square feet, an uptick in portfolio occupancy and another very strong quarter in rent change. We see a more positive tone across the platform with strengthening customer sentiment, improved leasing velocity and continued success in build-to-suit activity, which taken together suggest the market has found its footing and the stage is set for an inflection in occupancy and rent. Momentum also extended to our data center business. This quarter, we moved another 1.5 gigawatts of additional capacity to our advanced stages. Now with 5.2 gigawatts of power, either secured or in this advanced stage, Prologis is one of the largest owners of utility Fed power available for data centers.

Translating this to dollars would amount to $15 billion of investment as Powered Shell and as much as 4x that is delivered in a turnkey format. For this reason, we have begun the exploration of additional capitalization strategies to fully capture the opportunity. Our ability to combine real estate, power access, customer relationships and capital provides the foundation for one of the most significant value creation opportunities in our history, and we are well positioned and laser-focused on its execution.

With that as a backdrop, let's turn to our results. Core FFO, including net promote expense was $1.49 per share, and excluding net promotes was $1.50 per share, each ahead of our forecast. As noted, we had a record leasing quarter supported by a clear pickup in new leasing, which had been below historical levels for some time but is now rounding out the picture together with healthy renewal activity and heightened build-to-suit demand. As a result, occupancy grew over the quarter to 95.3%, an increase of 20 basis points, in [indiscernible] to quality persists to our curated portfolio and platform, evidenced by our 290 basis points of outperformance in the U.S. Rent change during the quarter was 49% on a net effective basis and 29% on cash highlighting the durability of our lease mark-to-market, which will provide meaningful rent change over the coming years even at spot rents.

The lease mark-to-market ended September at 19%, which reflects the capture of another $75 million of NOI and during the quarter and a further $900 million of NOI as leases roll. Putting it all together, net effective and cash same-store growth during the quarter were 3.9% and 5.2%, respectively. In terms of capital deployment, we had a lighter quarter of development starts with expectations for a strong fourth quarter due to the specific timing of transactions. 2/3s Of our volume in the fourth quarter -- in the third quarter was in build-to-suits with large global customers, many of whom rank in our top 25. We signed an additional 9 build-to-suits this quarter, driving the total to 21 so far for the year and amounting to $1.6 billion of total expected investment.

Beyond that, this pipeline continues to grow with dozens of viable deals on PLD owned land and outcome of our close customer relationships and strategic land bank. We expect build-to-suits will represent over half of our development volume for the full year. Finally, our Energy business delivered 28 megawatts of solar generation and storage in the quarter with 825 megawatts of current capacity, we are on track to deliver on our 1 gigawatt goal by year-end. Interest from customers remains robust against the backdrop of increasing energy prices and forecasted shortages in power. We continue to integrate our solar storage and off-grade energy solutions with our real estate another example of how Prologis continues to evolve with and for our customers.

On the balance sheet, we closed on $2.3 billion in financing activity across the REIT and funds, which included a very successful EUR 1 billion raise at 3.5%. Our global access to capital remains one of the defining strengths of our franchise with an in-place cost of debt at just 3.2% and more than 8 years of average remaining life. In our strategic capital business, we had modest net inflows for the quarter across our open-ended funds as investors begin to reengage following several uneven quarters. But at the same time, we're excited by our progress on new vehicles that are drawing strong interest and position us well for the next phase of growth in this business. We look forward to sharing more on this in the fourth quarter.

Turning to our customers. Sentiment is clearly better as informed by our day-to-day discussions across the globe as well as in focused strategic dialogue like that in our Customer Advisory Board held late last month. Beyond improved decision-making, larger occupiers are pursuing reconfiguration and consolidation strategies with a shift toward network optimization rather than contraction. In keeping with the typical real estate cycle, we'd expect smaller and medium-sized enterprises to follow suit. And out of interest, e-commerce penetration, now 24% of U.S. retail sales has expanded since COVID and continues its march higher as meaningful and secular driver of demand with 52 unique names transacting this quarter.

In terms of operating conditions, overall, we see demand improving. Occupancy has formed a base and rents are progressing through their bottoming process. In our U.S. markets, we estimate 47 million square feet of absorption for the third quarter, holding market vacancy steady at 7.5%, where we expect it to top out. Meanwhile, the supply picture remains favorable as the construction pipeline depletes and starts are below pre-COVID levels. Market rent declines have been slowing just over 1% this quarter, also evidencing the market shift. Our strongest markets in the U.S. continue to be across the Southeast and Texas with solid absorption in Houston, Dallas and Atlanta. The tone in Southern California is also improving. Although rents remain soft, leasing activity has turned up, both in L.A. and the Inland Empire.

Consistent with our prior view, we expect SoCal to lag the broader inflection in operating conditions in the near term, but outperform over the long term. Our platforms outside of the U.S. are certainly a bright spot. Latin America, again delivered excellent results, where Brazil and Mexico together, have been providing the highest same-store growth in our portfolio, Europe has maintained higher occupancy and more moderate rent decline relative to the U.S., and our Japan portfolio maintains its track record of exceptional occupancy overcoming the higher market supply of recent years. With real estate in 20 countries across the world's most dynamic markets, our global scale continues to serve customers and the benefits of this diversification is evident in our performance.

Finally, on data centers, demand for our product has been exceptional. Every megawatt we can deliver over the next 3 years is already in dialogue with customers. We're taking a deliberate and disciplined approach consistent with our build-to-suit strategy, and by staying close to customers and their evolving needs, we have strong conviction in the depth of our pipeline and look forward to announcing on a handful of starts in the coming quarters.

Turning to guidance. As we move into year-end. Average occupancy at our share is unchanged at the midpoint of 95% and rent change will average in the low 50s for the full year. The range for same-store NOI growth is increasing to 4.25% to 4.75% on a net effective basis and 4.75% to 5.25% on a cash basis. We are increasing our G&A guidance to a range of $460 million to $470 million and also increasing our strategic capital revenue guidance to a range of $580 million to $590 million. In capital deployment, we are increasing development starts at our share to a new range of $2.75 billion to $3.25 billion. And as a reminder, only previously announced data center starts are included in this guidance. We are also increasing our combined disposition and contribution guidance by $500 million to a range of $1.5 billion to $2.25 billion at our share.

In total, our guidance is for GAAP earnings to range between $3.40 and $3.50 per share. Core FFO, including net promote expense, will range between $5.78 and $5.81 per share, while core FFO excluding net promote expense will range between $5.83 and $5.86 per share, a $0.02 increase from our prior guidance. To close, the outlook for Global Logistics is strong and the demand for data centers and distributed energy systems is robust, all of which underpins our confidence in the long term and absolutely unique opportunity for our business. Our focus remains on disciplined growth, operational excellence and leaning in on these long-term trends. These priorities have been central to Prologis since its founding and continue to shape every decision we make. And as we reflect on the leadership that built this company and the enduring culture that Hamid has created, we do so with a deep sense of commitment and continuity. The foundation of excellence is strong. The strategy is clear and the opportunities ahead are significant and unmatched.

Thank you, and I'm going to pass the call over to Dan to close out our prepared remarks before turning to Q&A.

Thanks, Tim. Before we move to questions, I wanted to take a moment to recognize Hamid. Today marks his last earnings call as our CEO. This is his 112th call since we went public back in 1997. It's really hard to sum up everything he's accomplished in just a few words. We've all learned so much as part of the school of AMB and Prologis under his leadership and it's truly been a one-of-a-kind experience. Over more than 4 decades, Hamid has built something special, a company that leads our industry, sets the standard for innovation and puts people, culture and customers first. He's created a platform that's second to none, built on vision, courage and the ability to see around corners. For me, it's been a privilege to watch him lead, to see how he balances ambition with humility and how he pushes all of us to think bigger and move faster. Hamid, on behalf of all of us at Prologis, thank you for your leadership, your trust and for everything you've done to make Prologis what it is today. You will likely never fully comprehend the impact you've had on the people in this room, this company or this industry over the last 42 years. We're all grateful and we're excited for what's ahead with you as Executive Chairman.

With that, operator, we're ready for questions.

[Operator Instructions]

Our first question comes from the line of Jon Petersen with Jefferies.

Congrats on the quarter. Hard to tap Dan's commentary there about Hamid, thanks for all your honest commentary over the years. We really enjoyed starting earnings season with your call for the last 112, I guess I haven't been around for all 112, but for a lot of them.

If I could start with a question on data centers. Right at the top, you said you're exploring additional capitalization strategies. Can you talk more about what that might look like if you're looking at exploring -- establishing a fund to buy out properties upon completion or maybe more of a development fund or maybe just generally what your comfort level is on owning and operating data centers beyond development at this point?

Thanks, Jon. Let me start and then maybe Tim will pile on here, but it might be helpful for me to just lay out what's going on in our data center business right now. We've talked a lot over the last couple of years about building an experienced and dedicated team from the industry. And we've been very successful in doing that, and we're going to continue to build that team into 2026. We also have really incredible operational synergies between our core business and this data center team with our procurement platform, you look at our distributed energy business now, just really significant synergies. And then this pipeline that we have is huge. It's really significant. 1.4 gigawatts of power in its secured or under construction stage or the 3.8 gigawatts in the advanced stages. So really incredible what this team has done in a very short period of time. We are continuing with the same strategy we've been sharing along the way, which is build to suits with these hyperscalers. And it's really amazing just the active discussions and conversations and lease dialogue with these customers across our entire pipeline.

As Tim mentioned in the script, every megawatt we can deliver over the next 3 years is already accounted for in conversations. So we have a big tailwind behind us there. And then if you think about our land bank, our 14,000 acres of land that we own or control. You look at our 6,000 buildings in these infill locations and think about how well we are set up for not only the current wave of AI demand, but the next wave, which will be inference. So these are big numbers, and we have taken the next step of starting an exploration over what the universe of opportunities are, what is the art of the possible for us in the data center business and capitalization. So we don't have any specifics to share with you now, but we hope to in the coming quarters.

And I will just pile on with one thought, Dan. It's just that in the interim. The balance sheet is obviously very capable of taking on a large volume of projects. We have almost $2 billion under construction in this last year or 2, which we can easily grow given the scale and rating of the balance sheet.

Our next question comes from the line of Michael Goldsmith with UBS.

Congratulations, Hamid. My question is on the net absorption during the period. I think Tim, you called out 47 million, which is a pretty material acceleration from the prior 2 quarters. So is there a way to think about how much of that was kind of pent-up demand from the uncertainty earlier in the year versus like what is kind of like the sustainable run rate? And then also just if you could talk a little bit about the cadence of leasing through the quarter so we can get a sense of if it's accelerating.

So yes, you're right. Net absorption, 47 million square feet. Yes, there's some catch-up there from the second quarter, parsing that -- parsing the market statistics is not something that we can do. We can look at our own leasing activity, and there's a clear turning point in demand. There's a clear move higher. And so some of it is catch up, but there's just a clear step higher. And this is revealed in a variety of things, including our pipeline, which remains full. And just for context, as you make an assessment of these numbers, now that we think roughly 60 million square feet is a normal velocity, a quarterly velocity for the demand to improve in the coming quarters.

Our next question comes from the line of Steve Sakwa with Evercore ISI.

Dan, I echo many of the comments that you made about Hamid and really wish you luck moving forward.

Maybe just following up on Michael's question about the supply and demand. As you look out over the next year or so, would it be your expectation that supply and demand are kind of largely in equilibrium? Or do you think there's still a little bit tilted more to supply outpacing demand. And I guess what are those expectations for market rent growth as you look out over the next 12 months?

Thanks, Steve. Let me start, and I'm going to pass it over to Chris. I think the way you need to think about this right now is that we're in a classic real estate cycle. Demand is strengthening and we're seeing these large customers make decisions. That's the real big early sign of a recovery. And as supply remains low, as Tim mentioned in the script, it's below pre-COVID levels. And with occupancy and rents bottoming out, that's a good sign for what's to come, but Chris, can give you some more specifics?

Yes, absolutely.

So Steve, the key missing ingredient here was this new direction in demand that emerged over the third quarter. And -- so we had roughly 95 million square feet of net absorption year-to-date, and we think a full year number will be roughly 125 million square feet. So it's on a path of improvement that will emerge.

How that plays through in '26? We think vacancy rates are topping out around this level. And that's based on where the under construction pipeline stands today, which is 190 million square feet. And so we'll see deliveries decline into 2026, a lower hurdle for net absorption to begin to cause the market to tighten. And how demand comes through in the marketplace will be a product both of the pipeline we have today and the macro environment that emerges over the next 90 days and over the course of the year.

Our next question comes from the line of Ronald Kamdem with Morgan Stanley.

Congrats, Hamid, as well, very impressive.

I guess my question was just you guys -- looks like you're calling for an inflection point here in occupancy, in rents and so forth. I just was hoping you could sort of double-click and talk about sort of the different tenant categories, what you're seeing on the ground and any sort of markets that are standing out like Southern California?

Sure, it's Chris. So demand has clearly turned a corner. I hope you're hearing that and the market is an inflection point, an inflection period here. This comes from greater breadth and depth of our customer discussions and their willingness to make decisions. We're seeing it in leasing volumes, as we described, including better new leasing, which had been quieter and in our sustained elevated pipeline and lease proposals.

As we look at market contours and the contours of our pipeline, I'd say it's substantially similar to the color we gave you 90 days ago. So there's good activity across early proposals and more mature negotiations in terms of both new and renewal activity and across a range of markets. The one area that stood out to us was still clear strength in the larger size categories. So that's clear above 0.5 million square feet, but it's also broadening down to, say, over 250,000 square feet. So there is a move higher. As Tim described, the strength of our business is international in nature. So let's not lose that point. It's really across all the geographies he named. And then in the United States, it's really in the Sun Belt.

Our next question comes from the line of Craig Mailman with Citi.

It's Nick Joseph here with Craig. And just to echo everyone else, congrats Hamid and best of luck.

Just going back to the data center kind of comments, I understand the value creation opportunity on the development side, but how are you thinking about the normalized growth rate of data centers versus industrial just from an owned perspective?

Well, I'll take the first part of that [ at least ]. I mean I think if you think about so far what we have been doing on the exit side of these assets, selling them and then we're contemplating a sell down, which will be maybe substantially the same thing. The way we think about its contribution to the growth rate is really the reinvestment of that value creation back into the core business. If we think about that in our logistics development portfolio, just to give you a rule of thumb where we -- let's pick $5 billion as a run rate of development investment and logistics. That ought to contribute about 150 basis points of additional growth per annum. So you could use that to benchmark a similar concept to the value creation you might expect will generate in this business.

Our next question comes from the line of Caitlin Burrows with Goldman Sachs.

I guess, congrats, Hamid, on everything and given, it's your last call, I guess there's something you want to be able on the call.

So I was wondering in the press release, you mentioned that you believe it's one of the most compelling setups for logistics, rent and occupancy in the past 40 years. I feel like we've talked about it a bunch, and everybody has talked about turning the quarter -- corner, but everybody likes to hear your view. So wondering last quarter, you mentioned that market rents could happen in 2027. Wondering if that's still your view? And is it just, I guess, we think of like more details on that comment in the press release, is it a setup for 2027 as opposed to like something more near term? I feel like it peaked some interest. so wondering if you could discuss a little bit.

Sure, Caitlin. Here's the way I look at all of these cycles, including recovery from the global financial crisis and other things. At the end of the day, it is the rate of return and replacement costs that drive long-term rents. So we have a bogey out there. I don't know whether it's 6 months out, 1 year out or 2 years out, I really don't know. But I know when the market stabilizes, it will stabilize at a much higher level than today's rents. So really, what you and we and everybody else has to handicap is what is the catch up slope from where we are today to that higher trend line, which is going to grow over time with inflation and all that. But that trend line is significantly above today's rents. We can argue how much -- and I think it's about 40% over in place. And probably 25% -- 20% to 25% above market rents today. But we can debate that. But depending on how long out you assume for that, it will affect your growth rate, but those growth rates will be really high.

And let's assume that it takes another quarter or 2 before we get on that trajectory doesn't matter because during a quarter or 2, we leased relatively small amounts of space and those marginal differences in rent don't matter much. What ultimately matters to the earning power of this company, which I acknowledge, maybe past the window that you guys are most interested in or may not. That is what excites me about this business.

Our next question comes from the line of Vikram Malhotra with Mizuho.

Hamid, really going to miss you on these calls. Hopefully, we hear from you in some other shape or form. Hopefully, you -- perhaps you'll start a blog or a podcast, which will be helpful, but congratulations and wishing you all the best for your next move.

Maybe just a quick -- I guess I want to clarify one thing. And then my question really is, you've talked a lot about bottoming. You said market vacancy is likely bottoming given Prologis typically outperforms? I'm sort of wondering what your view is on the direction of Prologis' occupancy into 4Q specifically and -- broadly next year and what that means for rent growth in Prologis' markets?

And then just to clarify, Hamid, you mentioned on Caitlin's question, I just wanted to get a bit more specific on the next year or so, the big opportunity you see, specifically is it more in vacancy? Is it more in rent growth? Or is there something else you're thinking about bigger picture in terms of the opportunity?

Vikram, I'll start. Good multipart question there, well done. On occupancy, you can unpack our average occupancy guidance. Obviously, it provides for a range of outcomes given just there being a quarter left. But look, I'm reasonably confident we're going to sustain around this level. It would be a consistent commentary with what we said about the market, and we'll be looking for opportunities to build from there going into 2026.

You asked about the market landscape. I think that was question two. And as it relates to the RIN forecast, Hamid described how hard it is to have an conviction at this point, at an inflection point. And so let's just level set market vacancy is 7.5% today. They're going to hang around this level for a little while for a couple of quarters, let's say, and improve through '26 -- later in '26. And that's going to be a product of the supply that's coming in the marketplace. By the way, development starts are 75% below peak and running 25% below pre-COVID levels. And demand ran 47 million square feet in the quarter and has the potential to improve over the course of the coming year, but perhaps not quite get back to normal, just given the broader macro landscape, notwithstanding the momentum we have with our customers. And so the thing that I think you'll see on rent growth, without giving you a specific number is the weakness, the softer markets are dissipating and there's a wider range of better and stronger markets, and that's going to really evolve over the course of the next year.

Let me just pile on one more thing before Hamid comments on whether or not he's going to start a blog or a podcast.

No.

Okay, you got that answer already. But going into 2026, our priorities remain the same. If you look at our build-to-suit pipeline right now, it remains robust, and we're having a phenomenal year with build-to-suits, 21 deal signed, 75% of that volume has already started this year. You should expect to see the rest of it start through the end of the year. And we're in conversations on nearly 30 million square feet of new deals. So really excited about that. It's by far the best incremental return on our investment.

And then you look at our data center business, data center business is significant, and we're going to continue to invest and keep that a high priority. And then if you also -- we're going to have started spec in [ 18 ] markets this year. And I can see that actually opening up a bit more especially as Chris mentioned, internationally and then even in several pockets around the United States. So plenty of priorities and big things to look into '26 and be excited about.

Our next question comes from the line of Samir Khanal with Bank of America.

Yes. I guess congratulations from our side as well, Hamid. So Tim, can I ask you to provide more color on the customer sentiment you talked about the strengthening in your opening remarks. Clearly, there is the tariff in news you get pretty much on a weekly basis, creates the volatility. What our customers now at a point where they think this is sort of a new normal and are more comfortable making long-term decisions as we think about sort of this inflection in occupancy.

Yes, Samir, this is Dan. Yes is the answer to your question. Customers have definitely become more desensitized to the short-term noise as they look at making long-term decisions. It's great to see these well-capitalized large companies leading the way because we typically see the small, medium businesses follow suit here. So overall, they need to make these long-term decisions and can no longer be held back.

Our next question comes from the line of Nick Thillman with Baird.

Congratulations, Hamid. I guess kind of looking at the overall picture, we understand demand is kind of getting back to its long-term average starts coming down. Tim, I just kind of wanted to -- we hear a little bit on just credit risk and private credit. I guess, are you seeing anything in the portfolio that might give you a little bit of pause when you're looking at just kind of vacancy peaking here and then the ability to build occupancy, any sort of risk within the portfolio or the broader market in general.

No, I would say not in the way you're asking. I mean bad debt expense is elevated. We've been talking about that over the course of the year and even coming into the year, pre-tariffs, we had an expectation for a little bit elevated level may have expected in the 30s at the beginning of the year, and our experience is probably going to be 40s in terms of basis points on revenue, well below some of the higher numbers we had seen in past crises.

And we've taken the opportunity in this last cycle where it's very challenging to get space, and we could do more around customer selection and credit and did a great job improving the overall credit health of the portfolio, and I think that shows up in these statistics.

Our next question comes from the line of Vince Tibone with Green Street.

Congratulations again, Hamid, from the entire Green Street team on a great career.

And then just -- I have one more question on the data center business. I like to understand how much data center development, you'd be comfortable starting in a given year or having under construction at any given point in time. Really just trying to get at like how quickly you could potentially realize the large value creation potential from the data center land bank? Like what's the constraint from doing $3-plus billion of data center starts in a given year? It seems like demand is there and the power is secured. So I'd love to just kind of get a sense of what a realistic pace of starts? Or how are you really thinking about that dynamic?

Vince, it's Tim. I don't know that I see a limit. $3 billion is a very easy number, honestly, to handle. I think if we were talking about speculative program. That's where we would have a lot of consternation about what's the appropriate number and getting out on a limb. Our approach here on build-to-suits, together with the debt capacity in our balance sheet, the liquidity, the takeout options we're exploring. We're not constraining ourselves. And that's why we're very active in pursuing -- I hope it's getting underscored here, the incredible amount of energy we have now gathered and the volume of customer conversations that we're having is also very high. So we're going to see these volumes come through, we're preparing for them, and we're ready for them.

Yes. And Vince, the way I'd think about it is power will be the constraint going forward, it won't be capital.

Our next question comes from the line of Blaine Heck with Wells Fargo.

Great. Hamid, congrats on all your success, best of luck, and I hope we can stay in contact.

Can you guys talk a little bit about your updated thoughts on the transaction market and acquisition opportunities and whether you've seen any movement in cap rates or pricing in general as the 10-year has showed some moderation more recently?

Thanks, Blaine. The transaction market has been surprisingly resilient. As a matter of fact, volumes in '25 are up about 25% year-over-year. So we're seeing a lot more out there. Overall pricing is pretty consistent. Market cap rates in the low 5s. And then I would say IRRs in the low to mid-7s, obviously, depending on location and product type. And maybe one of the biggest drivers is how much [ wall ] is left people are more focused on shorter-term wall today than before.

Our next question comes from the line of Mike Mueller with JPMorgan.

Congrats, Hamid, as well and best of luck.

I guess the question, can you talk about the pace of spec development leasing today and if you're seeing notable improvement there recently as well?

Mike, it is getting better, yes. We would typically see 7 to 8 months, I would say, on the lease of time across spec. That did extend probably over 23, 24 by 1 month, 1.5 months on average, and we're slowly seeing that come back to its historical norms. So yes.

Our next question comes from the line of Nick Yulico with Scotiabank.

So just looking at the rent change that you guys quote, the cash net effective rent change mark-to-market on leasing that happens in the quarter, came down over the past year. And I was just hoping you could break out maybe some of the impact of that from: one, just cycling through now some tougher lease expiration comps, maybe COVID leases impacting that number?

And then also on the renewals, if you could just talk about if since your retention is up, occupancy is starting to pick up, if you've been running a sort of occupancy first type strategy where you're -- you willing to negotiate more on renewals, and that's impacted mark-to-market. And as we think about this potential inflection here in your portfolio. Is there some help that comes to the mark-to-market number because of any of these factors changing?

Yes. Let me start with the prospect of rent change and kind of how the lease mark-to-market is going to sustain. Even the fact that, that's come down to 19% this quarter and quoting that effective here is 22% last quarter. It's really important to contrast that with what our rent change is though in the immediate, which is in the low 50s, as I mentioned. So it does really highlight a wide -- the potential for rent changes off of that average. And this is also an opportunity to remind you to take a look at our exploration schedule available in the supplemental. We cast out what the expiring rent is over the next 5 years. You can unpack from that same schedule, what we see as market rent and see positive rent change in the 40s is what you'll get mathematically next year. You'll see in the 30s, the following 20s and the following, that's without any further market rent growth. In fact, all the way through that exploration schedule, you'll see uplift. So I think that is a not perfectly understood or appreciated story, so I'm glad you honed in on that.

With regard to pushing rents, I think, was sort of the second part of your question. We are. You may recall in years past, we've talked about an active measurement we take where we kind of watch the teams and understanding how many deals are being lost due to rents. In the go-go days '21, '22, we are looking to see a meaningful number there. We wanted to see that aggressiveness in negotiating. And that rounds down to about 0, maybe in '23 some of '24, we're starting to see that lift up again, which is showing the courage as some of the market conditions tightened to lean in on those conversations and push rents again. It's going to happen in different markets at different paces, but it is beginning.

Our next question comes from the line of Brendan Lynch with Barclays.

I want to echo everyone's congratulations to Hamid. I think there will be case studies written on your career in the company built for decades to come.

In terms of my question, you talked about 1/3 of your customers serving basic daily [indiscernible] is about 1/3 serving cyclical demand and about 1/3s catering to more structural trends like e-commerce. Can you talk about where you're seeing the biggest changes in leasing and which of these buckets have more or less strength at present?

Sure. It's Chris. I'll jump in. So where are the areas of the biggest strength? I think for sure, e-commerce is part of the story. It's running at nearly 20% of new leasing. And so that's an area of strength. That's a global phenomenon. That's a range of markets phenomenon. It's also particularly infill as service levels continue to improve. So e-com would be part of that story. And then I would say, stable growth businesses, so your food and beverage, your medical companies, these are companies who are investing in their supply chains to improve service levels and also manage their costs. They're looking at their networks, they're looking at their labor spend and managing their costs. And so there's a supply chain investment there.

So then the question would be maybe where is there softness? And I would offer that there is some cyclical spending categories that are subdued. So I look at the auto space, I also look at housing related categories. So for example, furniture. Those are areas where perhaps high interest rate which have led to less robust growth in those industries generally. And so we have fewer requirements coming in from those categories.

Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets.

Congrats, Hamid, best of luck. I wanted to ask about the revised guidance. It implies a sequential decrease in core FFO of about $0.06 at the midpoint. Just curious if you can discuss some of the moving pieces that we should be thinking about some of the puts and takes heading into the fourth quarter and as we think about 2026.

One of the -- there's a few elements here and they're going to point to the need to rely on the kind of the full year to step back. A lot of what occurred in the third quarter were some timing really in 2 categories I'd highlight. One is in the timing of sales of investment tax credits. These are credits, you may recall that are generated out of our solar and energy business. We generate more credits than we can use on our own return. We sell excess credits. That happens upon the completion and stabilization of particular projects. And that timing across quarters can be uneven. We had a particularly large quarter of that in the third quarter, and you may have seen that represented in the other income line in our P&L. That is no change to our full year forecast. That's what we expected on the full year. It's just the lumpiness between quarters.

So between that and the other larger area would just be G&A, we had a lighter G&A quarter due to the timing of some particular items. It'll be a little bit heavier in the fourth quarter. Those 2 things, when normalized, explain what looks like a deceleration. And if you were trying to unpack kind of a run rate looking ahead at 2026, I've used more the second half of the year versus the fourth quarter. We'll tell you a little bit more. On that point, as we look ahead to 2026, I'd call back to the building blocks that we've talked about in the past of what long-term earnings ought to look like for Prologis, which is high single digits. We get there through not just the base of same-store growth, but after leveraging that with with our financial and operating leverage, piling on the value creation accretion we spoke about earlier, the contribution from the central businesses.

These are all the things that give you there into 2026, that's all in play with 2 headwinds to continue to be mindful of. One would just be about the march up on interest rates here that is still present with the long average remaining life we have in our debt portfolio, it will be moderate, but it is kind of anti accretive to the bottom line if you think about it in that way, and that will still be in play for us.

And the other thing that is -- will be occurring as we go through this transition and capital deployment. Last year, 2024 was our lightest year of development starts since our merger, which is really kind of incredible to think about. So its contributions at stabilization, which will be broadly in 2026 to that growth rate are nearly absent. They'll be quite low. At the same time that we're really excited about the capital we're going to be reinvesting into not only just logistics but also data center. So that deployment drag, as we've called it in the past, we'll be a bit more present next year. I think a simpler way of thinking through all of that might just be that a lot of the way we're looking at '26 right now, feels like the way we are looking at '25 1 year ago. So hopefully, that helps.

Our next question comes from the line of John Kim with BMO Capital Markets.

Congrats to Hamid, certainly on the Mount Rushmore of [indiscernible] CEOs in our book. But I'd like to ask about the direction of same-store NOI, given your guidance for the year, it implies basically that slows down to about 3.5% in the fourth quarter despite occupancy improving. I wanted to see if that was a realistic figure for you. And also, if you can remind us how you treat solar income in same store. Is it part of your same-store results given they are additive to existing assets?

Yes, John, a statistic you guys can't see from our disclosure is what is the average occupancy within the same-store pool itself. And given our M&A and a lot of changes to what comprises same store, it can be a markedly different number at times. And in that regard, the average occupancy in that pool a year ago was quite high, actually. And so we have that comp to work against here in the fourth quarter, and that's really what you're probably seeing in the deceleration rent change is really what I would stay focused on, and that's going to remain very, very strong.

Yes, solar revenues and their expenses do appear in NOI. They are very small at this stage. I would highlight and relatively flat probably across years. Their growth rate is not as significant as what we hope to see in the logistics front.

Our last question comes from the line of Craig Mailman with Citi.

Hamid, echo everyone's say. You'll be missed, and best of luck in the next chapter.

And I guess since I'm the last question, I'll try to pop two in here. Just a clarification on Nick's earlier question about how you guys think about the growth rate for the data center side. I guess we were thinking more same-store growth of a hyperscale portfolio versus that of an industrial portfolio from an own perspective and how you guys think about that as you're evaluating these different structures to potentially hold deals longer or perpetuity?

And then the second question, Tim, I know in the past, you've talked about the gap between new lease signings and when they actually commence. And so I'm just kind of curious, from an average occupancy perspective, with the reacceleration of leasing you had here in kind of the third quarter and hopefully into the fourth, when we should really start to see that average occupancy inflect quickly back up into 95% and because I guess everyone is asking about same-store and earnings, and that would be, in my view, probably a big piece of that acceleration.

Okay. Craig, so I think that the way you're framing some of the growth discussion around data centers is just not how we're thinking about it. Going back to -- I guess it was Nick's comments, we really do think about the value creation, reinvestment back into our core business. I recall Hamid's comments on this back in our Investor Day in 2023, and we stuck with that.

Now we may retain some interest, as we've been talking a lot about here. But in that regard, then its contributions to base rents and same-store growth will be relatively small, right, because we'll just have a small proportionate share of those earnings. And I think I'd also highlight, I'm not sure if this was intimated in your question, but we wouldn't look at our willingness to stay in the business or grow it more or less based on its same-store growth profile. That's an earnings concept. That's a GAAP concept. We're going to look at all of these investments from a total return and value creation perspective and that's what you see in our strategy. Do you want to hit occupancy?

Craig, I'm going to understand your question on returning to 95% is really a market question given where the company is leased. So just to be clear, the market is 7.5% vacant today. And we see it hanging here for a period of time as demand normalizes in the coming years, let's say, and that will present an opportunity, that will present recovery opportunity. And I want to make a long-term comment on that market vacancy. We enter this phase of the market at a substantially lower market vacancy as compared to prior cycles. We're talking about hundreds of basis points of superior starting point as compared to the prior cycles. And so that's going to set up the market for the rent dynamic and the optimism that Hamid shared earlier.

Thank you. And ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call back over to management for closing remarks.

Thank you. This is Hamid, and thank you, Dan, and so many of you who said so many nice things in this forum and elsewhere in the last couple of weeks. Before I wrap it up, I just wanted to share a brief personal note with you guys as my role as CEO. Yes, it has been 42 years, 27 of which have been a public company and calls. I guess Warren Buffett has beaten me on longevity, but since he doesn't do calls, I think I'm going to have this record on calls for a while. But when we started this business in '83, it was a tiny start-up. The world was just a very different place in terms of our industry. Today, Prologis is one of the most valuable property companies in the world. And the business has become highly professionalized and has grown in its scope and global footprint until with this that [indiscernible] and to have had the privilege of leading this company through it all, it's been surreal. We've navigated financial crises, geopolitical shocks, more than a few once in a lifetime events. Sometimes it feels like 1 of those every quarter. But here's the truth. Our success has very little to do with me. It's been really the result of working with great colleagues, great partners, service providers, investors, loyal customers and of course, a generation of you analysts and your many questions, many pesky questions because it made us better. That and a little good fortune and maybe a few good decisions along the way have been what has made this company what it is today.

What I'll remember is not the deals or the numbers, but really the people and the culture. And that's what the foundation and the secret sauce of this company. So I'm stepping aside with complete confidence. And I better be that way since more than half my net worth is investments in this company. So I take this transition very seriously. And I know that our next chapter is in the hands of an exceptional leader supported by a terrific team. They embody the same vision and values that have always defined and driven Prologis. These are the people who make Prologis -- will take Prologis even further. I really believe, and I want to underline this, and I say it every year almost that the best years of Prologis are still ahead of it. We are building a company of enduring excellence. It's been our mission, and I know we'll continue to guide everything we do. So to all of you, colleagues, customers, investors, analysts and the press, thank you for your trust, your candor and your partnership. It's been an honor of my professional life to lead this company, and I couldn't be prouder of where we are and where we're going. Okay, Dan and the team will speak to you next quarter, and I may be asking the questions then. Thank you. Goodbye.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.

Why don't we get started here. So welcome to the Prologis roundtable this morning. Joining me up here is Tim Arndt, who's the CFO of the company. And we have Justin Meng, who heads up IR. So Tim, I'll turn it over to you for some opening remarks.

Okay. Thank you. Good morning, everybody. It's great to be here. I'll just begin with a quick description of Prologis, if anybody is somehow unfamiliar, but we are, of course, the world's largest logistics REIT. We have $1.3 billion of assets across -- I'm sorry, $200 billion of assets across 1.3 billion square feet in 20 countries.

Our markets are principally characterized by large, more consumption-oriented supply-constrained markets for logistics distribution. We run alongside those large operations, a very successful development franchise, developing about $4 billion to $5 billion on average of new logistics properties per year.

Across the last 20 years we've developed nearly $50 billion of such assets, creating about $14 billion of value in the process. What's exciting about that is that's a great track record. You attach that to the fact that we have $42 billion of investment opportunity from here in a land bank that we own and control. That would be almost 10 years of development opportunity that I actually hopefully plow through more quickly than that, but the runway for growth and value creation is pretty significant in that regard.

We capitalize all that, of course, in the public markets, but also together with an asset management business that we call Strategic Capital internally, it encompasses about $65 billion of third-party AUM. And it's a great way to, not only spread the capital need of such a large business, but it also diversifies what we can do in terms of our holdings, our markets, our availability for customers in a way that enhances returns of the core real estate in and of itself, of course.

And then on top of all that, I'll maybe just close by saying we have always said that bigger is not better and better is better. But putting that to the side and as I've given, reaching the scale that we have in the last 6, 7 years through a lot of M&A and portfolio acquisition has given us an appreciation for what we can do with the platform that we can launch a number of businesses off of it energy business, our Essentials business, which we can get into a little bit here.

But it also has given great opportunity for higher and better use opportunities, which has always been the mainstay of our investment philosophy, but is at a different level with the data center conversion and AI opportunity that's ahead of us now. The fact that we have 6,000 buildings, 15,000 acres has a rich palette to draw from for value creation in that business as well.

No, thank you for that. So just as a reminder, I mean, I want to keep this interactive. I'll start off with questions, but if there's anything, just let us know.

So uncertainty has been a theme this year, in particular after Liberation Day, tenants have been slower to make decisions as a result. Has this improved at all over the past few months now that we have some clarity with trade agreements here?

Yes. I would say it's improved. And if I back up a little bit, we're encouraged by the activity we've seen in this quarter, and that's been a continuation of positive momentum, slow but positive momentum that we saw play out over the second quarter. So on April 2, we, like many, were at first concerned for sure of what all the tariff news brought and how it was something that felt very focused in our industry and what the implications would be.

We described a slowdown in leasing that occurred early in the quarter and did remain below average historical levels over the duration of the second quarter, but did improve, however, the level of lower decision-making and lease activity did improve by the time we got through June. And we described that at the time of our July earnings call is what felt like and we even heard from many of our customers was just either exhaustion or the need to look through what all the permutations on tariffs could bring to their business.

They couldn't hold off decision-making for too long, begin executing on leases. We saw that principally in the renewal side of the business versus new leasing. And you can imagine that renewal in a way to me is like almost making new decision, whether you're going to expand or contract or relocate. You might just stay in place. So that is an easier decision than some of the new leasing.

And indeed, in the second quarter, customers' decision to take on a new lease. We had a lot of proposals for that. We described a very large leasing pipeline, 130 million square feet at the end of the second quarter. A large chunk of that is in the realm of new leasing, but the conversion of those new leasing proposals to signed leases had been well below average levels, and that was a contributor to lighter volumes more so than renewal activity.

The update this quarter, why I say things are encouraging is that, that piece has be too strong to say unlocked, but it has improved. The conversion of new leasing proposals into signed leases is now occurring at a better rate, not yet the historically normal rate, but at a better rate than we had seen in the second quarter.

I think that's probably thematically for the same reasons that we described in the second quarter that there's not just exhaustion out of tariffs, but I just feel like the tariff conversation has moved a little bit more into the background, likely because many customers are understanding more with the passage of time, how they might be able to deal with tariffs, no matter what the outcome ultimately is, what they can do in their margins, what they can pass on, what it will mean to their footprint, where they can source goods. More of those questions are getting answered and allowing customers to proceed on their decision-making and their supply chain.

So it sounds like in sort of in July and August, things are moving in the right direction here.

Yes. And look, and I should say we're not out of the woods. So let's not run away with that. But the signs have been encouraging. I'll add another, which we highlighted in the second quarter was our build-to-suit activity.

So we had at Prologis $1.1 billion of build-to-suit starts in the first 6 months of the year. That was a record for the company in terms of its volume. We had been talking about that over 2024 that there was a lot in the build-to-suit pipeline, but decision-making was slow, the deals weren't being made.

But now they had been, and we had a record volume there. That pace or at least the success there, I should say, has kept up. We've signed up 8 new build-to-suits here in the third quarter. Pretty well diversified across geographies and customer types, not a theme there.

But we have described that as we think an indicator on where sentiment is as well because the kind of customer who is engaging on the build-to-suit is someone who is probably larger in size for one, a bit more -- has a bit more capital availability probably thinking a little bit further down the field and strategically about their supply chain needs. They're probably taking on a 10-year lease, not a 5-year lease.

They are planning to not have this space immediately, but instead are 9 or 12 months. So if we unpack that as an indication of where the market would like to be and those who can act in that way are, we would see that, that behavior -- the launch for space and the need for continual optimization of the space is present in the market, the smaller and medium-sized enterprises who may have less capability or just looking for a little more clarity, either in the tariff environment or just in the overhang that it's creating.

For the deals that you are signing, I mean, maybe talk a little bit about box size and the markets where you're seeing more activity than others.

Yes. One thing we're noticing and trends come and go, so you can't extrapolate too much from them. But the larger space sizes have been leasing better. And it's at times very large space sizes, but we would even to mark that around 250,000 square feet and above has been moving better. Markets, we would characterize similarly as we have in the last few quarters.

I mean we know where markets like SoCal are and how they're adjusting. They have longer -- a longer period of time to recover and inflect, but stronger markets remain in LatAm for us, Southeast U.S., Europe has been stable. And on the build-to-suit front, I think 4 of those 8 build-to-suits I just described are out of Europe, and we had very good build-to-suit volume in Europe last year as well. U.K., Southern Europe stand out as stronger areas for that activity. So that would be a description of what's stronger and weaker.

On the 130 million square foot that you've talked about, I mean, is -- it sounds like that's where the number is today as well?

Roughly Yes.

Right. And is there anything you're doing proactively at Prologis to convert this activity into signed deals?

Well, I hope so. Yes, I mean that's just our bread and butter moving those deals through the pipeline, getting them converted. Maybe a version of your question is how are we optimizing for rent change or occupancy? And I would say, look, we're still in the mode of solving for occupancy on a global basis, I would say, if I were to sum up all of the individual markets and transactions.

But you should know that by right of our scale and the data that we have about our the knowledge we have of our customers, the truth is we don't optimize that at a global level. We set it really down to every single lease. There can be situations where we know we don't need to solve for occupancy that this is the customers only alternative for whatever the reasons, and we're going to push rent in those cases.

So it varies, but I would say if I boiled it up to the global level, we're still looking to build occupancy because, frankly, we see the market as building a little more vacancy in the next 2 or 3 quarters before it tops out in the U.S. a little below 8% is our view.

In terms of that, again, that $130 million, can you give us an idea of how that number is sort of calculated in terms of -- I mean is it -- certainly, there is active conversations with tenants on -- the customers on that. But at some point, how does that math work to include that or not?

Look, it's just a simple aggregation of what we sales force. It's what is in our sales force funnel at various stages. It can be anything from a proposal stage to a final stages on negotiation. One thing that we report out to all of you in our supplemental is out of that pipeline, how long are deals sitting in there to give you an indication on market health and what's happening.

We call it gestation and that number typically sits in the mid-40s days. Now I think one thing you should expect to see when we report the third quarter, and I don't know this number yet, but I bet we're going to see gestation pretty long. I thought we're going to see 50 -- I wonder if we could have a 6 in front of it in terms of days and that's actually going to be reflective of the consternation that's sitting in the pipeline, which is that there's a lot of deals sitting there.

There's a lot of interest in space. And once again, that's the positive that we take away from the way the pipeline as well. The deals are lingering there because customers know they want to be made, but their decision-making has slowed. So by the time they actually release and get signed, we're going to report on those signings on September 30, but we're going to see there are deals that have been in the hopper through maybe much of the second quarter, for example. And we could see some elongated number of days on that basis, but it shouldn't be misconstrued for that reason.

Just wanted to get your view on kind of your latest views on net absorption here, right? And how you're thinking about that vacancy and market rent growth as we look over the next, let's call it, 12 to 18 months?

Yes. We haven't updated our view on net absorption here. Our call wasn't so long ago. We think we said somewhere between 75 million and 100 million square feet on the year here 2025. Beyond that, we have not forecasted and are not doing that today, but we have said we believe that the path of absorption and the way we see deliveries coming into the market over the coming quarters, we'd see the bottoming on vacancy at 2 or 3 quarters out from July was when we had said that.

So that remains our view. We would have thereafter, an assumption logically of some building of occupancy, the pace remains to be seen. But that will be an environment where market rent growth, positive market rent growth can now occur. We sometimes get asked, do we need 5% vacancy to see market rent growth? No. And in fact, we've got materials out on our site.

You can go find where we've plotted individual vintage years of market vacancy against what market rent growth has been in those years, and you see plenty of years we're at 6%, 7%, 8% and vacancy levels, there is positive market rent growth. It gets more intense as vacancy gets tighter logically, but we can start to see that show up even next year.

Got it. Great. I'll just stop there. Is there any questions that anybody has?

[indiscernible] Obviously dominant player, but are you finding a lot of competitive set relatively low that hard...

Well, they are -- maybe that's a relative content about the difficulty of entitlements, but they're definitely harder than they were 10 and 15 and 20 years ago. We used to think that you needed to prepare to build an industrial site 6 or 12 months ahead of time.

In many of our markets, we're thinking about 3 and 4 years at least. And on the entitlement front to stay on that, there's large import markets of ours like in California, probably our biggest holdings where new legislation is actually prohibiting for regulatory reasons where new logistics sites can be never minding just traditional geographic and other barriers. So new supply is going to continue to be very challenging to bring to the market.

So those barriers are helping. What about [ starts ]?

Look, starts have been low. Starts have been 30 million, 35 million square feet per quarter, which are levels that -- in this first several quarters running now kind of on average. Those are levels that you'd have to look back to around 2015 or so to find a similar level of starts. So that's good. It gives us a lot of visibility on incoming supply that's going to help to reduce the vacancy rates in time.

I think this is a good place to drop in a more nuanced point, but as you're watching starts, you're watching what we're doing and the kinds of -- I wouldn't say just markets that Prologis is in, but our submarkets, you have to look at where the starts occurring is that the weaker or stronger, more supply-constrained submarkets of those markets. And then there's even another category of, well, what is the Class A supply in the submarket of this larger market. And so we start to very thinly slice where we want to be. And you may see others going in more broadly out of market, bringing supply that just isn't going to be competitive with our portfolio.

And let me just clarify, the new leases on that, the improvement that you saw this summer. That excludes the build-to-suit, right?

That's right.

Is it any -- is that any particular tenant type, any particular region, any particular size?

No, except to say that, again, the larger sizes are doing better. But beyond that, I would say it's pretty widespread kind of the level of success and conversions on new leases across markets and customer types.

On customer types, maybe -- so this would be new and renewal. We do see more strength out of what we would call our basic daily needs kind of category of demand, which is going to be consumer products, food and beverage, 3PLs, transportation companies, those industries that support basic daily needs. Those have been the pockets of strength out lately.

Can you dive into tariffs? Just a bit more like what you're hearing from your customers. One of the things that I think we've heard in KKR was just talking about this, that it's kind of a long tail to when these costs will ultimately get passed on to the consumer. And like are you hearing the same things from your customers or at the end of 3Q, are we going to find out that most of that cost has been passed on. How should we think about it?

Like I said earlier, I think the tariff conversation has drifted a little more into the background. So we're not -- that's not an active part of the dialogue with our customers. I think everyone just out in the economy is thinking about those implications similarly. It seems to -- who knows where this legislation is going to land on tariffs. If it's unsuccessful, meaning the tariffs remain.

And we've seen at least the framework for a lot of tariffs now come around this summer, and it feels like there's maybe going to be a global average of something on the order of 15%. It's starting to feel like that's going to come through in like almost something akin to a value-added tax in the economy, and it will get absorbed through some cycle of consumption and then we would be in a more regular level of growth and consumption there thereafter is kind of the way I think about it.

But with regards to hearing customers talk about it and the implications, it's drawing in their supply chain. It's less active part of the conversation because they're just needing to move on and have envisioned the ways that they can deal with varying outcomes post.

What about on the development side? I mean, go back 3 or 4 months when it was -- they were first announced, it seemed like you weren't seeing an impact now that we're a little further down the road, are you seeing cost change at all in any certain components?

Yes, not materially just yet. We look at it more in aggregate and have seen where we have seen price increases in certain economy -- sorry, commodities. It's been so far absorbed and there's lighter construction volumes generally. So the margins imposed by GCs and their subcontractors have contracted to a degree that we probably put overall cost reasonably flat in a short period of time.

But I would definitely assume that replacement cost -- that won't last forever as those margins get tight development activity picks up, they may expand again. The inflationary pressures on the commodities and raw materials will be present as well as labor, of course, we know will be a factor as well.

So we've sized replacement cost rents which is something that I think everyone should be focused on in this space at about 21% above market rents. There's enough vacancy in the system right now that that's not going to be a force that drives market rents just now. But as we see vacancy levels tighten, we see this historical pattern that, that will take hold and could be the next catalyst for more robust levels of market rent growth beyond just inflation.

If I could just clarify on the absorption part the stat you mentioned a moderator economists yesterday, said BofA's view will muddle through the coming year, the coming months I guess what does it take for the economy to reach that absorption? Is that just based on...

It's funny to ask a question that way because I feel like our absorption forecast reflects muddling through at 75 million to 100 million square feet and maybe it maybe it needs context, but a good healthy level of absorption we would put around 200 million and 225 million square feet per year. So -- and that level, if we were in 75 to 100 this year is following a year in 2024, where it was also subdued.

Okay. Tim, I want to shift gears a little bit here. Maybe talk about the transaction market, kind of what you're seeing there, what's the appetite of buyers and even pricing?

Yes. The transaction market continues to pick up. I feel like quarter-over-quarter across 2024, it was getting -- finding its footing, getting a little bit better and better. This year, I think volume is up 15% further year-to-date, multiple bidders at transactions we probably see values as at least as guided by our appraisals as relatively flat in this quarter, which I think is a function of a couple of things where probably a little bit of delay on what the inflection point is out there in the market held by most participants, a little bit of a pause on where market rent growth would resume.

So those would be some factors offset by lower cost of capital, lower discount rates that we're seeing in pricing. We would put -- we tend to not focus on cap rates and really focus on IRRs, which we put between 7% and 8% today, unlevered in most of our markets. We are buying on that basis, but we also have a great focus on discount to replacement cost as well, particularly in markets that we consider as very strategic to the portfolio.

Got it. Data center has certainly been an area where you guys have been focused on. Talk about your vision for this part of the business as we look through over the next few years.

It's an incredible opportunity. I think it's -- I don't want to say it's underappreciated in the market because part of it's our own doing. We're a little careful in how we talk about it. We're reporting, as you know, successes as they come when we obtain more power when we have a new build-to-suit start as we have sales, we'll have news in all of those categories through the balance of the year.

We've always had a desire to have an investment strategy that not only puts our assets close to consumers and makes them the best choice for our customers, but in that way, creating an ability for higher and better use conversion opportunities. And we've had scores of those over our history, but none of them have been at the level that this AI conversion opportunity -- data center conversion opportunity brings us because a lot of our logistics buildings look and feel at least in their shell and format like a data center.

Again, we have 6,000 of them kind of as a pallet for us to choose from for future conversion. We think a wave of inference use in AI and data centers is probably what makes that even more interesting. The fact that we do have smaller facilities close into where that usage will occur. So we might see much more conversion opportunity there. So we view it as an obligation, even more than just an opportunity to chase this hard.

We staffed around it pretty significantly. We've about 30 people dedicated to the business. That number was almost 0, probably a couple of years ago. And when you match with that, just the development expertise the rich palette of owned assets, owned income-producing assets that we can convert as the opportunities arise.

We have an energy business that was in-house anyway, helping us procure energy for it then a huge balance sheet and procurement capability behind it. Not to mention the customer relationships are there. We have every right to win in this space.

The other area that I know you guys have talked about is the essential business, right? And help us understand kind of how that differentiates you from your peers and others?

Yes. I think it's in process, and I think it's going to be a great thing for Prologis. But one of the things I mentioned earlier getting bigger and new opportunities that it's bought Prologis. And that was happening in a big way for Prologis between, say, 2015 -- in 2020, we had a lot of M&A amassed a lot of square footage, gained a lot of new customer relationships that was occurring at a time that we were gaining an appreciation and the strategy to be much more customer-centric and focused as the nature of logistics used by our customers was changing, meaning it wasn't just a commodity of something they had to have to facilitate their real business as e-commerce grew and service levels became paramount to winning sales.

And whether you're in e-commerce or not, a brick-and-mortar retailer needed to compete with e-commerce. So that drew, as we all know, the supply chain and where to make it a much more strategic asset. So we view that as an opportunity to have a different kind of relationship with customers and Essentials was sort of born out of those few concepts where we see many of our customers are smaller and medium-sized enterprises.

They're moving into spaces and often procuring the same goods and services. They're setting up IT technologies. They're putting racking to their warehouses, forklifts. They're doing all that activity on their own when they leased with Prologis previously. And when they lease with any other landlord today, they're certainly doing it on their own.

We viewed an opportunity that we can help in that, have an EBITDA contributing business alongside it. But even if that were 0, which it's not, it's a profitable initiative for us. But even without the ability to grow closer to our customers and be a landlord of choice was something that we view as a very important objective of the business.

Anything on the funds business and any latest updates on that side?

Yes. I mean a normal update just in terms of like how our fund flows and the open-ended fund raising. Folks following that business will know for 3 years now really, it was this quarter in 2022 that we really started to see a change in yield requirements, discount rates, fund flows into this business, and it's been uneven since that time.

Right now, we're starting to see some LP interest come back into the open-ended funds. But it's going to be perhaps from here on out more muted than some of the really, really large injections of capital that we saw through the 2010. So that was the time that the product type was still becoming institutional and the kinds of investors we have in that business were still building their positions to get their allocations right. A lot of that has come.

And what we have strategically opted to do is focus on where are the next capital sources for the business which are going to now be varied. We may see more joint venture kind of capital from folks who want to invest, but aren't necessarily in it for an open-end format. They expect to be in a closed-end format or in a JV format for Prologis. We're open to that. We're in exploration of that.

We have other portfolios. Canada would be an example of a very large excellent portfolio on our balance sheet that could get recapitalized. We're exploring that. So it's just to say we're looking at the business in new ways that spread out the kind of capital that we can access because we'd like to give it a new wave of growth from here and expand on that $65 billion of third-party assets under management.

You brought up growth here. I mean, for the investors in the room here, I guess, how do you think about -- how should we think about sort of the growth algorithm for Prologis over the next few years?

Yes. Well, look, I think I believe this wholeheartedly. I think we've got the best mousetrap in REITs for what is a great underlying sector and business in our the portfolio we have, the team we have, the customer relationships we have, that's just foundational to our growth. And I think we have the best baseline there.

Then just the additions to growth, the business model that we have that I described of a large development engine creating value creation kind of on the order of $1 billion of value creation a year when it's running in that normal run rate. The recycling model that it brings, putting those assets through strategic capital getting capital back to reinvest, growing the fee base, growing the diversification of the portfolio.

That's novel in REITs as you'll know, and I think it's really been an important part of the growth algorithm. Leverage is typically a piece of it, of course, we would have. And then all the additions from the ancillary businesses that I've described, essentials and what we can do in data centers. All of that would put you in a high single digits kind of growth rate in a normal environment. A couple of headwinds that we have right now.

We've seen them here in 2025, probably still see them looking into next year would be -- we don't have financial leverage. Many REITs don't as portfolios are going through marking debt rates up to market. So that's something that Prologis is not immune to. We have average in-place interest rate of 3.2%. We have 8 years left on that rate. That's a great favorable thing. That's a positive item. And if you were marking it to market. But debt rates for our portfolio would be about 4.25%, 4.5%. So that would be our destiny if all things were equal and we rolled up. So clearly, that's a headwind. I think that's understood.

And then the way we're deploying capital, we've had fewer starts in the last few years. So those contributions as those assets are stabilizing are less than they are normally at the same time that we're going to be increasing very likely capital committed to new developments, both in logistics and data centers. So that can have a drag effect as you go through that transition. But ultimately, the high single-digit format is very much our belief on where the long term would be.

Okay. So even with some of the uncertainty and the headwinds out there on the macro, you're still growing at a very strong rate into kind of even next year and the years after, right, the high single digit?

Yes, I think that's the long term. And then if I look at the setup for going into '26, a lot of what you look at for '26 looks like how things looked a year ago for '25.

Great. I have a couple of minutes here, but are there any underlying trends that you think the investors are sort of ignoring or not appreciating that will impact real estate and logistics in the years ahead?

Well, I'm not sure that they're being ignored, but I would just emphasize, it's a -- I love the asset class, I've worked in a couple of commercial real estate industries. I love logistics. It's a product type that it's substitutions, it's options to be disrupted from technology or much fewer than we see in other property sectors over the years. It's getting harder to build for our earlier conversation.

They're not making any more land. It's going to be more and more challenging to bring this product into consumers. So I think that dynamic and that setup is very strong. The e-commerce growth driver that we've seen in the last 10, 15 years, is still in effect. We see continued penetration in the amount of retail sales that will be executed through the e-commerce channel for years to come, and they're that 3x multiplier that, that brings is still present.

So that backdrop of both supply and demand are very favorable for the sector. Then I just think you go back to, well, who has the business model to execute on it really well in a capital-efficient way, who is then squeezing -- and this is what I really think is the case with Prologis squeezing everything out of the platform that we can from solar generation on the roofs to essential sales inside the building to chasing higher and better use conversion opportunities that I think most investors appreciate all those things, but we love the opportunity to remind everybody.

Rapid fire questions. Number one, when the Fed starts to cut the rates -- the short-end rates, what happens to the long-term yield, a 10-year yield? Does that decline, stay flat or potentially rise?

I guess I'd want to know how is it being cut. I think it's how this gets executed. The long end of the curve 30 is already speaking volumes in some ways. Would it rise further? I'll say no. It's gotten elevated. But if it's not executed well by either the administration or the Fed, like we could have a different outcome.

Okay. Number two, we didn't talk about AI initiatives. But last year, the majority of companies stated they are ramping up spending on AI initiatives. How would you characterize your plans over the next year, higher, flat or lower?

Higher.

Okay. And last one, this is overall average for the sector. Do you believe same-store NOI growth for your sector will be higher, lower or same next year?

I think with the setup there will be about the same.

Thank you very much.

Thank you.