Prologis, Inc. (PLD) September 15, 2026 Conference Transcript

Sarah Cooper, Global Head of Real Estate Equity Sales, and for various reasons, you have me moderating, but I would welcome all of your questions as we proceed, particularly around the things that I'm not allowed to mention. So thank you to management. We have Tim Arndt, CFO, Justin Meng, Head of IR. That's all from your team, right? We don't have Aoshek as well here with us. So to jump right in, maybe you can give us the latest updates on leasing and tenant demand into September, get on what's changed since earnings and the pipeline as well, if that's okay.

Sure. Well, good morning, everybody. It's great to be here, be back in New York. Maybe I'll just even widen out a little bit further and touch on the quarter overall and how the business is performing. I mean, in a nutshell, things are going very well. If we just begin around the operational part of the business, all of the trends that we have been talking about for, really, in my view, about the last eight quarters now. But I think the market has taken more notice in the last two or three. All those positive trends around our leasing volumes, the pace of decision-making, lifting of occupancies. We've seen a couple quarters of positive market rent growth. All those things have been continuing here into the third quarter. That's been great to see. It's something that is facilitating continued growth in our value creation business, namely development of logistics facilities for one part. That's an area of our deployment that had been more muted going back to, say, 2024 when conditions didn't really warrant, but with all the improved conditions and tightening that I'm describing here, that's picked up meaningfully together with a lot of the data center opportunity, which I'm sure we'll spend a little bit of time on. That's all being fueled by two things, really, our strategic capital business. We have nearly $70 billion of AUM, third-party AUM, that is, supporting all of that ownership and growth, but also our balance sheet in and of itself, where we just had an equity raise in advance of the Seagro transaction, which is, you know, the cherry on top of all this. It's a very important transaction that's still underway for us in Europe, but a highly complementary portfolio and team that we are working through. It's closing. That's something that's going through various regulatory processes, including a shareholder vote at the end of this month, and something we expect to close in the first half of next year. So across the board, things are going great. Sarah, I think, you know, specifically on some more of the numbers, I think here in the third quarter, we'll probably see lease signings. We've had a number of records on overall lease signings for Prologis in the last several quarters, and that's been 60, 65 million square feet. It's been the hallmark of what's a record for us in terms of signings in a quarter. I suspect we're going to see a number in that zip code again this third quarter. We're not fully done, but the first few months have been great. As we really more finely parse the pipeline, we're noticing that deals in our agreement stage are accelerating. Things are moving through the system a little more quickly. But the thing that we're always appending to this indication of activity beyond the signings is just whether the pipeline itself is getting replenished with new demand after we have a record quarter of new lease signings. And that trend is continuing. We're seeing our lease pipeline stay well over 100 million square feet in new inquiries, which has been great to see.

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

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

Okay. Do anyone else want to ask any questions relating to those opening remarks before we move on? Okay. Maybe now we can just touch on the market, U.S. net absorption, deliveries, vacancy, and market rate growth. As we look out for the next few quarters.

Yeah. So we had a, many of you probably know, we had a meaningful pick up in net absorption in the second quarter, 66 million square feet, I think. We hadn't seen a number that high in quite a while. I would say, you know, for me, the net absorption numbers we had been seeing for the prior six, seven, eight quarters had been almost inexplicably low. We would expect that a good productive market net absorption in the U.S. should be around 225 million square feet annually, let's say. So that 66 million figure in the second quarter was in keeping with that a little bit ahead of that. But all the quarters we had seen where we were registering some 30s, 35, low 40 number had been quite low for the level of activity we had seen from our customers. And the explanation of all that was very clearly it was just working through the overabsorption of space that we saw early in COVID, that we saw occupancies lift very high, customers take a little bit more space than they needed. So across 24 parts of 2025, that had slowed down. We had been saying for a while we thought that was running out, that customers were getting their portfolios right-sized and we were going to see new incremental demand. I do think Prologis saw that empirically. I would say you can see that in our numbers ahead of the market because we had these very strong leasing volumes since the end of 2024, really, building occupancy over the majority of the course of that time, while market occupancies were actually still declining for a spell. And now they've bottomed and they are growing. It just looks like we're a few quarters ahead of that due to where our portfolio is and its quality. These are conditions that are contributing to positive market rent growth. We're a global portfolio. We've seen positive rent growth outside the U.S. for a longer period of time, probably backing up about a year now, places like Europe and certainly LATAM. So we've benefited from that for a while. The U.S. had been slower to get to that point, but in the first two quarters now of this year, the U.S. has been a contributor to that. And I'll add on, you know, the outlook on market rent growth, you know, we describe our businesses rationally, we would say inflation plus on market rent growth expectations for logistics. And the plus, I would just put in a pile all the secular drivers of logistics, which e-commerce is at the top of that list, but now it's becoming other things like advanced manufacturing, like the data center build out. There's a number of things that add incremental demand beyond just inflation. The other component there that's lurking that's kind of statewide due to the level of vacancies in the market is replacement cost rents. So I'll back up for just a moment, giving a long answer here. But, you know, we have our lease mark-to-market, which is just a measure of how much higher are market rents than the leases that we have in place. And we size that at 17%. It's worth about $700 million on memory that if we do nothing else, just uplift the portfolio up to market rents, as leases come due, we'll bring in that $700 million. But then there's another measure. What is the gap up to replacement cost rents? How much higher are replacement cost rents than market? And that's another roughly 20%.

Sorry, another on top of the 17 or just?

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

Sorry, you said into mid-single digits? That's a lot of relative to the gap.

That's an annual number. I'm just saying annually. I think if you put those, pick an inflation number, and we all have our guesses now where it is, and then a plus on top of that from the secular drivers, I think that puts you to four or five. Pick a number. We're just saying that you also, on top of that, this replacement cost rent gap in economics shouldn't exist for a long period of time. And it kind of depends on how quickly the markets tighten from here as to how quickly market rents will rise to close that gap. So, yeah, maybe your point, Sarah, maybe mid-single digits is conservative. It could certainly be higher.

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

Yeah. Look, the strongest markets are, you know, on a spot measurement, I would say. How well are markets occupied? How good has their market rent growth been recently? That remains. Sunbelt kind of markets, southeast U.S., Texas remains strong. I would say some of our central U.S. markets have been surprisingly good for a long period now. Indianapolis, Columbus, Memphis. We're definitely seeing signs of that rotating back out to the coast. So, you mentioned SoCal. SoCal, we would say, is definitely inflecting. It's a quarter or two behind the U.S., but for our holdings, which we have a lot of the Inland Empire, a lot of our holdings are in Inland Empire West, more modern product in the South Bay, all that product is doing quite well. We're very highly occupied in SoCal. We're over 96% occupied there, strong rent growth. So I do think, I say all that to have folks kind of zoom out, at least on our experience in SoCal, that it has been pretty good, frankly, for all of the discussion we've had over the last three years. Our portfolio has actually performed quite well. New supply is limited there, as you all know, and they are benefiting from some of the growth we've seen in advanced manufacturing, defense, et cetera. Weak markets, if I go to that part, you know, Seattle's still a little bit behind in the U.S. I'd probably, you know, Central Pennsylvania is still a little bit behind where we would like to see it. I think they will catch up. And then globally, China is working through its excess vacancy.

Should we still build that?

Less than 1% of our portfolio is in China.

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

Yeah. Europe has been a bright spot, I would say. I mean, so I'll come back to Seagro in just a moment. But beyond SAGRO, I think Europe is an underappreciated stabilizer of our portfolio. It's got very strong and steady operations. It didn't have the large oscillation in rents and vacancies that the U.S. experienced. So its normalization post-COVID was less extreme. As I mentioned, its occupancy stayed high. It began producing positive market rent growth sooner than markets in the U.S. We love the markets there. Seagro brings this opportunity to combine a portfolio that we've admired for decades, literally. We've known that portfolio and that company for a long time. We have tremendous respect for the company and what they've built. Got to know their team here in the process so far and really look forward to combining both our platforms and our portfolios, which are very complementary across these markets. We have 100% overlap in terms of markets that we exist. Prologis is in some markets that SAGRO is not, but not the other one around. But the product offerings are quite different, and the complementary state of that is going to be fantastic.

Thank you.

It's hard to draw a direct line between defense spending and uses within our buildings, but just the nature of space that is being taken up across Europe. There has been increased spending, as we've seen, and I guess as you look at the state of the world, the potential for that to increase more is certainly lurking. And then, yes, look, the change of the de minimis ruling here in the U.S. and just of trade and tariff patterns generally, including not only Europe and China, but Canada and other places, we're seeing benefit our global portfolio, indeed.

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

Yeah. So, I'd start by saying, you know, to understand the build-a-suit business, our product may seem like a commodity, and in some ways it is, but it's definitely not homogeneous amongst the sub-market the product is in. If it's institutional or grade A quality, you need a particular size or shape in building, et cetera, certain functionality, clear height. So I think a belief that a customer can come in and just find a warehouse, particularly for a more sophisticated global customer of ours, it's often not the case, and needing to build something becomes a solution that they pursue. To Prologis having 14,000 acres of land under our ownership or control that we worked very hard through some slower years post-COVID to get pad-ready and entitled everywhere that we could, together with a very strong customer franchise, bringing those things together for the Build the Suit opportunities is a winning strategy. And so we've been at the center of that for the last six, seven quarters, I would say. Last year, we had a real incredible start in the first six months of last year in particular on Build the Suits, and that success has continued. There's been a lot of need for larger boxes, as many of you probably know, and those are a little bit harder to come by, and that's been a particular kind of subset of the Build the Suit business strength.

So, sustainable?

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

Okay. Thank you. All right. Transaction markets. What are you saying? Buyer, appetite, sellers, cap rights, pricing right now?

Yeah, so transaction markets have been strong, good, larger, or maybe I should call them midsize portfolios, trading, a lot of focus on where the lease market and near-term rental growth is coming from. So it's particular slices that carry the most strength. But we would say, you know, high quality portfolios still trading low fives on market rents, roughly low to mid sevens on IRRs. Now, it's acknowledged that the 10-year has been moving a little bit. I don't know if you noticed that, Sarah. So, you know, we will see how that plays out into values. I think in the short term, that could have some effect on discount rates and IRRs in pricing. I think over the longer term, you know, what rates are doing, you know, pinned really by what's going on inflation. Inflation will move rents and values in the longer run. So that's why we invest in real estate, many of us. It's a very good inflation hedge. But in the short term, this rate move could affect pricing. We'll see. But I think that if that were to occur, values would be on the rise sometime thereafter.

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

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

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

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

Okay. Can we move on to data centers?

Yes.

Well, actually, I know, just one more, just some transactions. I mean, aside from the big one that I can't ask about, global expansion and, you know, I mean, there's different things happening in other parts of the world, maybe more stress elsewhere. Any ambitions? I know you have the fabulous Claire Tilke out doing things as well.

Claire, again, special shout-out. No, look, we are always looking at any kind of acquisition opportunity, individual buildings, small portfolios, companies. We see the benefits of scale. We see the benefits of high-quality complementary portfolios. It's what are things priced at? Are they for sale or not? Can everything line up? I mean, there's a lot of stuff.

For example, you've been in China forever. I know it's only small. There's a lot of stress there at the moment, but you guys have stayed there. So you could probably clean up and buy a lot of stuff. Is there appetite for that, or have you got enough just to bed down with what you've got going on now?

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

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

So, I mean, I recognize most everybody here, but if there's anybody kind of new to the story here, I would just back up by saying, you know, Prologis has always had a mindset towards higher and better use conversion of our real estate. We acknowledge we don't have the sexiest product type in warehouses. It's a low use of land, as I just described. It takes a lot of land to deliver one facility. Well, a big part of our thesis has been to buy products close into population centers where it's in high demand now from the advent of e-commerce and everything else, but its potential to be upscaled and converted to some better use than logistics was always there. And I would say every year we've had the occasional office conversion, some retail life science conversion. Data centers have emerged as the most significant opportunity for that because it's not just one user or one case. It's a whole industry that's being built where we have 6,000 buildings and 14,000 acres of land we own or control that all of it is quite suitable for data center use, provided you have power there and a market behind it. So we have – we've leaned into this opportunity very significantly in the last probably four years now, built a very capable, world-class team around it. We're about 75 people strong. Importantly, aggregating power, of course, you will all know. We have about 5.8 gigawatts of power, either secured or in advanced stages, and have had a very good track record since, I would say, our intentional run on this business of getting a project started. We started about $4 billion since, I would say, its formal launch of bill-to-suit transactions, hyperscale credits. We approached this business in a de-risked way, I would say. We acknowledge we are not a data center company on its face. We are a logistics company. We don't intend to own data centers on our balance sheet over the long term. We may own, you know, residual interest AVs. We'll see how that plays out over time. But we see a value creation opportunity to pursue reinvest all those profits back into our business. So in that mindset, we want to do it in as risk mitigated way as possible. So that involves bringing power on as inexpensively as possible without going long power, if you will, only commencing vertical development when we have a high credit tenant lease. And then so far, our track record has been to sell assets post their completion and once again redeploy back into our own business. So it's been going very, very well, and our outlook is very favorable. I'll mention, you know, the 5.8 gigawatts of energy that we have, you know, that sits on less than 1% of our sites today. So often there's a question of, well, how much bigger can it be? And we've talked about 10 gigawatts. I think 10 gigawatts, if you ask me, well, why can't it be 20 or 30, I wouldn't have a good answer for you. It could be. If there is that long of a runway on this build-out, we have no shortage of sites and capability and capital to keep transacting on it.

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

Mm-hmm. So how are we handling funding?

Yeah, so the approach to that, whether it's funds and balance sheets and just capital recycling selling to do the next one?

That's right. Mostly capital recycling. Look, we're blessed to have a huge balance sheet. I guess it's intentional. We got it to this place. But we can take on, we've got billions of dollars of data center development ongoing at any point in time. You've got a debt to EBITDA in the low fives. You've seen it sit in that range for a long period of time. It's a little bit hard to move the needle on our balance sheet, so we've been able to take all the volume on, I don't want to say easily, but we arranged the sources and uses. That's my and my team's job to make that all work. Now, what we talked about in July was sort of the conclusion of an effort we undertook to explore the private equity markets to see what LPs may want to do in terms of different frameworks really should larger opportunities come along that we would be less comfortable funding solely on our balance sheet. And we're talking about large turnkey kind of developments. And we've established those relationships, some framework on how they would go, and that's a new tool in the toolbox to be sure we can chase those opportunities as well.

Would you announce those as they happen?

Yeah, they would probably come along by deal would be my guess, and we'll certainly tell you as they happen.

And that's only for super large?

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

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

I'd rather not comment on that right now.

Forgive me for asking that.

Thanks. Formerly sexting, now boring question. Can you talk about e-commerce and competitive sales, any geographic version, comment on it, and where do you see it going?

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

Yeah. E-commerce, in the U.S., I think we're about 24% of retail sales are occurring in e-commerce, somewhere about there. We still see roughly one percentage point, 100 basis points of growth per year in that penetration rate, at least through the end of the decade. So that's to say we kind of see 28, 29, 30 percent of retail sales in e-commerce by 2030.

Again, if you're newer to the story, the reason this is so important and exciting, and you're right, we forget about an important growth driver here, but there's a three times multiplier on logistics demand for every dollar of retail sales that shifts those channels. And so that continued penetration is something we're always looking for and excited about. Europe is around 16-17%. It's similarly growing, but at a slightly lower rate. LATAM is growing in big ways. We have large customers, not our number one customer necessarily, but others in the e-com space who are growing significantly outside of the U.S. We're seeing e-com leasing in the high teens percentage of our new leasing. That had similarly stepped back a little bit in 23 and 24. It's come back, and we always like to highlight that, yes, we're a very big Amazon landlord, but in any given quarter, there's roughly 35, 40 individual names leasing from us in the e-commerce space. So its breadth is much more than people appreciate. Amazon? Amazon, we're very active. They're active, and we are active with them. I missed one question on the data centers, and I don't want to get in trouble from Samir, so I'm just going to zip back quickly. But how much power is secured today versus how much you're potentially going to need over the next 5, 10 years? And you can touch me on solar as well.

Yeah, okay. So that's 5.8 gigawatts. I think 1.6 of that is secured. The remainder is in our advanced stages. And as you watch us, that secured number, I believe, dropped from our prior reporting of it. That's because we're monetizing that power bank. We had two big quarters of starts in the first half of this year, over $2 billion, fully filled our guidance on data center starts. So we feel great about that. So that number is going to bounce around a little bit. I already spoke to just how much larger that pipeline could be, so I won't repeat that part. But Sari also mentioned just the solar side of our energy business. So, we are generating or storing 1.4 gigawatts of solar power in our portfolio today. Makes up about 8% of our portfolio. So, it tells you there's a lot of runway there. The largest growth market for us remains the U.S., where we see we can continue to build out pretty significantly. Okay.

Thank you. Moving on, we can turn to the funds business. So, fundraising versus redemptions, new capital in, promote opportunities.

Yeah. This is going very well. Look, if I go back four years, I remember the third quarter of 2022 is when we had our first meaningful tick up in rates. Discount rates, return requirements shifted for everybody. LPs, private investors, that was a moment where they were stepping back, re-evaluating their investments. It's also at a time where I would say kind of a run on investment and logistics real estate from institutional investors. A lot of that run had taken place. A lot of people needed that exposure and filled their tickets. So we had denominator issues, blah, blah, blah. So that business has been softer in terms of capital raising for a number of years now. But we haven't just kind of sat back and waited for it to come back to life. We've been inventing new vehicles to attract that capital. And you've seen that in the last six, nine months, we've launched a number of new vehicles that are spanning geographies, they're spanning formats. We've included more exposure to our development business, which I'll say for, you know, coming back to the balance sheet, is very well-timed with the fact that we have growing calls on our capital for both logistics development and data. So it's welcome to have some development capital in the system as well. So I think our open-ended funds, their fundraising will get back to normal, but probably more in a maintenance mode, a little bit of growth. We'll see how that plays out. But we see LPs wanting to come in on a more JV level with big sponsors like Prologis, aggregate some exposure around GPs, and so we've been pursuing that quite actively. Is there a house view on the impact of U.S. policy in terms of your US, maybe as Canadian, Alaska, your views on Canada in that regard?

Yeah.

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

How could I forget?

And we were all concerned about what it meant and how would our customers behave, but it only took six months to see that customers were looking past it generally. For those very directly reliant on specifics on trade policy, they found different vendors and networks to reorient themselves around, but they can't forego their logistics footprint. And we saw decision-making resume. I think that's simply continued. You know, every quarter since then has brought new tariff news. I mean, the situation with Canada is a bit more extreme, acknowledged. I don't think it has us concerned on our logistics demand there, because so much of the use of our space, we found, is focused on local consumption regardless. And so we're in principally in Toronto. It's a tremendous market, very supply constrained. So it's performing very well. It's fine. But yeah, just generally in terms of customer behavior, I think they are looking past all that. They cannot rationally plan on the amount of changes in those policies. I think everywhere, academically, it's a sort of a positive in that I think the disruption that it brings, the notion of needing redundant supply chains, like the premise of that, like these things tend to lean into demand for logistics. You may need more space. You may need a duplicative supply chain. It's not a significant part of our underwriting, but I think directionally that's where this kind of noise takes you.

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

I think it's probably this market rent growth piece that I unpacked a little bit earlier. Just like it's been, we had a couple of years of negative market rent growth. Including last year, I think we were a little over 4% down on market rents. I want everyone to be reminded and understand there's still positive market rent growth in all those years because we're still capturing the COVID era rents. But I think there's just been such a mindset that rents are depressed in logistics, or their growth is at least. So I think getting a little bit ahead on the thinking and just doing your own work, don't trust me, but just your own work on, well, does inflation plus make sense? And do we see replacement cost rent gaps close over time? And we see that in past cycles. We think we see that, and I think the case that there is a day of mid-single-digit, maybe better, for some years running is very strong.

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

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

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

These are SA questions. Yes.

If I'm very simple, I like to keep it very simple.

It's hard to put it in one word.

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

I think it will be about the same.

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

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

Thank you.