Greetings, and welcome to the Prologis Second Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Abhishek Castilla, Director of Investor Relations. Thank you. You may begin.

Thanks, Molly, and good morning, everyone. Welcome to our second 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 second quarter earnings press release and supplemental document contain financial measures such as FFO and EBITDA that are non-GAAP. 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, Abhishek. Good morning, everybody, and thank you for joining our call. The second quarter exceeded our expectations, reflecting the strength and versatility of our team and portfolio in a challenging environment. Against a backdrop of subdued net absorption and a modest rise in market vacancy, we outperformed our occupancy expectations and the markets delivered meaningful rent change in same-store growth and achieved another strong quarter in build-to-suit activity, including continued momentum in our data center business. If we were to sum up the mindset of many of our customers, particularly our largest ones, we'd say that they are increasingly looking past the headlines and have undergone an evolution of their thinking over the last few months as those headlines constantly change. While net absorption has been muted, new leasing is occurring and customer interest is promising as reflected in the aggregate size of our leasing pipeline. That same momentum is also apparent in our build-to-suit activity which continues to grow and is well diversified across geographies and customer segments. At the same time, the supply pipeline is depleting and development starts in our markets remain low, setting the stage for favorable conditions as demand improves. This, together with the over 20% spread we see between market and replacement cost rents are important precursors to the next cycle of market rent growth. Turning to our results. Core FFO, including net promote income was $1.46 per share, and excluding net promotes was $1.47 per share, each ahead of our forecast. Occupancy ended the quarter at 95.1%, down just 10% sequentially and further widening our outperformance to the market now at 290 basis points. We continue to unlock our lease mark-to-market by delivering strong rent change across the global portfolio. During the quarter, we monetized an additional $75 million of NOI through rent change which was 53% on a net effective basis and 35% on cash. The net of this puts our lease mark-to-market at 22% at quarter end. Net effective and cash same-store growth during the quarter were 4.8% and 4.9%, respectively. As a reminder, fair value lease adjustments, which are noncash and driven from the purchase accounting related to our '22 and '23 M&A continue to drag our net effective same-store and bottom line's earnings growth by approximately 100 basis points. In terms of capital deployment, we started over $900 million in new development starts nearly 65% of which was build-to-suit activity across 7 additional projects in both the U.S. and Europe. Beyond this activity, we have signed agreements for an additional 3 build-to-suits post quarter end. Our build-to-suit starts for the first half totaled $1.1 billion, which is the largest start to a year that we have ever had. The strong demand by some of our biggest customers underscores our observation that many of them are moving beyond the noise and are making significant capital investments into their business. $300 million of the starts relate to an incremental investment in our ongoing data center development in Austin, Texas, with a top hyperscaler. In addition to our growing development volume, we continue to procure power adding another 200 megawatts to our advanced stages category, bringing that total to 2.2 gigawatts. As a reminder, we have an additional 1.1 gigawatt fully secured plus 300 megawatts currently under construction. Finally, in our energy business, we continue to make steady progress toward our goal of 1 gigawatt of solar production and storage by year-end, with nearly 1.1 gigawatts either in operation or under development today. While recent legislative changes in the U.S. will reduce the incentives for new projects over time, we expect the consequential upward pressure on energy prices to uphold returns. On a go-forward basis, we still see meaningful opportunity in the U.S. and remain committed to, and are excited about the broader global potential of our distributed energy platform, which is expanding in its capabilities and offerings. On the balance sheet, we closed on $5.8 billion in financing activity, which included the $3 billion recast of 1 of our 3 Prologis global credit lines at a reduced spread. This facility contributes to the over $7 billion of liquidity we held at quarter end. We also expanded our commercial paper program this quarter, adding a EUR 1 billion facility which should generate an additional 40 to 60 basis points of savings in line with our experience in the U.S. Our strategic capital business saw net outflows in our open-ended vehicles during the quarter of approximately $300 million. Beyond our existing vehicles, our teams are at work developing new offerings, more representative of the breadth of our activities which we look forward to reporting further on in coming quarters. Let me now spend a few moments describing our markets and experience with customers this quarter. To level set market rents declined approximately 1.4% during the quarter and values were essentially flat. In the U.S., net absorption was subdued at 28 million square feet and market vacancy ticked up 10 basis points to 7.4%. Operationally, we continue to see customers recalibrating, not retreating and remaining active in signing leases even if at a slower pace. While the full quarter of activity was modestly below normal, leasing velocity did accelerate over the months of the quarter, with June indeed being the strongest. As has been the case for some time, renewal activity has been very healthy, while new leasing remains slow. We're not surprised by the dynamic given the larger investment and more deliberate nature of new leasing, but we're encouraged by a series of data points across our proprietary metrics and customer dialogue which suggests that demand is piling up and could improve greatly with some clarity out of policy and the effect it's having on the backdrop. Of those data points, the first would be the sentiment implied by our leasing pipeline which stands at 130 million square feet, reaching historically high levels in recent weeks. We see it as reflecting both the significant interest and need for space as well as a lengthening of the time and decision-making which we expect to see show up in future quarters through longer gestation timing as deals get made. It's also clear that utilization both of gray space and within 3PL capacity is rising. Our build-to-suit pipeline remains full with over 30 projects representing more than 25 million square feet in active dialogue. This level of activity underscores how larger customers with the resources and scale to think long-term are being strategic, consolidating operations, and positioning for growth. Finally, our broader customer dialogue reflects an emerging bias towards action summarized well by 1 prominent user describing the exhaustion of adapting to shifting tariffs and concluding that they need to just run their business and will figure out the tariff details when there is some clarity. All told, while we expect conditions to remain choppy over the next few quarters, the market is holding up reasonably well. Looking ahead, consistent policy and settled trade arrangements will certainly help and be a key determinant of the overall pace of net absorption. Turning to guidance, in contrast to the uncertainty we faced in early April, we now see enough stability in the balance of the year to narrow and increase our guidance. Average occupancy at our share will range between 94.75% and 95.25%. Rent change would remain strong through the second half and average in the low to mid-5% for the full year. Same-store NOI growth will range between 3.75% and 4.25% on a net effective basis and 4.25% to 4.75% on a cash basis. We are maintaining our G&A guidance of $450 million to $470 million, and increasing our strategic capital revenue guidance to a range of $570 million to $590 million. On capital deployment, we are largely holding the range for net sources and uses in the year, but increasing guidance within the offsetting categories. Most notably, we are increasing development starts at our share to a new range of $2.25 billion to $2.75 billion, which is reflective of the additional data center start not previously guided as well as improved visibility and logistics starts due largely to our build-to-suit success. We expect to keep up a historically higher mix of build-to-suits over the balance of the year. And as a reminder, future data center starts are not a component of this guidance. We are also increasing our combined disposition and contribution guidance to a range of $1 billion to $1.75 billion, again at our share. In total, our GAAP earnings guidance calls for a range of $3 to $3.15 per share. Core FFO, including net promote expense will range between $5.75 and $5.80 per share, while core FFO, excluding net promote expense will range between $5.80 and $5.85 per share, a $0.05 increase from our prior guidance. The higher midpoint is predominantly due to higher NOI and strategic capital revenues. To close, we're encouraged by the steadiness of the quarter and the leading action taken by many of our customers. We continue to build out their supply chains amid ongoing macro uncertainty. While headlines remain noisy, the underlying activity in our portfolio reflects a market that is active and moving forward. In that context, well-located logistics real estate has proven to be a strategic asset, especially on our platform. As broader economic uncertainty begins to clear, we remain confident in the long-term trends driving our business. Our strategy is grounded in serving customers at the center of consumption, the constant in all of this, and our team continues to execute at a very high level. With that, I will turn the call over to the operator for your questions.

Our first question comes from Ronald Camden with Morgan Stanley.

Great. Congratulations on a strong quarter. I noticed that the leasing pipeline has reached historically high levels. I would like to hear more about the post-Liberation Day impact and any specific categories to highlight. Additionally, could you connect this information to your decision to increase development starts and acquisitions, and share your outlook on the situation?

So the pipeline is promising even amid some of the subdued decision-making, like Tim described. The pipeline is up 19% year-on-year. One of the hallmarks here is diversity. We see good balance and good growth across different deal stages. That's both early proposals as well as more mature negotiations. We also see a good balance in growth across different deal types, both renewal and new. And we also see good diversity across different customer industries. One of the main hallmarks of this growth is concentrated growth above 100,000 square feet. So there are more larger customers in the pipeline. Tim also talked about 3PLs engaging to a greater extent. They're working through their spare capacity and in some leading markets are really beginning to need more space.

And then, Ron, on the development start front, that $1 billion increase includes the $300 million data center start that Tim mentioned in the script, and the remainder is about half build-to-suit and half spec. We've got a very strong build-to-suit pipeline right now we're working through. It's much larger than it's been over the last couple of years. You heard we had a pretty strong signing. Actually, we had a record number and amount of signings there of $1.1 billion in the first half so far and a handful, so far already before the call here in July. So, overall, we have $41 billion of opportunity in our land bank and most of the spec you're going to see is going to be outside of the U.S., that's Japan, India, Brazil, Latin America, and maybe a couple of starts in the Southeast or maybe infill coastal markets.

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

Tim or Hamid, I don't know if you could provide just maybe a little bit more color on sort of the cadence of leasing. I realize April was kind of a dark time when you guys reported Q1. But could you maybe give us a sense of just the pace of leasing trying to think from 1Q into April, May, June? And what did that exit velocity look like in June heading into July?

Yes, Steve, this is Dan. I'll start and maybe get some color from one of the other guys here. If you take you back to 90 days ago on the call, we actually talked about volume being 20% down from normal. This was 2 weeks after April 2 and the tariff surprises. So call that maximum uncertainty time. And we actually quoted that number to highlight how much volume was happening despite the tariff surprises. Unfortunately, I think that did create some confusion. That's not a stat that we're going to continue to give looking at too short of a duration over a quarter is not really indicative of a trend. What we saw happen throughout the rest of the quarter was acceleration through May and June, and in the end, the quarter was only down about 10% from normal.

In the past few weeks, Tim provided insights in his remarks. We strive to take a broader perspective by examining various metrics. This includes lease signings, the pipeline we've discussed, build-to-suit discussions, and customer engagement. We aim to present a comprehensive overview to keep you fully informed.

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

I guess I was wondering if you could give some more details on the guidance. So Tim, you mentioned that higher NOI and strategic capital drove the midpoint FFO guidance increase. But I guess with occupancy expectations unchanged despite the stronger Q2, it also seems like pricing is kind of in line with expectations. So any more details on that, kind of what's better than previously expected?

Sure. I mean the environment for 1 has just come pretty significantly since April. We also have a shorter number of months left in the year, obviously, so we have improved visibility that gives us a lot of confidence in the guidance, both the increase and also reflected in the narrowing. I referred to some outperformance in the quarter. If you recall back to April, we also cited outperformance there, even though we opted to leave guidance in place at that time given the headlines. A few of those pennies are permanent to the year as the point there. The remainder coming out of NOI is reflected in same-store despite the same midpoint, which is really once again narrowing of the range expressing more confidence. And then within that 50 basis point range, our belief that we're just going to land at the stronger end of it by the end of the year.

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

Customer dialogue and data points seem to be supportive of demand building, but you also said that you expect conditions to remain choppy over the next few quarters. So how are you thinking about the timing of the growing pipeline translating to signed leases? And what is there anything in particular that would take to kind of convert this pipeline into signed leases?

It's Chris. I'll jump in and some of the other guys may as well. Look, decision-making remains deliberate. We see the pipeline building; Tim described a dynamic of the deals beginning to pile up. When we speak with customers, this is really about clarity on the macro front. When we look at the headlines and economist forecasts, there is caution in the back half of the year. We will see this play out over the balance of the year, and that's what we're really paying attention to.

We've been in a condition of constant uncertainty, and I know that's a favorite word in the financial industry, but having done this for a long time, last year, it was all about Ukraine and whether the Fed was going to cost. Guess going back 18 months, that was the uncertainty. Then when the election was settled, there was a lot of excitement about pro-business policies and the like. Then basically, you hadApril 2 on Liberation Day. It is very, very difficult to predict anything for any length of time. With every passing day, there's more water building up behind the dam and we're seeing evidence of this with the largest customers. They just can't go to sleep without taking more space. You're seeing is their ability to defer is getting reduced with every passing day.

Our next question comes from the line of Tom Catherwood with BTIG.

Maybe Tim or Chris, hoping you could help us square up the leading indicators: space utilization is moving higher and proposals are up. Lease gestation is down, but the IBI activity index dropped to the lowest level since the first quarter of '23. What is driving the bifurcation between these metrics and kind of how should we think of them as an indicator going forward?

Yes, you do need to take a sort of full picture view of all these different metrics. Given the volatility Hamid just described, they're each going to depict different things. Also, please keep in mind; some are retrospective and some are prospective. You asked after some of our customer survey data that you see in the supplemental there. They’re doing a good job of describing the landscape. For example, utilization that built in the quarter, 85%, up 50 basis points; that's a meaningful increase and is approaching a 2-year trend. This reflects both growth in supply chain as well as some inventory build. Now at the same time, the IVI activity index measures that velocity, the product moving out. That has moved lower, and it is consistent with the softer economic climate, this uncertainty. The third point which we've already covered on the call is simply the pipeline building and customers measuring how they make decisions.

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

I want to revisit your comments and those made during the call regarding discussions with tenants, especially regarding the increasing pressure from uncertainty. On one side, there's the uncertainty around tariffs, while on the other, we see the passing of the BBB bill, which is positive for stimulus. There’s also some accelerated depreciation to consider, creating mixed signals. Your leasing pipeline is at an all-time high. At what point do you think a larger number of tenants will accept the uncertainty and adapt their operations accordingly? When might we start to see progress? I'm interested in how this might evolve as we approach the latter part of this year and into the next, particularly in terms of net absorption, despite the current unpredictability. You have maintained your average occupancy rates, are moving through part of your exploration timeline, and it seems you're gaining traction on new leasing and build-to-suit projects. You appear to be sticking to disciplined expectation management. If you had to rank the likelihood of substantial acceleration in the second half of this year into the first half of next year, what would your estimates be based on your conversations with tenants?

I don’t really care about the next quarter or the following quarter because it's so dependent on what comes out of Washington, people make these decisions in the short term based on emotion. What I do know is that we have a very significant mark-to-market. I know that there is a shortage of labor coming up in the construction industry because of the immigration policies. I know the government is spending a lot of money on chip plans, putting extra pressure on demand for construction, all this data center stuff and all the stimulus that's come in from ITCs. To make a long story short, I'm very comfortable when we take 2, 3, 4 years out, given the escalation in replacement costs and rates are not going to go through the floor. The rates, times replacement cost gives you the rents that you expect in the long term. I don't know what the path to that will be over the next quarter or 2. It's just not the way we run our business. Maybe you guys are giving us more credit about having that clarity than we deserve. I feel great about the business. I think every bit of business that's delayed is going to translate to more business in the future. One other concept I'll throw at you, for those of you who have been listening to us for probably too long, have heard this, in good markets, people are 10% to 15% more optimistic. In markets that are choppy or risky, they are 10% to 15% more pessimistic. That's a 30% swing. That immediately goes the other direction when 2 tenants compete for the same space, and one of them moves out and then loses out again. So FOMO is a big factor about people's confidence to move on. Generally, I've found that people take more comfort in being among other people making the same sort of decision than being somewhat contrary. So there you have it.

Our next question comes from the line of Ki Bin Kim with Truist Securities.

In regards to the 136 million square feet of leasing proposals, I was wondering if you could provide some more color around it. For example, how much of that is renewals versus net incremental demand? And historically, what has your conversion rate been in this kind of proposal basket? Ultimately, I'm just trying to gauge going back to the building level of kind of water behind the dam, how much that could actually net impact Prologis going forward?

So let me give you a perspective and then the other guys can throw in more specifics around it. I think of leasing as having 3 components. One is renewal leasing, which tends to be very, very strong in times of higher uncertainty because the best, easiest decision to do is to make what you have and just kick the can down the road until you really have to make the decision. So that part of our business is much stronger than normal. Then there is new leasing, which is when somebody all of a sudden decides that they need more space because they didn't think about it 2 years later. That business is slower than normal for sure, though. Every time you move, you have to buy new equipment, new racking, and refitting your space is a very expensive proposition. In the choppy environment, you're going to do less of that than just kicking the can down the road. Finally, there’s build-to-suit activity, which is the strongest it's been in my career. So people who can plan in the long term are also thinking the way I'm thinking about it, which is they're looking at a couple of years by the time these projects are fully operational. They look at the factors driving the long-term health of their business, like e-commerce, and they're feeling good about it. The only part of our business that's slow is leasing of spec space.

It's Chris. I'll just jump in on some of the details, and I'd also point you to my earlier remarks on the pipeline, talking about it's up 19% and there's really good balance. The growth rates are sort of similar across multiple of these metrics, whether it’s new versus renew, or whether it’s early proposals versus mature negotiations. I talked about how size being a difference. That's one area where larger deals just take longer to come together. You'll see that represent an outsized share; that doesn't take anything away from the fact that the larger scale requirements are the things that are really lifting the market today.

Well, the bill is so the market...

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

Looking ahead two to three years, considering the current vacancy rate of around 7.5% and the situation in Japan that you've mentioned, what are your thoughts on the potential for rent increases or real rent growth? What do you estimate is a typical net absorption rate for the industry? I'm curious about your perspective on the next couple of years, especially with the increasing vacancy levels, and whether you anticipate any pricing power emerging.

Yes, I think a vacancy rate of 7.4% is pretty close to where you're going to see the peak in the cycle, absent some calamity. We may have another 2 to 3 quarters of bouncing around 10 basis points here or there. I think you're essentially most of the way to where you're going to end up between the high 3s where the trough was and the mid-7s, let’s call it, where I think this is going to end up. As to when you really get pricing power is where that number comes down to around 5%. That’s historically been the magic number. By the way, 7.4% is almost a median vacancy rate since 2000. Just think about this, putting aside COVID that supercharged what I can call e-commerce absorption.75% of the time, the vacancy rate in the last 25 years has exceeded 7.4%. So we're just spoiled by having come out of an environment where we've seen high 3% vacancy rates and high 3% unemployment rates. Now we're getting kind of really wigged out because unemployment is in the low 4s and vacancy rates are in the 7%. This is pretty normal. I think when we come down to 5%, we’re going to get really good pricing power above inflationary pricing power. You can think of it as a business that grows 1.5% to 2%. A normal economy, if you don't have kinds of noise coming out of different places, it should take a year or two for it to normal to 5%, which is the equilibrium vacancy rate because we can predict deliveries pretty closely. The only variable is demand. I don't know exactly what the demand numbers are going to be, but at some point, they're going to center around the norm, which is about 250 million feet. They’re not going to go to 375 million where it was during COVID because that was driven by a one-time really big shift. I think you heard me talk about it at that time. We got 6 years of growth in 6 months. We're still growing off of those higher numbers. I can't think of another situation where we've got to get 6 years of growth in 6 months. Mid-200s a year or 2, you'll get pricing power. When you do, it will be above inflation in the short term because the pipeline hasn't started, construction costs have been going nuts, and I think they’re going to continue to go up. So there you have it.

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

Maybe just, Tim, a question on bad debt. I think in June, you referenced that that was trending better than expectations on that end. But maybe just an update here through 2Q, just kind of with the macro uncertainty. And then, are there any spaces or types of businesses where tenants are having a little bit of credit issues?

Yes, that was relatively in line with the first quarter. It is elevated. We're probably bouncing between 35, 40 basis points where I think you know our history is closer to 20% or even a little below. The other reference point on all of that is the hike that we've seen during the GFC, which was up into the 50s. I'll expect something on the order of 40 over the balance of the year as we still watch Tenant Health, which we are keeping a very close eye on. Regarding particular industries, I mean, nothing that I would really build a thesis around. It's some larger customers at times. I feel like there's a little bit of a balance to Southern California, a little bit of a balance to larger users home-oriented but not enough to really break out into its own category.

I believe the strong retailers are quite pricey. In the retail sector, there is a significant disparity between the successful and the struggling players, with the successful ones gaining market share. It's also crucial to consider credit losses; we are witnessing a unique cycle where the mark-to-markets are substantial, and most defaults are actually producing positive net present value overall. Our ability to capture higher market rents sooner than anticipated more than compensates for the downtime we've encountered. While there may be a short-term effect on earnings, it does not impact the overall value or long-term earnings.

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

Hamid, I thought your answer to Craig's question earlier was helpful. Hopefully, I got this right, but you talked about the differential between those markets where tenants are comfortable and those that are choppy, and how FOMO can change that very quickly. Are there specific geographical markets that you think could flip most significantly from being choppy to getting more competitive? And maybe how quickly that could happen?

I think by definition, it's the markets that have strong long-term fundamentals and have taken the biggest hit in the short term, i.e., Southern California, because a lot of people thought, like 2 quarters ago, Southern California was going to fall into the ocean and everybody was going to go out of business. There was a lot of that. I think once a couple of people start losing deals in Southern California and they see the stuff coming through the ports that will come from Kansas. It may not come from China, but it’s going to come from somewhere else. So, I think as soon as they see that, they lose a couple of deals. You'll see that market bounce because it's bouncing off of an exaggerated bottom.

Excellent. Yes. No, I'd underline the point that we see secular outperformance in these high barrier geographies, and they can really move quickly. What are the outperforming and what are the underperforming geographies? For sure, international is the theme, whether it's Europe or Latin America, particularly the consumption centers there like in Mexico City and Sao Paulo. Then turning to the United States, we've had this post-pandemic normalization where the interior markets outperformed last year, and it remains a trend this year. What's changing are a couple of things; number one, not all coastal markets are created equal. SoCal is weak, but Southern Florida and Washington, D.C. are examples of greater resilience. Across some of the United States, we’ve seen better stability in the Midwest. Geography like Indianapolis had to contend with excess supply, and it's working through it. Across the Sunbelt, there’s been excess supply, but we’re seeing those markets work through it as well. Dallas comes to mind. The leading submarkets there are really firming. You're starting to see transition across a range of markets.

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

I guess sticking with markets. Do you think any tariff dynamics will cause you to pivot back to some of the regional markets that you sold out of following the A&B merger?

Ever, probably. But the one that we did come back to, I’m not sure it was a great idea to be perfectly frank with you, which was Savannah. We kind of got intend up back in there with the merger. It was a conscious decision. We thought about it hard about whether we should stay in or not. We decided to stay in, and I think our earlier decision was actually the right one. I think it’s not fundamentally a long-term strong market. Notwithstanding it's very strong and well-run port. That’s less than 10% of our business that I can think of that way. So I don't think so. We've been in and out of Tampa a couple of times. I think we're feeling better about Tampa these days than we did before. We've been in and out of Minneapolis a couple of times. We're not going back in.

No, I think we're in 31 markets in the United States. We're in 75 consumption centers globally. I think that accounts for about 78% of the world GDP in those markets. I think we're in the right markets, and we're going to stay focused there.

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

I guess, along the same lines of the last question, Dan, you took up your acquisition guidance. Maybe talk about broadly the opportunities you are seeing on the transaction side. Anything you can provide on pricing and even from an underwriting standpoint, what are you underwriting for occupancy and rent growth over the next few years given the tariff uncertainty?

What's been interesting is just how resilient the overall transaction market has been, especially since April 2. A lot of capital that was previously sitting on the sidelines is now actively pursuing high-quality, well-located assets with a higher WALT than what was sought after in the past couple of years. We are focusing on more value-add acquisitions and are not interested in pursuing core returns down into the low 7s, which is the current trend. Our teams are evaluating opportunities that are 150 to 200 basis points better than that, whether related to a broken development or some vacant spaces, though I wish there were more opportunities available. Our deployment focus is primarily on data centers, build-to-suit projects, and some speculative developments where the market fundamentals are favorable.

The only other thing I'd add to what Dan said is that in Europe, returns are in the low 6s actually. So that market is even more expensive than the U.S. market.

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

Cash same-store guidance implies growth will decelerate to about 3.5% in the back half versus mid-5% growth in the first half. Can you just discuss what's driving that deceleration just given spread and occupancy trends are pretty solid? It seems that the building blocks continue to imply growth would be stronger than 3.5% in the back half. What’s the kind of headwind in the back half? Any color would be helpful.

Yes, Vince, it really comes down to comparable figures in the end. Before diving into the details, I want to mention that while rent changes are still very strong, if you look back at the levels we've experienced over the past two or three years, they are coming in lower now. These contributions to same-store growth will normalize. Specifically, the latter half of this year will see more of an occupancy challenge compared to 2024 than the first half did. We also have some one-time items in the second half related to unfavorable comparisons due to strong one-time income in 2024 that will not be repeated this year. There’s both recovery and variability in these figures. This is why I suggest you expand your analysis to cover the full year to get a complete picture, and I would direct you to our guidance on this.

The other thing that's going on is that we've put away a lot of the uncertainty in the second half. We already know the answer to those questions for second half deals. There is a lot of mark-to-market to a lot of these deals that drives same-store NOI, but most of those have been captured or locked in for this year; a bigger portion of the second half then obviously at the beginning of the year for the first half. So that's another dynamic.

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

Hamid, your commentary on market vacancy was helpful. In terms of your portfolio, Asia occupancy was up quarter-to-quarter, but the other regions were down. Can you update us on your expectations for a second half inflection occupancy and any considerations for the specific regions?

Well, China is definitely, I think, past bottom and getting better. Yes, the numbers there can move around a lot because of occupancy. I don’t actually know exactly what it is; it probably has a high 8%, low 9 depending on the market you look at. There is the biggest opportunity for a pickup there, and it’s been in the dumps for the last 3 years. Japan is much more stable and predictable, but China has moved down quite a bit. The point is the China numbers don't actually move our numbers because of our share. But that market, I'm feeling better about.

Hamid's point I'll just pile on is also the same; point that it's small is also a reason that its occupancy can appear a bit more volatile, and we've had some good success last quarter, getting chunks of the portfolio leased up, and that describes its increase.

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

Maybe a slightly different topic here. But as we see more automation in warehouses, I understand that this requires more power than legacy warehouse use cases. So can you talk about how prevalent those higher power demands are in just space demand today and how you guys are managing it in this power-constrained environment, as you know from your data center business?

Well, the number that I carry around in my head, it's approximately correct, is that it's the power demands of a regular warehouse, not a temperature-controlled warehouse, is about 5-kilowatt hours per square foot. With full automation and EV charging of worklists and maybe some light trucks, over time, that can get to 25%. That's a pretty significant 5x type of increase. Everybody talks about data centers being an issue as demand grows on the load of the system, but automation, as you point out, will also be a very big driver. I know the EV business has slowed down these days and policy has changed quite a bit. But if you look at the rest of the world, that business is growing very rapidly everywhere else; just not here because of policy. That's a third leg of that demand driver, if you will. Everything points to the price of electricity going up and the utilization of electricity increasing in pretty much everything.

And maybe I'll pile on here. We're way in front of this, we've actually launched a new behind-the-meter energy generation solution. This is stemming from the expertise that we've gained through this mobility business with microgrids. This is not a revenue-generating business yet. We've got a big pipeline, and it’s a very strategic growth area for us. It's really bridging the gap as the utility continues to struggle through exactly what Hamid just described here, which is keeping up with the demand for both logistics and data centers.

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

This is Greg Magennis on with Nick. We're just hoping to dig a bit more into the source of demand that you're seeing. Who are the end users right now? How does that compare to the last few years of demand? And on the build-to-suit side, is that a similar makeup of tenant demand? Why do you think they're choosing build-to-suit over currently vacant space?

It's Chris. I'll get started, and Dan will join in shortly. When we look at our active customers, the key takeaway is the variety we see. We've discussed several categories contributing to this growth in demand, particularly in basic daily needs like food and beverages. E-commerce remains significant, with retailers gaining market share. We're also noticing a rise in light manufacturing and assembly needs. On a less obvious note, we've been engaging in active discussions with automotive clients, surprising as it may seem, particularly concerning spare and replacement parts as consumers maintain older vehicles. I've already mentioned how the 3PL sector is starting to utilize spare capacity and is in need of additional space. Regarding the build-to-suit pipeline we've established this year, we’re working with large Fortune 500 customers who are looking beyond short-term fluctuations and making long-term commitments. The buildings are substantial, including projects over $1 million and $1.5 million, and there's limited speculative inventory available for such large structures. Location also plays a key role; while there might be vacancy in one region, customers require space in different areas. Our 14,000 acres of controlled land provides us with a competitive advantage. We're effectively capturing more than our share of this opportunity.

Our next question comes from the line of A.J. Peak with KeyBanc Capital Markets Inc.

It’s Todd with AJ. A question for you, Tim. You mentioned that absorption was 28 million square feet in the quarter. I think that compared to 21 million square feet in the first quarter, so 49 million so far in the first half. Do you have an updated view for the full year? Dan, on the 3PL, can you provide a little bit more detail about the 3PL leasing activity in the quarter and comment on how you see leasing demand trending for 3PLs going forward in the near term?

You've got your numbers right. So year-to-date net absorption is 49 million square feet. Let's pause and reflect. That's a really good result given the uncertainty that's played through the marketplace over the last 6 months. As we talked about in the back half of the year, it's prudent to monitor that uncertainty, that macro caution. So I think full year numbers should land in the 75 million to 100 million square feet range.

Yes. On the 3PL front, we are hearing from our customers, and we're seeing it in the pipeline that they're making their way through the pay space and looking for incremental space. We're seeing this mostly from the larger 3PLs, and many of them are unfazed by all the noise in the macro picture. We're definitely hearing the confidence, and we're seeing that pipeline grow. 3PLs accounted for about 1/3 of our leasing in the second quarter, which is slightly down from the prior 2 quarters, but those were 2 quarters in a row of records.

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

I was wondering if there were any changes to terms of leases signed in the second quarter since Liberation Day in terms of annual escalators or TI free rent. We haven't noticed much on commencements, which was disclosed, but other than that, turn may be coming down a bit. I also wanted to see if you had any commentary on the $28 million of termination income and whether or not you expect more in the second half of the year.

Sure. With regard to terms, if you see the lease terms provided in the supplemental, you'll see a lower number there in the context of months. That's mostly a reflection of mix because if you look above there, you'll see a lighter volume of development leasing in there. I haven't seen anything abnormal develop with regard to the overall lease term length. We've been saying that concessions are normalizing, which does continue, and you also see that reflected in the materials this morning. With regard to the lease termination fee income, we typically have on the order of $5 million to $10 million of such income in any quarter. This quarter was a little bit higher. I would remind you, as you're looking at an item like that, you're seeing 1 side of it. What you don't see is there's resulting vacancy clearly, which winds up impacting the balance of the year; those kinds of knock-on effects are all reflected in our guidance. That was an unusually high item in the quarter. It was forecasted and contemplated in our previous guidance. Everything with regard to same-store and earnings will be in good shape for the balance of the year.

Yes. Those payments are exactly what I was talking about in comparison to any downtime we may experience through defaults. That number, unlike other cycles, is going to continue to be positive in a good plan.

And our last question comes from the line of Jamie Feldman with Wells Fargo.

Hamid, you mentioned several concerns that have dissipated over the past 18 months. In discussions with clients and as economists predict improved conditions, what do you believe are the main barriers to decision-making that are preventing people from being more proactive? You compared the situation to a dam with water building up behind it. What do you see as the challenges that need to be resolved, or what are the positive signs that might lead to better times ahead, including more leasing activity and growth?

I think if you have people that are pulling the trigger on big capital improvement or capital expenditures, they're going to take comfort by seeing other people make the same decisions. People want to be in good company, just like investors want to beat the index; people want to be in good company. I think that dynamic will shift from being very conservative to much more aggressive. There’s still a degree of worry out there as to are we in an inflationary environment? Or are we not? The tariffs would argue that you're in an inflationary economy, but the numbers haven't come through that way. There's a lot of confusion right now. That's why I think it's nearly impossible to predict things quarters in advance. I know you want us to, but it's kind of hard to do it. Anything I should tell you should be ignored anyway. But I'm feeling really good about the long-term prospects of the business.

That brings us to the end of the call. I want to acknowledge our teams globally for the focus throughout the quarter in delivering such solid results. Thank you all for joining the call today, and we'll talk to you all very soon.

Thank you. And this does conclude today's conference, and you may disconnect your lines at this time. We thank you for your participation. You may now disconnect your lines.