Prologis

Prologis’ CEO said the company was continuing to benefit from Russia’s war on Ukraine

Prologis CEO: “Europe is as good as I remember Europe being because actually the war and sort of the excess population that’s come out of Ukraine and in Central — in the neighboring countries have actually increased demand and led to actually better market dynamics for unfortunate and tragic reasons but it simply has.” “Hamid Moghadam — Chairman and Chief Executive Officer: Well, let me give you the general commentary on Europe. Europe is as good as I remember Europe being because actually the war and sort of the excess population that’s come out of Ukraine and in Central — in the neighboring countries have actually increased demand and led to actually better market dynamics for unfortunate and tragic reasons but it simply has. I would say the U.K. has slowed down a bit given what’s going on with the politics. But Europe is generally a more muted market than the U.S., both on the supply and on the demand side. And that’s why we’re showing lower rental growth for Europe compared to the U.S. So that’s not that unusual in terms of its historical relationship. Chris, do you have anything to add to that? “ (Prologis Q2 2022 Earnings Call, 7/18/2022)

Prologis boasted that tight supply was boosting rent growth in the US and worldwide

Prologis said it was benefiting from “ exceptionally tight markets and availability,” specifically from e-commerce and the “emergence of supply chain resiliency.” “Tim Arndt — Chief Financial Officer: But given exceptionally tight markets and availability, the fundamentals remain excellent. E-commerce represented 14% of new leasing, down from approximately 25% in 2021 and a shift we’ve long telegraphed. As noted, overall occupancy and leasing have continued to grow with take-up coming from a broad set of users, most notably transportation, healthcare and auto. E-commerce remains a positive long-term trend for our business. Clearly, COVID accelerated its adoption from a 15% share of retail sales pre-pandemic and running at 23% during. At 21% today, it is roughly 150 basis points ahead of our pre-COVID expectations. We are also seeing the emergence of supply chain resiliency as a secular and incremental demand driver for our business. We hear it from our customers both in daily dialogue as well as our advisory boards, including three events held this quarter.” (Prologis Q2 2022 Earnings Call, 7/18/2022)

Prologis called the US a “market leader” in rent growth and predicted 10-15% annual rent growth for the US. “Chris Caton — Senior Vice President for Research: Yeah, I would add. Look, the U.S. has been a market leader, especially on the coast with rent growth meaningfully outperform lower barrier markets. We’re talking about 10% to 15% annual rent growth. It’s better on the coast. And outside the U.S., whether it’s Europe, whether it’s the U.K., whether it’s Toronto, whether it’s Mexico, vacancy rates are below two and a half percent and we’re seeing some of the best market rent growth we’ve ever seen.” (Prologis Q2 2022 Earnings Call, 7/18/2022)

A Prologis executive told an analyst that supply was not growing enough “to damage rent growth.” 

Bill Crow — Raymond James — Analyst: Good morning. Thanks. Within the context of the market rent growth that we’re talking about and The Street expecting kind of four or five years’ worth, are you seeing any markets where either sequentially or on a year-over-year basis, market rents are starting to come down from their peaks?

Hamid Moghadam — Chairman and Chief Executive Officer: Go ahead, Chris.

Chris Caton — Senior Vice President for Research: It’s Chris Caton. I ran through the regional differences and the pace of growth this year is, in fact, higher than last year. So all the U.S. and those differentials. Europe as well is faster, not slower. So we are — we have quite a bit of momentum. In terms of individual markets, we track our risk, our supply risk markets. And that list has not appreciably changed over the past year. We are watchful of supply in a handful of markets: Dallas, Indianapolis and Phoenix. But we would not rate that supply as too much to damage rent growth, but it’s — those are a couple of markets we are watching

(Prologis Q2 2022 Earnings Call, 7/18/2022)

Prologis’ CEO boasted how the company is table to tell customers to “take a hike” if they ask for a discount because of market conditions, as they eventually come back and end up paying more.“Hamid Moghadam — Chairman and Chief Executive Officer: Yeah, let me just give you an example of dispo guidance. We had a portfolio that we had on the market, nothing to — obviously, with Duke. And the buyer came back for a price discount. And we basically told them, they can take a hike. The same thing happened in the week that the world shut down because of COVID. A buyer came in, they were way down the road on the acquisition and they came back. This is two years ago for a price scale, OK? And we told them to go away. They came back a year and a half later, and they pay 15% more than they had the deal tied up on. So 20% more than where they were trying to drive the price down. I’m not saying the same thing will happen, but I’m just saying, look, at the end of the day, no level of disposition or acquisition or development is going to affect the company that’s — of this scale and diversity.” (Prologis Q2 2022 Earnings Call, 7/18/2022)

Prologis said that high construction costs acted as a “pricing umbrella” for rent growth and strained supply would continue 

Prologis executives said the combination of low vacancies and high demand was boosting their rent growth forecasts to over 20%, with high construction costs serving as a “pricing umbrella for continued rent growth.” “Tim Arndt — Chief Financial Officer: We expect that this need for safety stock will lift demand for years to come, although economic uncertainty could cause some delay this year. In light of very low vacancy and healthy demand, we are increasing our overall market rent growth forecast for the year to 23% on a global basis and 25% in the U.S. This is due to a very strong first half where we see rents having increased 14% globally and 16% in the U.S. We continue to see increases in construction costs which provide a pricing umbrella for continued rent growth given the need to uphold expected yields before new spec development can be started.” (Prologis Q2 2022 Earnings Call, 7/18/2022)

Prologis’ CEO said that construction delays had inflated the perception of incoming supply, and that strained supply would continue for some period. “Hamid Moghadam — Chairman and Chief Executive Officer: Yeah. The other thing that’s going on and we’re probably overkilling this response, but I think it’s probably the single biggest area where we get questions on. Construction has not only become expensive, but also construction periods have been really stretched out because of limited availability of certain components. And by the way, we’ve been really good about ordering that stuff ahead of time. I’m talking about the market, not our situation in particular. So an extended construction period will make the pipeline of supply sound bigger. So if you’re having a third longer construction period, which is sort of what we’re estimating, with the same amount of supply, the numbers will just be a third bigger. That’s just math. So again, a lot of confusion about this issue. I think it’s a single biggest disconnect between investor perceptions and the reality on the ground.” (Prologis Q2 2022 Earnings Call, 7/18/2022)

Prologis said its warehouse business was booming thanks to fast rising rents and low vacancies

Prologis CFO’s said rent increases and super high occupancy rates were driving record growth for the company. “Tim Arndt — Chief Financial Officer: Thanks, Tracy. Good morning, everybody, and thank you for joining our call. The strong performance we realized through 2021 has continued into the new year. Today, as the production and distribution of goods continue to be disrupted, our customers find themselves struggling to simply keep up rather than focus on optimizing for resilience. This morning, we released our first quarterly results which exceeded our expectations across the board. Core FFO was $1.09 per share ahead of our forecast, rent change on rollover with 37% on a net effective basis and was led by the U.S. at 42%. Notably, our Southern California and New York, New Jersey portfolios realized 86% and 67% rent change during the quarter, respectively. We ended the quarter at 97.4% occupancy, holding average occupancy flat to the fourth quarter of ’21, counter to the typical first quarter decline. These operating results drove cash same-store NOI growth to a record 8.7%. As we’ve been highlighting, the positive news and market rent is adding to our lease mark-to-market now at 47% (Prologis Q1 2022 Earnings Call, 4/19/2022)

Prologis’s CFO predicted a “strong environment for continued new rent growth,” with market rates increasing faster than the rest of the world. “Tim Arndt — Chief Financial Officer: This leads us to vacancy where we forecast rates to remain at record lows in our U.S. and global markets, upholding the strong environment for continued new rent growth. During the quarter, market rents in the U.S. grew by eight and a half percent and six and a half percent globally. Given this pace in our outlook on demand, we’re revising our annual rent growth forecast to 22% in the U.S. and 20% globally, in line with 2021. This rent growth was the main driver of value increases during the quarter, which measured nine and a half percent globally. The uplift in Europe was a record 6.3% with strong appreciation across all markets. While the U.S. increased 10.3% during the quarter following the significant 42% increase in 2021.” (Prologis Q1 2022 Earnings Call, 4/19/2022)

Prologis’ CEO said there were continuing factors supporting “tremendous growth in industrial rents.” “Hamid Moghadam — Chairman and Chief Executive Officer: Yeah. So let me take a stab at that. Yes, there is a limit to how far industrial rents will grow. There’s a limit as to how far the prices of anything can grow. But if you look at the factors that are contributing to this tremendous growth in industrial rents. There are many, including supply and demand to start with, which you’re dealing with a market that’s three and a half percent vacant. And as you heard in the prepared remarks, we are running at a fraction of the normal month of supply that’s out there. So notwithstanding all this noise around supply, the relevant supply in the markets that we care about are extremely tight.” (Prologis Q1 2022 Earnings Call, 4/19/2022)

Prologis’s CEO: “industrial rents do go up and — but they’ve never grown at these levels, but we’ve never had market conditions like we have now.” Hamid Moghadam — Chairman and Chief Executive Officer: The latter, Chris will do shortly. But look, we’re in — as somebody asked earlier, we are in unprecedented territory, I mean industrial rents historically. While some people actually used to say industrial rents are never going to go up. But industrial rents do go up and — but they’ve never grown at these levels, but we’ve never had market conditions like we have now. We’ve never had e-commerce at this level of importance. We’ve never had resilience becoming such a big factor. We haven’t had these bottlenecks in the supply chain that clog up the network.” (Prologis Q1 2022 Earnings Call, 4/19/2022)

Prologis’ CEO stressed that the company was actually benefiting from the crisis in Europe

Prologis CEO: “the war it’s a very unfortunate situation generally, and I feel for our people in Europe, and I feel actually for people around the world with this atrocities going on there. But the reality of it is that the impact on our business is actually positive because of the disruption that it causes, people just need to carry more safety stock” “Hamid Moghadam — Chairman and Chief Executive Officer: Sure. Actually, I think those two things, volatility, uncertainty and rents going up are really part of the same equation. When things are running smoothly, people can optimize supply chains and minimize inventories. And that’s what they’ve done for many, many years. Whenever you have a disruption like we had Brexit or we had the pandemic or we had earthquake here and there. And now the war it’s a very unfortunate situation generally, and I feel for our people in Europe, and I feel actually for people around the world with this atrocities going on there. But the reality of it is that the impact on our business is actually positive because of the disruption that it causes, people just need to carry more safety stock. Demand in Europe has been surprisingly strong.” (Prologis Q1 2022 Earnings Call, 4/19/2022)

Prologis CEO: “I don’t feel good about what’s going on in Europe, in the Ukraine, but I feel good about our business there.” “Hamid Moghadam — Chairman and Chief Executive Officer: I shouldn’t say surprisingly, it’s been really strong. And interestingly, Europeans have been more timid in terms of pushing rents than we are here in America. But finally, they’re realizing that they have more pricing power than they thought and taking the rents to a higher level. So I feel pretty good about actually the rental picture. I don’t feel good about what’s going on in Europe, in the Ukraine, but I feel good about our business there. In terms of the immediate impact of the war, obviously, Poland is a country that we’re pretty active in, that’s right next door. And a lot of our people are hosting families that have come into Poland, almost 3 million people. And I mean we have employees that are housing dozens of these refugees.” (Prologis Q1 2022 Earnings Call, 4/19/2022)

Prologis CEO: “.So there’s a lot of emotional angst in Europe. It’s all understandable, but the business is pretty good.” “And so obviously, it affects how they feel about their life and concerns they have about a lot of families from Ukraine. Actually, a lot of families from Russia, also that work in Europe. And by the way, those people are just distressed, just because they were born in Russia doesn’t mean that they like what’s going on with the war. So there’s a lot of emotional angst in Europe. It’s all understandable, but the business is pretty good. And I don’t see it getting derailed unless this war goes to a whole another scale of things that I don’t even want to imagine and then everything is toast. And our business is the last thing we should worry about. (Prologis Q1 2022 Earnings Call, 4/19/2022)