Greetings, and welcome to the Prologis Q3 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Justin Meng, SVP, Head of Investor Relations. Thank you. Justin, you may begin.

Thanks, John, and good morning, everyone. Welcome to our third quarter 2024 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'll hand the call over to Tim.

Thank you, Justin, and welcome to everybody joining our call. Before diving in, I'd like to share our concern for those affected by the recent hurricanes in the U.S. and Europe that impacted our employees, customers, and communities. Thankfully, our teams are safe, and their proactive customer outreach and assistance have been outstanding. Our property sustained limited damage from such strong storms. Overall, we are pleased with our operating and financial results as the third quarter played out to our expectations. While occupancy and rent softened against the backdrop of positive yet subdued demand, we continue to deliver impressive net effective rent change due to the still powerful lease mark-to-market embedded in our portfolio, which bridges us through this soft patch to the next cycle of rent growth. Turning to the quarter, core FFO, excluding net promote expense, was $1.45 per share and included in net promotes was $1.43 per share. These results were slightly ahead of our forecast, and the quarter included approximately $0.03 of income from the Prologis Ventures' exit. Period-ending occupancy was 96.2%, nearly 300 basis points above the market, as the flight to quality continues. Net effective rent change was 68%, and cash rent change was 44%. We captured over $90 million of NOI by rolling leases up to market. The portfolio produced net effective and cash same-store growth of 6.2% and 7.2%, respectively. Revenues were impacted by approximately 35 basis points of bad debt, which is elevated from our normal 15% to 20%. While bankruptcy filings are on the rise broadly, the good news is that the space we've taken back as a result has had embedded rental upside of over 60%. Our overall portfolio lease mark-to-market finished the quarter at 34%, representing $1.6 billion of potential NOI. Finally, on the balance sheet, we raised $4.6 billion of new debt across Prologis and our funds at a weighted average rate of 4.6% and a maturity of approximately nine years. In terms of deployment, we had a very active quarter. We started over $0.5 billion in development projects, including incremental capital to an existing data center development now pre-leased to a hyperscale customer with a turnkey buildout. We expanded our land bank, driving our potential development opportunity over $40 billion, which now includes our first two projects in India that support over 5 million square feet of new development. We deployed over $1.4 billion in third-party acquisitions. Year-to-date, we have acquired over 14 million square feet of strategic assets at an estimated 20% discount to replacement cost. We started development on 54 megawatts of new energy systems. Our momentum here is building, and we continue to have and expect to have generation capacity well over 600 megawatts at the end of this year, with good line of sight to our 1 gigawatt goal by the end of 2025. As mentioned, Prologis Ventures had a successful exit of an early round investment in a Japanese workforce solution. This produced a 9-times multiple on our investment, realizing a 65% IRR. Beyond the economics, our strategy and supply chain venture investing have delivered valuable insights for Prologis and our customers. Finally, FIBRA Prologis, our strategic capital vehicle in Mexico, successfully closed a tender for the shares of Terrafina, of which it now owns nearly 80%, enhancing its leadership position in one of our best-performing and highest-growth global markets. Turning to the operating environment, conditions remain soft in many of our markets, and as we've described over the last few quarters, this is despite healthy GDP and consumption growth. We ascribe the weaker relationship between economic output and industrial absorption to the availability built into the supply chain through COVID, originally earmarked for resiliency, but now available to operators as a source for cost containment. But ultimately, the ability to rely on this excess is diminishing as utilization reaches a level that will force decision-making and expansion, the pace of which will vary by market. Many customers are making progress in reducing this capacity through growth, while others are gaining efficiencies through consolidation. In the end, it's all serving to hold net absorption below pre-COVID levels, impacting rents. Globally, we estimate that market rents decreased approximately 3% this quarter and roughly half this amount when excluding Southern California. As we noted before, Southern California will take the longest to reach equilibrium. While activity has improved, the remaining amounts of excess capacity will simply take time to work through. That said, it's important to keep this context; our SoCal portfolio generated 84% rent change on commencements this quarter even as it led the globe in market rent decline, a great example of the interplay between the spot reduction in rents against our lease mark-to-market. This has us well positioned to navigate the cyclical downturn and taking it a step further, we see the structural investment case for SoCal as strengthening with new supply barriers that come into effect from recently enacted legislation and continued focus on carbon emissions. As always, the rent picture is mixed, and there remain many markets that are either flat on rents or positive, such as Houston, Atlanta, Nashville, Northern Europe, and of course, LatAm remains very strong. Overall, the bottoming process is underway, and we expect demand to remain soft in the near term. Looking ahead, market vacancy is at or near its peak and will hover there as utilization improves, and global rents will bottom sometime mid-next year. It stands to reason then that the near-term growth will be affected by the path market rents and occupancy have already taken. We remain very positive on the outlook for our business, as vacancies are still low in the context of history, starts are down significantly, and supply deliveries are falling below their pre-COVID levels. Additionally, with replacement cost rents approximately 15% above today's market, even with land values marked down by a third from their peak, the long-term growth trajectory remains highly favorable. Moving on to capital markets, we've seen improved pricing and activity in the transaction market and values continue to grow. U.S. and European values, again, increased approximately 1% in the quarter, and Mexico saw an impressive 2.2%. With the bottom seemingly in, our strategic capital business had its most productive quarter in the last two years, raising a net $460 million. Overall, it appears private market sentiment is stronger than the public markets. During the quarter, transaction volumes increased and unlevered IRRs compressed another 25 basis points. In terms of guidance, which I'll review briefly, we are tightening our forecast for average occupancy to a range of 96% to 96.5%, and also tightening our forecast for cash same-store growth to a range of 6.5% to 7%. Our net effective same-store growth is forecasted in a range of 5.5% to 6%, which has been tightened and reduced modestly at the midpoint due to the increased non-cash write-offs we expect from higher bankruptcies for the balance of the year. We are tightening and slightly reducing our G&A guidance to a range of $415 million to $425 million, and tightening our range for strategic capital revenue to $525 million to $535 million. We are reducing our overall development starts guidance to a range of $1.75 billion to $2.25 billion, which reflects both slow decision-making in build-to-suits and discipline on our part in deferring new speculative development amid stubborn demand. Of course, we are in the best position to react quickly as conditions warrant, with approximately $8 billion of pad-ready development opportunities. We see attractive acquisition opportunities in the market and are increasing our guidance here, taking our range up to $1.75 billion to $2.25 billion. And finally, the forecast for our contribution and disposition activity is increasing to a new range of $3 billion to $4 billion, reflecting the improving transaction market and stronger fundraising and strategic capital. The positive spread between our buying and selling IRRs year-to-date has been approximately 100 basis points. Putting it all together, we are increasing our GAAP earnings to a range of $3.35 to $3.45 per share, core FFO, including net promote expense, will range between $5.42 and $5.46 per share, while core FFO, excluding net promote expense, will range between $5.49 and $5.53 per share, a $0.01 increase from our prior guidance. Core FFO, obviously, excludes our development gain guidance, but it's noteworthy to highlight our increase to a new range of $375 million to $425 million. In closing, we had a very productive quarter in which we delivered strong operating results, high occupancy, high rent change, and meaningful same-store growth in a challenging market environment. Alongside that performance, it's clear that we are focused on the future as evidenced in our very active deployment, spanning our global reach and product offerings. The company is well-positioned to capitalize on the structural demand for logistics real estate, and our focus on operational excellence, customer centricity, and value creation will continue to drive strong performance across all market cycles. Consistent with this drive for excellence, I'd be remiss not to highlight our annual GROUNDBREAKERS forum, which we just held in London. It featured some of the most innovative companies of our day, and we heard from the likes of the legendary Fred Smith of FedEx and Sir Tony Blair among many others. GROUNDBREAKERS deepens our customer relationships and builds upon our thought leadership across the supply chain and its emerging foundation for clean energy and digital infrastructure. It's great to see so many of you there, and a replay of the event is available on our website. With that, I'll hand the call back to the operator for your questions. Unfortunately, Hamid is feeling under the weather today, and while he's on the call, he may be limited in his responses.

Thank you. We will now begin the question-and-answer session. The first question comes from Tom Catherwood with BTIG. Please go ahead with your question.

Thank you, and good morning, everyone. Tim, you mentioned mixed signals in the industrial markets, with vacancies increasing and customers taking longer to make decisions. From a macro perspective, it seems the consumer is under pressure. However, you also indicated that there was strong leasing activity in Q3, and you've raised acquisition guidance for the second consecutive quarter. How do we reconcile these two apparently conflicting points? What do you think will encourage customers to shift from being hesitant about taking space to becoming more active as we head into 2025?

Thanks, Tom. Thanks for the question. Look, if I just start with the acquisitions guidance, I would probably read that as our confidence in the long term for starters. We're very engaged in the business. We are very much looking at markets that we see to build additional scale and deepen our presence, and our teams are scouring the market in that regard looking for opportunities. One thing implicit in my remarks that I'd like you to really hear is, we're not really a buyer at market IRRs. We are typically looking for unusual constructs, upmarket deals, deals that we source where we're looking for a premium to prevailing IRRs such as those we see in our appraisals. So, take that as you're looking at our activity in the acquisitions market. In the near term, we just recognized that utilization has really been the culprit of keeping a lid on demand. And the message we're trying to send here is that, that has an end to it. Ultimately, customers will work through what's available to them, and it's going to be sort of a spillover out of utilization into growth in occupancy.

Thank you, Tom. Operator, next question?

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

Good morning. Thanks so much for taking the question. I guess just, Tim, maybe another one to perhaps square. You talked about the bottoming process on the call and the press release. I guess, bottoming, not bottom. But do you mind sort of scurrying that with two things? One, just your updated view on market rent growth over the next 12 months? And two, just reducing development starts, I thought the plan originally was to keep starts high, so that when the market inflects in '25, you'd sort of have the product ready. Can you just square the bottoming in those two things? Thanks so much.

Thank you, Vikram. Let me address your first question regarding the current rent growth outlook. We're at a point of inflection, and forecasts are highly variable at this stage. Our near-term perspective on rents aligns with what we reported 90 days ago. Customers are engaged, but they're hesitant to make decisions, so we anticipate this softness in rents will persist for now. However, our focus is on the long term. Ninety percent of our leases will renew within the next year, so short-term fluctuations of minus 3% or plus 3% won't significantly affect our long-term earnings or the business's value. The real factor driving rent growth is the replacement cost rents, which are currently 15% higher than market rents. This disparity will eventually lead to rent growth. We expect to remain near peak vacancy for a certain segment, possibly lasting into 2025, with a recovery starting late next year and picking up speed afterward. We understand the trend and will benefit from that rent growth long-term, but the timing of the recovery is uncertain. Predicting short-term movements has never been a strength for us; we're focused on Prologis for the long haul. The second part of your question was about our development starts. We've decided to push those timelines back. Tim mentioned maintaining discipline in our approach. While our build-to-suits pipeline is quite strong, it hasn't shown growth. For the past four quarters, we've seen customers delaying decisions, and this trend is ongoing, resulting in these projects being postponed until next year. Regarding speculative building, we will continue to uphold our disciplined approach. We prefer not to construct based on current market fundamentals in many areas, although this isn't a blanket rule. For instance, this quarter, we initiated two buildings in Atlanta. Although Atlanta's overall vacancy rate is 9%, our specific infill site has only a 150-basis-point vacancy and faces no competition, eliminating spec risk. Therefore, we decided to proceed with those projects, anticipating their completion a year from now. This activity is occurring sporadically, and we expect it to increase in the coming quarters. Furthermore, we currently have a substantial development portfolio of $5.5 billion on Prologis's share, comprising 33 million square feet. Additionally, we have $40 billion in opportunities in our land bank, with 30% of that land already entitled and ready for development, and two-thirds is pad-ready, allowing us to significantly reduce the time required to construct on those sites. We’re poised to execute our strategy as outlined over the past several quarters, but the results may materialize a bit later than anticipated.

Thank you, Vikram. Operator, next question?

And the next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.

Thank you, and good morning. So, it looks like you had a $0.06 beat on core FFO this quarter. I think, Tim, you mentioned part of that was the Prologis Ventures exit that you had. And also, on our numbers, you had better-than-expected currency gains and income taxes. I wanted to make sure that was the case. But also, why only raise full-year guidance by $0.01, given the beat you had during this quarter?

Hey, John, thanks for the question. I would say, you see it as a beat, we don't see it as a beat. These were events that we were forecasting for the year and for the quarter. And I would also highlight that the FX gains I think you're seeing in the P&L might be better offline, but there's complication between unrealized and realized. You're probably seeing a lot of unrealized there, and you have to flow through to the FFO statement to understand what's actually realized. Suffice it to say, very probably say you're never going to hear FX as a variance item in our FFO as we hedge all of our FFO earnings as I think you know. There was an item in tax where we had some sale of investment tax credits in the quarter. We'll have fewer of those in the following quarter. But, once again, that together with the ventures gain were all previously contemplated in our guidance.

Thank you, John. Operator, next question?

And the next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.

Yeah, thanks. Good morning. I guess, on Page 12, you guys break out your ending occupancy by unit size. And I noticed, sequentially, there was a much bigger drop on the spaces that were kind of below 250. So, I'm just wondering if you can sort of speak to the strength of the bigger boxes, maybe the softness in the weaker. And then, just on the Southern California, I noticed that your lease percentage in SoCal went up about 120 basis points sequentially. So, any comments just around Southern California demand either by product type or LA versus Inland Empire would be helpful. Thanks.

Thank you for the question, Steve. I'll begin by discussing Southern California, and then a few of us will share insights on various trends by size category. I will address your short-term question, but let's also take a moment to consider the broader trends in Southern California from a medium-term perspective. We believe Southern California has a very promising outlook. Firstly, it is a major consumption center with a $2 trillion economy and a population of 23 million, and the region is experiencing growth. Employment has increased over the past year, with jobs rising 3% since 2019. Secondly, Southern California is evolving into a significant gateway for international goods, with container imports at the ports of LA and Long Beach up 12% since 2019. While global manufacturing patterns are changing, they remain favorable for Southern California. Asian imports into the U.S. have increased by 21% since 2019, adjusting for inflation. Although China has seen a decline of 6% since 2019, this highlights the effectiveness of the China Plus One strategy we and others have discussed. Growth in other Asian countries has surged by 40% since 2019. Lastly, a critical factor in Southern California's outlook is that barriers to supply are high and continuing to rise. The region faces challenges with limited land availability, strict municipal requirements, and new state restrictions from the adoption of State Bill AB 98, all of which hinder future development. However, it's essential to acknowledge that headwinds persist for Southern California, as Tim noted earlier. Customers are still adjusting their capacity after overestimating their needs during times when vacancies were at zero, but these long-term trends are likely to become increasingly significant over time. In terms of the short-term cyclical trends you're inquiring about, a few observations have come to light in the past three months. Firstly, demand in Los Angeles continues to be weak, yet there is a noticeable upgrade cycle taking place, with Class A properties outperforming Class B. Overall, demand is stronger in the Inland Empire due to the growth of the ports I mentioned earlier. Additionally, Orange County is experiencing a low vacancy rate, better positioning it for an earlier recovery. Regarding your question about size, I'll pass that over to Dan.

Yeah, just quickly on the sizes, certainly, we've had some impacts on the smaller size spaces in China that you see there, but when I look at this number quarter-over-quarter, the smaller size space is typically underperforming on an occupancy basis to the other three buckets. As a matter of fact, quarter-over-quarter, three of the four buckets were down slightly. So, nothing really specific as it relates to historical trends.

Thank you, Steve. Operator, next question?

And the next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

Good morning. Thanks a lot for taking my question. You talked a little bit about how the customer has remained engaged, but then, also, there remains a lot of sources of uncertainty and presumably that's related to the macro and interest rates and the election. So, I guess, the question is, within the context of maybe past cycles or other periods of uncertainty, how quickly, given that demand gets picked up as that uncertainty has been released? So, stated another way, when some of these factors stop weighing on the customer, does that translate to an almost immediate translation to demand, or does it take a couple of quarters to ramp up from there?

Hi, Michael. I understand your question regarding how quickly demand can recover as uncertainty decreases. Here are a few thoughts on that. First, I believe we should maintain a cautious outlook on demand. Customers are engaged but are taking their time with their decisions. We're also focused on the utilization of spare capacity in the supply chain, as Tim mentioned earlier, and we are observing progress in that area. At the beginning of this year, utilization was below 84%, and now it is in the mid-80s, around 84%. This increase is indeed building and will encourage our customers to occupy more space. Additionally, we are experiencing positive trends in economic growth, trade growth, consumption growth, and the ongoing acceleration of e-commerce. Therefore, I think we should approach the near term with a balanced level of optimism while closely monitoring market developments.

Thank you, Michael. Operator, next question?

And the next question comes from the line of Craig Mailman with Citi. Please proceed with your question.

Hey, good afternoon. Maybe just circling back to capital deployment here on the development and acquisition front. I guess, on the development side, very helpful where you think replacement cost rents are relative to new starts. But from a land basis perspective, could you give us a sense of kind of what's in that ready-to-go bucket that actually kind of works from a basis perspective given where rents are today? I guess, that's one part of the question. And then the other part, just on acquisitions, you guys are talking seems like more bullish. You raised guidance here. Just curious kind of globally where you think the best uses of that or best targets are today? And how do you fund that, given, on a stabilized basis, your equity is probably up around 6% at least on my numbers? Are these more debt financed? Are these through the fund business? Can you just give us a sense of where and how you kind of want to put that capital out and whether you're interested in more bigger private portfolios or the historic bigger platform deals you guys have done in the past?

Hey, Craig, it's Tim. Let me congratulate you on getting three questions in there at once. Let me just start on the funding and the balance sheet and pass it back to Dan on the capital deployment pieces. I would still view us as having a lot of capacity in our own balance sheet, which has been incredible, I'll say. We've raised a lot of debt proceeds over the last few years, while our normal capital recycling has been a little bit slow. But if you look at our supplemental, look at our credit ratios over the last few years, including this morning, they're very healthy and consistent and even quite strong for our rating. So, we've been able to tap into that. And the reason that's been occurring is that, EBITDA growth, as what really guides that capacity, remains very strong alongside the earnings growth. Alongside that, I would also say that, as mentioned in my remarks, strategic capital fundraising is improving, not just what we raised in the quarter, but I feel like the body language and call notes that we're getting suggest that it will continue to be strong. So, I think a resumption of more normalized levels of capital recycling via contributions is very close and that has been, as you know, our principal source of funding in any event.

Yeah. Then, Craig, on the deployment front, we own land in about over 50 markets globally. The average vintage year is about 4.5 years old, 5 years old. And the mark on that book is about 120% of book. So, we have plenty of opportunities that pencil today. And then, keep in mind, a lot of that land, the other 60% or so is in its way through entitlement where we create a lot of lift ourselves as well over time. So, we don't have a shortage of opportunities. And keep in mind, as we underwrite these deals, we put them in at market value. So, we just have such a wide dispersion of where this land bank exists. And then, we also have a land bank that consists of covered land plays and options that you actually don't see in that land bank. So, again, not a shortage of opportunities. And it's tough to point to any place globally where we want to allocate more than others. It's not the way we've ever operated. We're at scale in virtually every market in which we operate. So, it really comes down to looking at every deal on a deal-by-deal basis and doing the highest quality deals.

Thank you, Craig. Operator, next question?

And the next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Hi, good morning, everyone. The earnings release commentary highlighted how Prologis is a preferred partner for addressing supply chain, digital, and energy infrastructure needs. Could you provide an update on the digital and energy aspects? I realize it’s a broad question, but what has been the focus for these newer business lines year-to-date? What are the next immediate steps? Additionally, can you clarify what percentage of the development starts in the quarter might pertain to data centers? Thanks.

Hey, Caitlin, I'll just pick up the energy piece and maybe pass it to Dan for data centers. As we mentioned, we have a good run rate of new energy starts in the quarter; we're talking about the solar business, both generation and storage, over 50 megawatts in the quarter, which puts us at a really good pace run rate that has been accelerating in our solar program, which two years ago was broadly focused really just in the United States, has now expanded around the globe and is active in Europe, LatAm, and Asia. So, we feel, as I mentioned, really good about the escalating pace of that activity and where it's ultimately going to get us over 2025 marching towards that 1 gigawatt goal.

On the data center front, overall 2024 has been exceeding our plans. We have concentrated on two main areas: building our pipeline and enhancing our internal capabilities, both of which are progressing very well. We have secured 1.6 gigawatts of power, with 490 megawatts currently under construction. Additionally, we have 1.4 gigawatts in advanced stages with clear visibility on procurement, along with over 1.5 gigawatts of applications submitted in various locations worldwide. We are very pleased with the pipeline we are constructing and the team we are developing. The third-quarter start refers to a powered shell building we initiated a couple of years ago with several customers, which has evolved into a turnkey deal. The conversion you see is from a powered shell to a turnkey setup.

Thank you, Caitlin. Operator, next question?

And the next question comes from the line of Vince Tibone with Green Street. Please proceed with your question.

Hi, good morning. Could you share net absorption and supply completions in the quarter for the U.S. portfolio? And then, also provide any update to your full-year outlook for supply and demand? It sounds like nothing big changed or surprised too much during the quarter, but just want to confirm your outlook and get the recent actuals there.

Hi Vince, it's Chris Caton. Thank you for your question, and your assessment of the quarter is accurate. We experienced 40 million square feet of net absorption and 63 million square feet of completions during the quarter. Let's take a step back and discuss the overall direction for the year, as we are moving through this bottoming phase. For this year, net absorption will total 160 million square feet, compared to deliveries of 300 million square feet. As a result, market vacancies are increasing, now reaching 6.8%. You likely know that 6.8% is relatively low historically. However, there is an important factor that often goes unnoticed: the depletion of supply chains. Deliveries peaked last year at 135 million square feet per quarter, and the current figure of 63 million represents less than half of that peak, which will continue to decrease into next year. Additionally, the starts are quite low, around 40 to 42 million square feet this quarter. When you consider all of this, the under-construction pipeline, currently at about 215 million square feet, is the lowest it has been since 2017. Therefore, we will enter 2025 with a low supply level and a potential for demand to improve as we navigate through this uncertainty in spare capacity.

Thank you, Vince. Operator, next question?

And the next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question.

Great. Hey, just two quick ones, sort of following that last question in terms of asking in a different way. When are you thinking availability sort of peaks to the portfolio? I remember it was 4Q '24. Has that sort of changed at all, once that pushed out to? And then, the second part of the question, when you think about the same store cash NOI guidance for this year, are there any sort of one-timers, puts and takes, or comps that we should be aware of as we start to think about 2025? Thanks.

Hey, Ron, it's Chris Caton. So, I think you said portfolio, but I think you might have meant market. So, I'm going to answer for the market in terms of vacancies. So, we still have vacancies peaking in the later part of this year, but just taking a cautious stance on the direction of demand and that uncertainty and that spare capacity that we've described, we think you should anticipate a measured pace of basically elongation of the peak over the course of the first part of next year. You'll see recovery emerge later next year and accelerate into 2026. I think that's something Dan described earlier.

Hey Ron, it's Tim. Regarding the second part of your question about cash same-store, the answer is no. I can't recall anything that would be one-time in nature. When we report that metric, we exclude items like lease termination fees that could fall into that category, so that's not applicable. The only possibility I can think of is that free rent is normalizing back to market standards. There might be slightly more free rent next year than we would like to see in the first half of this year, but it should be relatively minor. If I expand on the same-store outlook for the future, it's important to clarify that we have observed market rent declines this year, which we expect to continue into next year. We've noted that occupancy is stabilizing and will likely remain steady for several quarters. As we look to next year, it’s best to focus on what we know. To form a same-store view for next year, we should start by considering the rent changes we've experienced either on a cash or net effective basis this year. We understand that this will have a half-year effect rolling into 2025. Additionally, we should estimate what rent changes might occur in 2025, following the same half-year convention. If we calculate that with a roll level of 10% or 11% on a net effective basis, we could arrive at a component of same-store around 5.5% to 6%. On a net effective basis, the adjustment from the Duke portfolio would reduce that figure by about 100, putting us around 5%. Lastly, we need to consider occupancy trends. It’s quite difficult to predict occupancy from this point, but we can at least recognize that occupancies have been decreasing this year. Thus, on average, this might pose an additional challenge for same-store moving forward.

Thank you, Ron. Operator, next question?

And the next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

Great, thanks. Good morning out there. We've heard a lot recently about strong demand from Asian e-commerce and 3PL companies. So, I was hoping you could talk about whether you signed any deals with those tenants, and just your view on whether this is just a massive pull forward of demand ahead of potential tariff increases or whether you think those groups will continue to lease space into 2025 and beyond?

Hi Blaine, it's Chris Caton. Thank you for the question. I'll provide a brief answer followed by some context since this is an expanding category. Yes, we are leasing with these customers, and we believe they will continue to lease space into next year and later. We don't think it's mainly related to any sort of pull-forward as you mentioned. To understand the broader context, it's helpful to start with the Chinese e-commerce platforms, which are experiencing significant growth this year, as well as last year, with annual growth rates of 25%, 50%, or even higher depending on the concept. The Chinese 3PLs are managing logistics and are growing quickly, making up about 20% of net absorption this year. Their businesses are diversifying as they compete for contracts beyond just Chinese e-commerce. Many of these customers are well-positioned for growth, signing long-term leases and investing in their spaces. Regarding the possible impact of tariffs and tariff changes on these customers, it's useful to think about it in a couple of ways. First, the growth of this ecosystem connects Asian manufacturers with American consumers, allowing them to avoid traditional import distributors in response to past tariffs and the margin pressure they caused. To summarize, some of this year's growth is driven by a shift in business model due to past tariffs. Second, Asian imports have increased by 21% compared to 2019 on an inflation-adjusted basis, fueled by the China Plus One manufacturing model, as well as a 40% rise in imports from regions outside China. Lastly, there's a provision known as de minimis, which allows certain goods to enter without incurring tariffs if they are below a specified value. However, this accounts for only 3% of Asian imports. As this category matures, it will indeed grow, but there will be both winners and losers. Rest assured, we follow the same rigorous credit evaluation process for these customers as we do for all prospective clients.

Thank you, Blaine. Operator, next question?

And the next question comes from the line of Nick Thillman with Baird. Please proceed with your question.

Thanks. Good morning out there. We noticed, in the past few quarters, there's been an uptick in lease commencements with terms less than a year in the core portfolio, roughly like 50% of commencement. I guess, wanted to get some more color on those tenants specifically. Are these tenants opting for shorter-term renewals? These new tenants kind of looking for swing space given an uncertain macro? Anything you could provide there would be pretty helpful. Thank you.

Hey, Nick, it's Tim. I think that's an element of it, some uncertainty on the part of the customer. I think more so it's recognition in certain cases we're being very strategic about the level of rents in some of our markets and what's being locked in now. And there's just bespoke certain situations where we see an opportunity to keep it on the shorter end, where we see some of the rent recovery happening sooner than the overall forecast. And so, there's a strategy in that part as well.

Thank you, Nick. Operator, next question?

And the next question comes from the line of Josh Dennerlein with Bank of America. Please proceed with your question.

Hey, guys. Thanks for this. I'm filling in for Jeff today. Just looking at the occupancy across the regions, it looks like Asia and LatAm kind of stepped back. Any kind of trends to flag in those two regions versus like maybe what you're seeing in the U.S., where it looks like it's more stabilizing at this point?

Thanks for the question, Josh. Really, this comes down to the impact from China. Japan certainly has some oversupply issues we're dealing with as well, but our portfolio is in good shape there, but it's really China that is the impact.

Thank you, Josh. Operator, next question?

And the next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question.

Yeah, hi. Are there any specific pockets of the portfolio or regions that are driving higher development stabilization guidance?

Thanks for the question there, Mike. No, this development book is spread all around the globe. So, there's no trend to point to.

Thank you, Mike. Operator, next question?

And the next question comes from the line of Nicholas Yulico with Scotiabank. Please proceed with your question.

Thanks. I just wanted to clarify a couple of numbers. I think you mentioned that global market rents were down 3% this quarter. Last quarter, the forecast for the next 12 months was a decline of 2% to 5%. Are those the same measurement periods? It seems that the forecast was already reached this quarter alone based on the sequential decline, unless I'm misunderstanding something. Thanks.

Hi, Nicholas, it's Chris. Thanks for the question. So, the time periods are going to be different. You have the correct numbers. And as Dan described, we continue to see rents be soft in our view today is now a different rolling 12-month view, and we remain cautious on rents over that time period. And as Tim described in his script, rent softness should persist into the middle part of next year.

I should mention that based on your interpretation of those two numbers, it's possible we are at either the high or low end of that range. It seems we might approach around 5% for the past 12 months we discussed last quarter, considering what we've observed in the third quarter so far.

Thank you, Nick. Operator, next question?

And the next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed with your question.

Hi, this is Aditi on for Mike. I was just wondering what caused the increase in CapEx this quarter? Thanks.

I'm sorry, I didn't hear the end of that question. What drove what?

The jump in CapEx for this quarter?

A lot of that is focused on the components of CapEx, which you can see in the supplemental information regarding property improvements, leasing commissions, and tenant improvements. There is significant leasing activity in Southern California specifically. Just a reminder that rents in that area are quite high, which leads to higher commissions. As you can also see from our supplemental disclosures, property improvements can vary significantly from quarter to quarter. In Q3, it was somewhat elevated, but on a trailing 12-month basis, it's very normal.

Thank you, Aditi. Operator, next question?

And the next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Hi, thanks. First, can you just talk about leasing demand and absorption trends throughout the quarter a little bit, how the quarter played out a bit, July through September? And then, also in terms of the space utilization and comments that you've made around capacity in the portfolio, which seems to be an important input into your forecast, your portfolio skews toward consumption, and I'm just curious if you have any thoughts around the utilization metrics from inventory levels or I guess inventory build, ahead of the election and potential tariffs and also the East Coast port strikes, and whether you might expect to see some volatility on utilization in the near term.

Hey, Todd, it's Chris Caton. Thank you for the questions. Answer on the first one is demand was steady through the quarter, so no meaningful acceleration or deceleration, which I think is what you're asking. As it relates to utilization, I think maybe we step back and cover some of the numbers that I alluded to earlier. So, there is an upward trend this year. The year started below 84%, and I think it's now in the mid-80s; 84% now. So, it is indeed building, which will be a catalyst for our customers to take space. And indeed, there are these tailwinds of economic growth, trade growth, consumption growth, and the acceleration of e-commerce continues. So, I think it we should, just over the near term, have a measured level of optimism here. We just need to watch the market advance.

Thank you, Todd. Operator, next question?

Next question comes from the line of Brendan Lynch with Barclays. Please proceed with your question.

Great, thanks for taking my question. I'm hoping you can help us reconcile the guidance from the December Investor Day. It sounds like rent growth is around 0% through 2026, and vacancy is going to peak out a little bit higher than what you had been expecting. So, how should we think about your core FFO CAGR over the next three years?

Hey, Brendan, it's Tim. I would probably just put that aside. I think there's been so much change right now in the markets that as I was doing earlier and describing the way to think about 2025 and just take a fresh look at where we are now with regard to the lease mark-to-market, a dip in rents over the next 12 months or whatever that period is before we start to see it accelerate again. It's really important to appreciate how much that 34% lease mark-to-market will sustain earnings. If you kind of map out that is where rents will start a bit of a decline for the next 12 months and then increase thereafter, you'll see on rent change alone five, six, seven years of very strong mid-single-digit same-store growth just out of the rent growth component by itself. So, that's the underpinning. Over the long term, you're going to think about the adders to that as you march down to the bottom line between financial and operating leverage. Admittedly, there's some headwinds on the financial leverage piece in the near term as interest rates are rolling up, but over the long term, that will be productive to the bottom end again. And for Prologis, then you're really going to think about all the other things that we do, which is really growth in capital deployment, our higher and better use activity in data centers, strategic capital, ventures, the energy business, these are all adders to our growth that are complementary on their own, but I would say synergistic back to the core business as well. And that's how you should think about long-term growth for us.

Thank you, Brendan. Operator, next question?

Thank you. Our final question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.

Thank you. I just wanted to clarify two things. Chris, you mentioned that 25% of the demand this year was from these Asian 3PL companies. Was that regarding your portfolio specifically, or were you referring to the broader market or Southern California in particular? I just wanted to ensure I understood that correctly.

Steve, thanks for the opportunity to clarify. That's broadly across the marketplace.

Okay. Thank you. That was the last question here. I'd like to just wrap up by making a few points. First, the quarterly results met our expectations. Secondly, we think we're in a bottoming process that's underway, with completions very clearly in a downtrend. Lastly, capital values are increasing, fundraising has improved, and we're actively investing in the future of our business and we're in this for the long run. With that, we look forward to speaking to you at the upcoming conferences and again next quarter.

And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Have a great rest of the day.