Prologis, Inc. Q1 FY2026 Earnings Call

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

Thank you, operator, and good morning, everyone. Welcome to our first quarter 2026 earnings conference call. Joining us today are Dan Letter, CEO; Tim Arndt, CFO; and Chris Caton, Managing Director. I'd like to note that this call will contain forward-looking statements within the meaning of federal securities laws, including statements regarding our outlook, expectations, and future performance. These statements are based on the current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a discussion of these risks. We undertake no obligation to update any forward-looking statements. Additionally, during this call, we will discuss certain financial measures such as FFO and EBITDA that are non-GAAP. In accordance with Reg G, we have provided a reconciliation to the most directly comparable GAAP measures in our first quarter earnings press release and supplemental. Both are available on our website at www.prologis.com. And with that, I will hand the call over to Dan.

Thank you, Justin. Good morning, and thank you for joining us. We entered 2026 with solid momentum, and we saw that continue in our first quarter results. While the geopolitical backdrop has become more uncertain in recent weeks, our business continues to perform at a very high level, supported by resilient demand, disciplined execution, and the strength and scale of our global platform. Last quarter, we outlined our top three priorities for the business. Let me highlight how our strategy is translating into results across operations, value creation, and capital formation. First, we delivered another quarter of record leasing with 64 million square feet of signing supported by both strong retention and healthy new leasing activity. Occupancy exceeded our expectations, and we are raising our full-year outlook. Second, we are putting our land bank to work across logistics and data centers with $2.1 billion of starts in the quarter, of which $1.3 billion was data center build-to-suits. The depth of customer interest for our data center offerings is significant, and we believe our ability to bring together land, power, and development expertise is a key differentiator for our business and positions us to capture a growing share of this opportunity. And third, we are expanding our strategic capital platform. We announced a $1.6 billion joint venture with GIC, and subsequent to quarter end, a $1.2 billion joint venture with La Caisse. These partnerships reflect strong investor demand for our platform and our ability to deploy capital into high-quality opportunities worldwide. Taken together, these initiatives reinforce a simple point. We are building a broader, more resilient platform, one that is positioned to compound growth over time. Before I pass the call to Tim, let me briefly address the geopolitical backdrop. The conflict in the Middle East has introduced yet another source of economic uncertainty, most directly through higher energy prices and renewed pressure on inflation and interest rates. Rather than speculate, I'll focus on what we are seeing in our data, what we're hearing from our customers, and how we are operating the business. Our lease signings, proposal volume, and build-to-suit pipeline point to continued strength in underlying demand. In fact, March was a very active month for new leasing. By comparison, when our business faced abrupt tariff-related uncertainty in April of 2025, the pause in leasing activity was relatively immediate before flowing out in the following weeks and months. At the same time, our customer insights are grounded in direct ongoing engagement with hundreds of real-time interactions each quarter. Seven weeks into this conflict, most are actively monitoring the situation, and they are telling us that 2026 business plans are unchanged. The risk today is that uncertainty slows customer decision-making. We have not seen meaningful evidence of that to date. That said, we are operating with a heightened level of awareness guided by the same discipline that has defined our business for decades. This is a time-tested platform, and the structural drivers of growth across logistics, digital infrastructure, and energy remain firmly in place. And with that, I'll hand the call to Tim to walk you through our results and outlook.

Thank you, Dan. Let's move directly to our results. We had a good quarter, effectively implementing our strategic priorities in a changing environment. Our core FFO for the first quarter was $1.50 per share, factoring in net promote expense, and $1.52 per share when excluding this expense, both of which exceeded our forecasts. At the end of the quarter, our occupancy stood at 95.3%, reflecting the seasonal decline we had anticipated, which usually occurs in the first quarter. Our retention rate remained robust at nearly 76%. The net effective rent change was more subdued this quarter at 32%, primarily due to market mix. Our expectation for the full-year rent change to approach 40% on a net effective basis remains the same. The lease mark-to-market at the end of the quarter was 17% on a net effective basis. The rate of decline has significantly slowed, partly due to an increase in market rents this quarter, marking the first rise in 2.5 years. Our lease mark-to-market represents about $750 million of embedded NOI at current rents, which do not consider the upside of replacement cost rents that should materialize over time as occupancies improve. Same-store NOI growth was 6.1% on a net effective basis and 8.8% on a cash basis. This growth was supported by an occupancy increase year-over-year and a growing contribution from rent changes, aided by abnormally low bad debt during the period. In terms of capital deployment, we had an excellent quarter, beginning $2.1 billion in new development, comprising $850 million in logistics and $1.3 billion in two data center projects. In logistics, around 75% of the new projects were speculative, reflecting improving fundamentals and our confidence in the demand for new supply across various markets. Our data center projects accounted for 350 megawatts between one ground-up development at an existing location and one conversion from our portfolio. Both projects are long-term leased to reputable technology companies with strong investment-grade credit. Customer interest in our powered sites is exceptional, with 1.3 gigawatts under Letter of Intent, and all our power pipeline is under discussion. We concluded the quarter with 5.6 gigawatts of energy secured or in advanced stages, including the stabilization of another 150-megawatt facility. Assuming a power cell format at $3 million per megawatt, our current pipeline could yield over $15 billion in investment, along with substantial potential for value creation. We are also expanding our solar and storage business due to customer demand, having completed 42 projects this quarter, which brings our total installed capacity to 1.3 gigawatts. Regarding capital recycling, we sold or contributed about $1.2 billion in assets this quarter, which includes initial activity within the U.S. Agility Fund announced last quarter and seed assets for our new venture with GIC. Before we move to market updates, I want to highlight that we celebrated the 10-year anniversary of Prologis Ventures, our corporate venture capital arm, with investments totaling $300 million across more than 50 companies, enhancing visibility into emerging technologies and supply chain solutions that help us stay ahead of disruptions, fuel innovation, and explore new opportunities. Overall, we've made significant progress, with demand strengthening, vacancy stabilizing, and an increase in markets showing positive rent growth. Our U.S. markets absorbed 45 million square feet, a strong outcome on a seasonally adjusted basis, slightly exceeding our expectations and aligning with our leasing experience during the quarter. The U.S. vacancy rate remained steady at 7.5%, supported by lower completion levels as the construction pipeline stays favorable at 1.7% of stock, compared to a 10-year average of 2.6%. We anticipate a relative balance between supply and demand, allowing vacancy rates to potentially decrease throughout the year. Globally, market rents increased by 30 basis points this quarter, and we expect growth to continue unless there is an economic downturn, although it may vary from quarter to quarter as conditions stabilize. In the U.S., the strongest rent growth is occurring in many of our Central and Southeast markets, while Latin America, Western Europe, the U.K., and Japan shine internationally. Southern California is performing according to our expectations, showing improvement but lagging behind other markets. We are observing stronger leasing activity and a more positive outlook from customers, although the vacancy has slightly increased, and rents have seen a minor decline, consistent with our expectations as the market evolves through its earlier stages. Turning to our customers, our recent leasing has benefitted from a diverse mix of transactions across different size categories and geographies. Despite achieving record leasing this quarter, our pipeline has not only replenished but has reached new highs, reflecting strong ongoing demand. With our large space formats essentially sold out, we are witnessing increased activity in other unit sizes alongside healthy demand for build-to-suit projects. From a segment perspective, demand remains strong for essential goods and e-commerce, with growing momentum among data center providers. Although decision-making is slightly slower, leasing activity continues to be vigorous, with no significant evidence of a slowdown. In capital markets, transaction volumes have risen, with a positive amount of products available across core, core plus, and value-add strategies, including both single asset and portfolio transactions. Notably, quality assets with strong locations and functionality are attracting the most interest, with cap rates around 5% and unlevered IRRs in the mid-7s. Moving to strategic capital, we have finalized commitments for three additional vehicles, including a new venture with GIC focused on developing and holding U.S. build-to-suit opportunities, and we've expanded our partnership with La Caisse through a pan-European venture aimed at development and acquisition strategies. Additionally, we launched a new acquisition vehicle in Japan. With these ventures and the Agility Fund and CREIT closings announced last quarter, we have raised over $2.6 billion in third-party equity, aligning with increasing investment opportunities in a more accretive manner. Finally, regarding our balance sheet, we raised $5.5 billion in new financing this quarter at an average rate of approximately 3.75%, which includes the recast of one of our three credit facilities at a spread of just 63 basis points, the lowest among REITs. Looking ahead, we are raising our forecast for average occupancy to a range of 95% to an undisclosed figure. This adjustment, along with our strong first-quarter performance, leads us to project net effective same-store growth between 4.75% and 5.5% and cash growth between 6.25% and 7%. Strategic capital revenue is now anticipated to be between $660 million and $680 million, while G&A is expected to range from $510 million to $525 million. In terms of deployment, we are raising our development starts target to between $4.5 billion and $5.5 billion based on owned and managed assets, with around 40% dedicated to data center build-to-suit projects. Acquisitions are expected to range from $1 billion to $1.5 billion, and our combined contribution and disposition activities will be between $3.5 billion and $4.5 billion, all at our share. In summary, our robust start positions us to raise our earnings outlook. Net earnings are projected to fall between $3.80 and $4.05 per share. Core FFO, including net promote expense, is expected to range from $6.07 to $6.23 per share, while core FFO, excluding net promote expense, will be between $6.12 and $6.28 per share, reflecting an 80 basis point increase from our previous midpoint. In conclusion, the strength of our business is clear amid ongoing volatility. Our portfolio consists of irreplaceable assets generating stable and growing cash flows, supported by a disciplined capital deployment strategy, a scaled asset management platform, and a strong balance sheet. We are also expanding in our adjacent businesses in energy and data centers, providing additional growth avenues. We are excited about our strong start, proud of our team's efficient execution, and well-positioned to deliver excellent results in the coming months. Now, I'll hand the call back to the operator for any questions.

And your first question comes from Ronald Kamden with Morgan Stanley.

Great. Congratulations on the record leasing for the quarter. I believe you mentioned that the pipeline is also back to record levels. My question is about the leasing spread, which appears to have slightly declined this quarter. Could you share your thoughts on that and how you plan to balance occupancy with pricing for the remainder of the year?

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

Your next question comes from Michael Griffin with Evercore ISI.

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

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

The next question comes from Craig Mailman with Citi.

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

So when you look at our start volume for the quarter, then obviously the blend of both our logistics that includes build-to-suits, it includes spec where we've more spec going on this quarter than we've had the last several quarters. And then on the data center front, I would keep it within the range that you've heard us talk about the last few years, it's 25% to 50%, not better than what you see in our typical logistics margins.

Your next question comes from Blaine Heck with Wells Fargo.

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

Blaine, we exceeded the average occupancy expectations by about 20 basis points this quarter. We're seeing an uplift in our full-year projections using the midpoint of our guidance. This improvement reflects two factors: firstly, some advance in occupancy, which will mainly show up as unexpected renewals, and secondly, the robust pipeline we have. As I mentioned, we've experienced significant activity in signings, which accounts for half of it, and the overall number of proposals we currently have is large enough to give us confidence for the remainder of the year.

Next, we have Andrew Berger with Bank of America.

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

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

Next, we have Nicholas Yulico with Scotiabank.

I would like to revisit some of the market commentary you provided, which was helpful. Could you give us more details on some of the underperforming U.S. markets? You've already mentioned Southern California, but what about New York, New Jersey, and other areas that are struggling? What changes are necessary to achieve better rent growth in those places? Additionally, regarding your exposure in Europe, could you discuss the situation in countries outside the U.K. and share any recent feedback from customers, especially with concerns about how energy prices in Europe might impact the economy there?

It's Chris. I'll jump in. So first off, in the U.S., there are three or four things to reflect on. Number one, there is a growing range of healthy geographies in the U.S. Places like Texas, generally South Houston and Dallas are either strong or healthy, Atlanta and increasingly some of the Midwest markets, something about Columbia, something about Indianapolis. So there's that strength that Tim described in his prepared remarks. Yes, specifically after soft markets, the two softest markets are probably L.A. County and Seattle in the United States. Those are areas where vacancy rates are very elevated relative to history. The pace of incoming demand is muted, and so the recovery is yet to play out there. In terms of some core markets, you asked after New York, New Jersey, I'd also throw in San Francisco Bay Area. These are areas where we're upgrading our views. In general now, we're entering a phase where we're upgrading our assessment of markets, and New York, New Jersey is a great example of it. Is it time for rent growth there? No, not quite yet. This is a year where we're going through a transition phase like we've talked about, but it's just worth knowing that we have a bias to upgrading areas. Vacancy rates have peaked and are beginning to come down, and customer demand is positive. Turning to Europe, so first off, the Western European geographies like Germany and the Netherlands are leading that marketplace. We have the dialogue that was described in the prepared remarks, we have it globally, and that includes your Euro, and the tone there is positive. Business plans are intact, and customers are moving forward with their real estate requirements.

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

Next, we have Vikram Malhotra with Mizuho.

Congrats on the strong quarter. Just two clarifications. So I think last quarter, you had said as we enter the back half of the year, we'd like to see some markets where annualized rent growth could maybe eclipse your rent bumps. I'm just wondering if you can give us a bit more color, like which markets are you seeing real rent growth on an annualized basis? And if you can just clarify on the same-store NOI outlook, the cash outlook, because the number you had in it does suggest a deceleration. So what's driving that? Or I guess, what drove the big pop in Q1 versus the guide?

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

And Vikram, regarding cash, our guidance clearly reflects our expectations. The first quarter is benefiting from more favorable occupancy comparisons, which have improved compared to the cadence of 2025. We increased occupancy throughout that year. Therefore, the impact of those comparisons will be less significant, and rent changes, of course, have a strong influence across the portfolio. However, on a year-over-year basis, as spreads become slightly more relaxed, their contribution to the same-store metrics from one quarter to the next, or year-over-year for the same quarters, will be diminished.

Next, we have Tom Catherwood with BTIG.

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

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

Next, we have Caitlin Burrows with Goldman Sachs.

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

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

Next, we have Michael Goldsmith with UBS.

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

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

Next, we have Vince Tibone with Green Street.

I wanted to follow up on your comment that data center suppliers are increasingly taking down logistics warehouses. I would like to know your perspective on how significant this demand driver could be in the coming years and how sustainable it is. Is it primarily linked to construction, suggesting shorter-term leases, or does it also apply to servicing existing data centers? I'm interested in understanding whether this represents a new structural demand driver for the space. What percentage of new leases does it account for in the last quarter or two, if possible to share? I wanted to explore this emerging aspect of warehouse demand.

Yes, Vince, you're correct. This is a new structural driver of logistics real estate demand. It has increased from less than 5% of new leasing a year ago to 10% now, and it constitutes an even larger portion of the projected pipeline. There is definitely potential for growth in the near term due to this driver. We see them signing contracts with very favorable terms, reflecting a shift in their supply chains. Essentially, they are moving from unbundling manufacturing and distribution to regionalizing distribution so that it is closer to the production of data centers. There is strong momentum here, and it is accurate to describe this as a new structural driver for logistics real estate.

Next, we have Michael Carroll with RBC Capital Markets.

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

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

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

Next up, we have Nick Thillman with Baird.

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

Cap rates have certainly increased over the past few years and have remained stable for about the last five or six quarters. We have analyzed these volumes, which I would describe as normalized. The cap rates in the market are generally between 5% and 5.5%, depending on location quality. There is a noticeable difference between Class B and C properties compared to the last cycle. As IRR-based investors, our primary focus is on the overall return of these assets, including quality and location, which can make cap rates somewhat confusing at times.

Next, we have Mike Mueller with JPMorgan.

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

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

Next, we have Brendan Lynch with Barclays.

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

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

Next, we have John Kim with BMO Capital Markets.

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

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

I think you addressed it well. I'm open to other questions. The second part of your question was about clarification on the megawatts related to utility load that we're reporting. Approximately two-thirds of that will be critical, so you can calculate based on those figures.

Next, we have Todd Thomas with KeyBanc Capital Markets.

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

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

Yes. Let me just pile on a little bit here in Southern California. I feel like I've said this quite a bit over the last year and a half or so in various meetings. But I think it's really important to emphasize just how big of a market Southern California is and what are Os in these markets. We're focused on being close to the end consumer. There are 24 million consumers in Southern California. It's a $2 trillion economy down there, and it's just getting more and more difficult to build down there. So the supply backdrop is really shaping up for that market quite well. And so we feel good about the projection we've made about Southern California kind of tailing the overall market by two to three quarters. That was the last question. So thank you all for joining the call. Just a big thank you to our colleagues around the world for another exceptional quarter. We look forward to seeing you all at upcoming conferences and speaking again at the next quarterly call. Thank you.

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