Prologis at BofA Securities Conference: Strategic Growth Amid Challenges

On Wednesday, 10 September 2025, Prologis Inc. (NYSE:PLD) participated in the BofA Securities 2025 Global Real Estate Conference, presenting a cautiously optimistic outlook. The company acknowledged challenges such as rising debt rates and fewer development starts but emphasized its robust business model and growth opportunities in ancillary sectors like Essentials and data centers.

Key Takeaways

• Prologis reported improved leasing activity and strong build-to-suit performance.
• The company is focusing on maintaining occupancy despite potential market vacancy increases.
• Executives highlighted Prologis’s data-driven approach and unique capabilities in logistics real estate.
• Long-term growth strategies include leveraging its platform for value creation and expanding into data centers.

Financial Results

• Prologis holds $200 billion in assets across 1.3 billion square feet in 20 countries.
• Annually, the company develops approximately $4.5 billion in new logistics properties.
• Over 20 years, Prologis has developed nearly $50 billion of assets, creating $14 billion in value.
• The company has a $42 billion land bank investment opportunity.
• Strategic Capital manages about $65 billion of third-party assets under management (AUM).
• The average in-place interest rate is 3.2%, with eight years remaining at this rate.
• If marked to market, portfolio debt rates would be around 4.25%-4.5%.

Operational Updates

• Build-to-suit starts reached a record $1.1 billion in the first half of the year.
• Eight new build-to-suits were signed in Q3, diversified across regions and customer types.
• The leasing pipeline is robust at 130 million square feet, with improved proposal conversions.
• Larger space sizes (250,000 square feet and above) are leasing better.
• Strong demand is noted in LATAM, Southeast U.S., and Europe, with four build-to-suits in Europe.
• Demand is strong from consumer products, food and beverage, 3PLs, and transportation companies.
• Property insurance costs have decreased after two years of pressure.

Future Outlook

• Prologis projects net absorption between 75 and 100 million square feet for 2025.
• Vacancy is expected to bottom out in two to three quarters, with positive rent growth thereafter.
• E-commerce remains a growth driver, with a high single-digit growth rate anticipated.
• The company aims for long-term high single-digit growth despite headwinds like fewer starts.
• Increased AI spending is expected over the next year.
• Same-store NOI growth for the sector is expected to remain stable.
• Prologis sees potential in converting logistics buildings into data centers and expanding the Essentials business.

Q&A Highlights

• Discussions included the potential impact of Fed rate cuts on long-term yields.
• Opportunities in data center conversion and dedicated staffing were highlighted.
• Tariffs’ impact was noted as less of a concern, having drifted into the background.
• The importance of discount to replacement cost in strategic markets was emphasized.
• The integration of AI with Prologis operations was discussed.

Readers are encouraged to refer to the full transcript for a detailed account of the conference call.

Full transcript - BofA Securities 2025 Global Real Estate Conference:

Unidentified speaker, Host: Welcome to the Prologis Roundtable this morning. Joining me up here is Tim Arndt, who’s the CFO of the company, and we have Justin Meng, who heads up IR. Tim, I’ll turn it over to you for some opening remarks.

Tim Arndt, CFO, Prologis: Okay, thank you. Good morning, everybody. It’s great to be here. I’ll just begin with a quick description of Prologis if anybody’s somehow unfamiliar, but we are, of course, the world’s largest logistics REIT. We have $200 billion of assets across 1.3 billion square feet in 20 countries. Our markets are principally characterized by large, more consumption-oriented, supply-constrained markets for logistics distribution. We run alongside those large operations a very successful development franchise, developing about $4.5 billion on average of new logistics properties per year. Across the last 20 years, we’ve developed nearly $50 billion of such assets, creating about $14 billion of value in the process. What’s exciting about that is that’s a great track record. You attach that to the fact that we have $42 billion of investment opportunity from here in a land bank that we own and control.

That would be, you know, almost 10 years of development opportunity that I actually hope we plow through more quickly than that, but the runway for growth and value creation is pretty significant in that regard. We capitalize all that, of course, in the public markets, but also together with an asset management business that we call Strategic Capital internally. It encompasses about $65 billion of third-party AUM, and it’s a great way to not only spread the capital need of such a large business, but it also diversifies what we can do in terms of our holdings, our markets, our availability for customers in a way that enhances returns of the core real estate in and of itself, of course. On top of all that, I’ll maybe just close by saying, we have always said that bigger is not better and better is better.

Putting that to the side and as a given, reaching the scale that we have in the last six, seven years through a lot of M&A and portfolio acquisition has given us an appreciation for what we can do with the platform, that we can launch a number of businesses off of it, energy business, our Essentials business, which we can get into a little bit here. It also has given great opportunity for higher and better use opportunities, which has always been the mainstay of our investment philosophy. It is at a different level with the data center conversion and AI opportunity that’s ahead of us now, the fact that we have 6,000 buildings, 15,000 acres as a rich palette to draw from for value creation in that business as well. So Sarah?

Unidentified speaker, Host: No, thank you for that. Just as a reminder, I want to keep this interactive. I’ll start off with questions, but if there’s anything, just let us know. Uncertainty has been a theme this year, in particular after Liberation Day. Tenants have been slower to make decisions as a result. Has this improved at all over the past few months now that we have some clarity with trade agreements here?

Tim Arndt, CFO, Prologis: Yes, I would say it’s improved. If I back up a little bit, we’re encouraged by the activity we’ve seen in this quarter, and that’s been a continuation of positive momentum, slow but positive momentum that we saw play out over the second quarter. On April 2nd, we, like many, were at first concerned for sure of what all the tariff news brought and how it was something that felt very focused in our industry and what the implications would be. We described a slowdown in leasing that occurred early in the quarter and did remain below average historical levels over the duration of the second quarter, but did improve, however. The level of lower decision-making and lease activity did improve by the time we got through June.

We described that at the time of our July earnings call as what felt like, and we even heard from many of our customers, was just either exhaustion or the need to look through what all the permutations on tariffs could bring to their business. They couldn’t hold off decision-making for too long, began executing on leases. We saw that principally in the renewal side of the business versus new leasing. You can imagine that renewal, in a way, to me, is like almost making a new decision whether you’re going to expand or contract or relocate. You might just stay in place. That is an easier decision than some of the new leasing. Indeed, in the second quarter, customers’ decision to take on a new lease, we had a lot of proposals for that.

We described a very large leasing pipeline, 130 million square feet at the end of the second quarter. A large chunk of that is in the realm of new leasing, but the conversion of those new leasing proposals to signed leases had been well below average levels, and that was a contributor to lighter volumes, more so than renewal activity. The update this quarter, why I say things are encouraging, is that that piece has been too strong to say unlocked, but it has improved. The conversion of newly seen proposals into signed leases is now occurring at a better rate, not yet the historically normal rate, but at a better rate than we had seen in the second quarter.

I think that’s probably thematically for the same reasons that we described in the second quarter, that there’s not just exhaustion out of tariffs, but I just feel like the tariff conversation has moved a little bit more into the background, likely because many customers are understanding more with the passage of time how they might be able to deal with tariffs, no matter what the outcome ultimately is, what they can do in their margins, what they can pass on, what it’ll mean to their footprint, where they can source goods. More of those questions are getting answered and allowing customers to proceed on their decision-making in their supply chain.

Unidentified speaker, Host: It sounds like in sort of July and August, things are going in the right direction here.

Tim Arndt, CFO, Prologis: Yeah, and look, I should say we’re not out of the woods, so let’s not run away with that, but the signs have been encouraging. I’ll add another, which we highlighted in the second quarter, was our build-to-suit activity. We had at Prologis $1.1 billion of build-to-suit starts in the first six months of the year. That was a record for the company in terms of its volume. We had been talking about that over 2024, that there was a lot in the build-to-suit pipeline, but decision-making was slow. The deals weren’t being made. Now they had been, and we had a record volume there. That pace, or at least the success there, I should say, has kept up. We’ve signed up eight new build-to-suits here in the third quarter, pretty well diversified across geographies and customer types, not a theme there.

We have described that as we think an indicator on where sentiment is as well, because the kind of customer who is engaging on a build-to-suit is someone who is probably larger in size, for one, has a bit more capital availability, probably thinking a little bit further down the field and strategically about their supply chain needs. They’re probably taking on a 10-year lease, not a five-year lease. They’re planning to not have this space immediately, but instead are nine or 12 months. If we unpack that as an indication of where the market would like to be, and those who can act in that way are, you know, we would see that that behavior, the want for space and the need for continual optimization of space is present in the market.

The smaller and medium-sized enterprises who may have less capability are just looking for a little more clarity, either in the tariff environment or just in the overhang that it’s creating.

Unidentified speaker, Host: For the deals that you are signing, maybe talk a little bit about box size and the markets where you’re seeing more activity than others.

Tim Arndt, CFO, Prologis: Yeah, one thing we’re noticing, and you know, trends come and go, so you can’t extrapolate too much from them, but larger space sizes have been leasing better. It’s at times very large space sizes, but we would even demark that around 250,000 square feet and above has been moving better. Markets we would characterize similarly as we have been the last few quarters. We know where markets like SoCal are and how they’re adjusting. They have a longer period of time to recover and inflect. Stronger markets remain in LATAM for us, Southeast U.S. Europe has been stable. On the build-to-suit front, I think four of those eight build-to-suits I just described are out of Europe, and we had very good build-to-suit volume in Europe last year as well. UK, Southern Europe stand out as stronger areas for that activity.

That would be a description of what’s stronger and weaker.

Unidentified speaker, Host: On the 130 million square foot that you’ve talked about, it sounds like that’s where the number is today as well.

Tim Arndt, CFO, Prologis: Roughly, yeah.

Unidentified speaker, Host: Is there anything you’re doing proactively at Prologis to convert this activity into signed deals?

Tim Arndt, CFO, Prologis: I mean, that’s just our bread and butter, moving those deals through the pipeline, getting them converted. Maybe a version of your question is, you know, how are we optimizing for rent change rate or occupancy? I would say, look, we’re still in a mode of solving for occupancy on a global basis, if I were to sum up all of the individual markets and transactions. You should know that by right of our scale and the data that we have about our markets, the knowledge we have of our customers, the truth is we don’t optimize that at a global level. We set it really down to every single lease. There can be situations where we know we don’t need to solve for occupancy, that this is the customer’s only alternative for whatever the reasons, and we’re going to push rent in those cases.

It varies, but I would say if I boiled it up at the global level, we’re still looking to build occupancy because frankly, you know, we see the market as building a little more vacancy in the next two or three quarters before it tops out in the U.S. a little below 8% is our view.

Unidentified speaker, Host: In terms of that $130 million, can you give us an idea of how that number is calculated in terms of, you know, is it, there is certainly active conversations with tenants or customers on that, but at some point, how does that math work to include that or not?

Tim Arndt, CFO, Prologis: Look, it’s just a simple aggregation of what we use Salesforce. You know, it’s what is in our Salesforce funnel at various stages. It can be anything from a proposal stage to in final stages on negotiation. One thing that we report out to all of you in our supplemental is out of that pipeline, how long are deals sitting in there to give you an indication on market health and what’s happening. We call it gestation, and that number typically sits in the mid-40s days. Now, I think one thing you should expect to see when we report the third quarter, and I don’t know this number yet, but I bet we’re going to see gestation pretty long. I bet we’re going to see 50. I wonder if we’re going to have a six in front of it in terms of days.

That’s actually going to be reflective of the consternation that’s sitting in the pipeline, which is that there’s a lot of deals sitting there. There’s a lot of interest in space. Once again, that’s the positive that we take away from the way the pipeline is swelled. The deals are lingering there because customers know they want to be made, but their decision-making is slow. By the time they actually release and get signed, we’re going to report on those signings on September 30, but we’re going to see there are deals that have been in the hopper through maybe much of the second quarter, for example. We could see some elongated number of days on that basis, but it shouldn’t be misconstrued for that reason.

Unidentified speaker, Host: Just wanted to get your view on kind of your latest views on net absorption here, right? How you’re thinking about that vacancy and market rent growth as we look over the next, let’s call it 12 to 18 months.

Tim Arndt, CFO, Prologis: Yeah. We haven’t updated our view on net absorption here. Our call wasn’t so long ago. We think we said somewhere between 75 and 100 million square feet on the year here, 2025. Beyond that, we have not forecasted and are not doing that today, but we have said we believe that the path of absorption and the way we see deliveries coming into the market over the coming quarters, we’d see the bottoming on vacancy at two or three quarters out from July was when we had said that. That remains our view. We would have thereafter an assumption logically of some building of occupancy. The pace remains to be seen. That’ll be an environment where market rent growth, positive market rent growth can now occur. We sometimes get asked, do we need 5% vacancy to see market rent growth? No.

In fact, we’ve got materials out on our site. You can go find where we’ve plotted individual vintage years of market vacancy against what market rent growth has been in those years. You see plenty of years where at 6%, 7%, 8% vacancy levels, there is positive market rent growth. It gets more intense as vacancy gets tighter logically, but we can start to see that show up even next year.

Unidentified speaker, Host: Got it. Great. I’ll just stop there. Is there any question that anybody has?

Unidentified speaker, Analyst: We can see we’re about to either say bearers can’t be, that’s obviously a common player, but are you finding a lot of to buy competitive set, you know, bearers relative to low?

Tim Arndt, CFO, Prologis: They are, maybe that’s a relative concept about the difficulty of entitlements, but they’re definitely harder than they were 10, 15, and 20 years ago. We used to think that you needed to prepare to build an industrial site six or 12 months ahead of time, and many of our markets were thinking about three and four years at least. On the entitlement front, to stay on that, there’s large important markets of ours, like in California, probably our biggest holdings, where new legislation is actually prohibiting for regulatory reasons where new logistics sites can be, never minding just traditional geographic and other barriers. New supply is going to continue to be very challenging to bring to the market.

Unidentified speaker, Analyst: Do those numbers help? What about as recent?

Tim Arndt, CFO, Prologis: Look, starts have been low. Starts have been 30, 35 million square feet per quarter, which are levels that, and this is for several quarters running now kind of on average, those are levels that you’d have to look back to around 2015 or so to find a similar level of start. That’s good. It gives us a lot of visibility on incoming supply. That’s going to help to reduce the vacancy rates in time. I think this is a good place to drop in a more nuanced point, but as you’re watching starts and you’re watching what we’re doing and the kinds of, I wouldn’t say just markets that Prologis is in, but our submarkets, you have to look at where are the starts occurring? Is it the weaker or stronger, more supply-constrained submarkets of those markets?

There’s even another category of, what is the class A supply in this submarket of this larger market? We start to very thinly slice where we want to be. You may see others going in more broadly at a market bringing a supply that just isn’t going to be competitive with our portfolio.

Unidentified speaker, Analyst: Let me just clarify the new leases and that the improvement that you saw this summer, that includes the build-to-suit, right?

Tim Arndt, CFO, Prologis: That’s right.

Unidentified speaker, Analyst: Is that any particular tenant type, any particular region, any particular size?

Tim Arndt, CFO, Prologis: No, except to say that again, the larger sizes are doing better. Beyond that, I would say it’s pretty widespread, kind of the level of success and conversions on new leases across markets and customer types. On customer types, maybe, so this would be new and renewal. We do see more strength out of what we would call our basic daily needs kind of category of demand, which is going to be consumer products, food and beverage, 3PLs, transportation companies, those industries that support basic daily needs. Those have been the pockets of strength out lately.

Unidentified speaker, Analyst: Can you dive into tariffs just a bit more, like what you’re hearing from your customers? One of the things that I think we’ve heard, and KKR was just talking about this, is that it’s kind of a long tail to when these costs will ultimately get passed on to the consumer. Are you hearing the same things from your customers? At the end of 3Q, are we going to find out that most of that cost has been passed on? How should we think about it?

Tim Arndt, CFO, Prologis: Like I said earlier, I think the tariff conversation has drifted a little more into the background. We’re not, that’s not an active part of the dialogue with our customers. I think everyone just out in the economy is thinking about those implications similarly. It seems to, who knows where this legislation is going to land on tariffs. If it’s unsuccessful, meaning the tariffs remain, we’ve seen at least the framework for a lot of tariffs now come around this summer, and it feels like there’s maybe going to be a global average of something on the order of 15%.

It’s starting to feel like that’s going to come through in almost something akin to a value-added tax in the economy, and it’ll get absorbed through some cycle of consumption, and then we would be in a more regular level of growth and consumption thereafter is kind of the way I think about it. With regards to hearing customers talk about it and the implications it’s drawing in their supply chain, it’s a less active part of the conversation because they’re just needing to move on and have envisioned the ways that they can deal with varying outcomes post.

Unidentified speaker, Analyst: What about on the development side? I mean, I go back three or four months when it was, they were first announced. It seemed like you weren’t seeing an impact. Now that we’re a little further down the road, are you seeing cost change at all in any certain components?

Tim Arndt, CFO, Prologis: Yeah, not materially just yet. We look at it more in aggregate and have seen where we have seen price increases in certain commodities. It’s been so far absorbed and, you know, there’s lighter construction volumes generally. The margins imposed by GCs and their subcontractors have contracted to a degree that we probably put overall costs reasonably flat in a short period of time. I would definitely assume that replacement costs, that won’t last forever as those margins get tight, development activity picks up, they may expand again. The inflationary pressures on the commodities and raw materials will be present, as well as labor, of course, we know will be a factor as well. We’ve sized replacement cost rents, which is something that I think everyone should be focused on in this space, at about 21% above market rents.

There’s enough vacancy in the system right now that that’s not going to be a force that drives market rents just now. As we see vacancy levels tighten, we see this historical pattern that that will take hold and could be the next catalyst for more robust levels of market rent growth beyond just inflation.

Unidentified speaker, Analyst: If I could just clarify on the absorption part, the stat you mentioned, a moderator or economist yesterday said it’s the debate view is we’ll muddle through the coming year, the coming months. I guess what does it take for the economy to reach that absorption? Is that just based on?

Tim Arndt, CFO, Prologis: It’s funny you asked the question that way because I feel like our absorption forecast reflects muddling through. You know, at 75 to 100 million square feet, and maybe in these contexts, but a good healthy level of absorption, we would put around 200 to 225 million square feet per year. At that level, if we were in 75 to 100 this year, it is following a year in 2024 where it was also subdued.

Unidentified speaker, Host: Okay, Tim, I want to shift gears a little bit here. Maybe talk about the transaction market, kind of what you’re seeing there, what’s the appetite of buyers, and even pricing.

Tim Arndt, CFO, Prologis: Yeah, the transaction market continues to pick up. I feel like quarter over quarter across 2024, it was getting, finding its footing, getting a little bit better and better. This year, I think volume is up 15% further year to date. Multiple bidders at transactions. We probably see values as, at least as guided by our appraisals, as relatively flat in this quarter, which I think is a function of a couple of things where probably a little bit of delay on what the inflection point is out there in the market held by most participants, a little bit of a pause in where market rent growth would resume. Those would be some factors offset by lower cost of capital, lower discount rates that we’re seeing in pricing.

We tend to not focus on cap rates and really focus on IRRs, which we put between 7% and 8% today unlevered in most of our markets. We are buying on that basis, but we also have a great focus on discount to replacement cost as well, particularly in markets that we consider as very strategic to the portfolio.

Unidentified speaker, Host: Got it. Data centers have certainly been an area where you guys have been focused on. Talk about your vision for this part of the business as we look through over the next few years.

Tim Arndt, CFO, Prologis: It’s an incredible opportunity. I think it’s, I don’t want to say it’s underappreciated in the market because part of it’s our own doing. We’re a little careful in how we talk about it. We’re reporting, as you know, successes as they come when we obtain more power, when we have a new build-to-suit start, as we have sales, we’ll have news in all of those categories through the balance of the year. We’ve always had a desire to have an investment strategy that not only puts our assets close to consumers and makes them the best choice for our customers, but in that way, create an ability for higher and better use conversion opportunities.

We’ve had scores of those over our history, but none of them have been at the level that this AI conversion opportunity, data center conversion opportunity brings us because, you know, a lot of our logistics buildings look and feel, at least in their shell and format, like a data center. We have 6,000 of them kind of as a palette for us to choose from for future conversion. We think a wave of inference use in AI and data centers is probably what makes that even more interesting, the fact that we do have smaller facilities close into where that usage will occur. We might see much more conversion opportunity there. We view it as an obligation, even more than just an opportunity to chase this hard. We’ve staffed around it pretty significantly. We have about 30 people dedicated to the business.

That number was almost zero probably a couple of years ago. When you match with that, just the development expertise, the rich palette of owned assets, owned income-producing assets that we can convert as their opportunities arise. We have an energy business that was in-house anyway, helping us procure energy for it. A huge balance sheet and procurement capability behind it. Not to mention the customer relationships are there. We have every right to win in this space.

Unidentified speaker, Host: The other area that I know you guys have talked about is the Essentials business, right? Help us understand kind of how that differentiates you from your peers and others.

Tim Arndt, CFO, Prologis: Yeah, I think it’s in process, and I think it’s going to be a great thing for Prologis. One of the things that I mentioned earlier, getting bigger and new opportunities that it’s brought Prologis. That was happening in a big way for Prologis between, say, 2015 and 2020. We had a lot of M&A, amassed a lot of square footage, gained a lot of new customer relationships. That was occurring at a time that we were gaining an appreciation and a strategy to be much more customer-centric and focused as the nature of logistics used by our customers was changing, meaning it wasn’t just a commodity of something they had to have to facilitate their real business. As e-commerce grew and service levels became paramount to winning sales, and whether you’re in e-commerce or not, a brick-and-mortar retailer needed to compete with e-commerce.

That drew, as we all know, the supply chain inward and made it a much more strategic asset. We viewed that as an opportunity to have a different kind of relationship with customers. Essentials was sort of born out of those few concepts where we see many of our customers are smaller or medium-sized enterprises. They’re moving into spaces and often procuring the same goods and services. They’re setting up IT technologies. They’re putting racking into their warehouses, forklifts. They’re doing all that activity on their own when they leased with Prologis previously. When they lease with any other landlord today, they’re certainly doing it on their own. We viewed an opportunity that we can help in that, have an EBITDA contributing business alongside it. Even if that were zero, which it’s not, it’s a profitable initiative for us.

Even without it, the ability to grow closer to our customers and be a landlord of choice was something that we view as a very important objective of the business.

Unidentified speaker, Host: Anything on the funds business and any latest updates on that side?

Tim Arndt, CFO, Prologis: Yeah, I mean, a normal update just in terms of how our fund flows and open-ended fundraising. Folks following that business will know for three years now, really, it was this quarter in 2022 that we really started to see a change in yield requirements, discount rates, fund flows into this business. It’s been uneven since that time. Right now, we’re starting to see some LP interest come back into the open-ended funds. It’s going to be perhaps from here on out more muted than some of the really, really large injections of capital that we saw through the 2010s. That was a time that the product type was still becoming institutional, and the kinds of investors we have in that business were still building their positions to get their allocations right. A lot of that has come.

What we have strategically opted to do is focus on where are the next capital sources for the business, which are going to now be varied. We may see more joint venture kind of capital from folks who want to invest but aren’t necessarily in it for an open-end format. They expect to be in a closed-end format or in a JV format for Prologis. We’re open to that. We’re in exploration of that. We have other portfolios. Canada would be an example of a very large, excellent portfolio on our balance sheet that could get recapitalized. We’re exploring that. It’s just to say we’re looking at the business in new ways that spread out the kind of capital that we can access because we’d like to give it a new wave of growth from here and expand on that $65 billion of third-party assets under management.

Unidentified speaker, Host: You brought up growth here. For the investors in the room here, I guess how do you think about how should we think about the sort of the growth algorithm for Prologis over the next few years?

Tim Arndt, CFO, Prologis: I think I believe this wholeheartedly, I think we’ve got the best mousetrap in REITs for what is a great underlying sector and business in our portfolio we have, the team we have, the customer relationships we have. That’s just foundational to our growth. I think we have the best baseline there. Then just the additions to growth, the business model that we have that I described of a large development engine creating value creation, kind of on the order of $1 billion of value creation a year when it’s running in that normal run rate. The recycling model that it brings, putting those assets through Strategic Capital, getting capital back to reinvest, growing the fee base, growing the diversification of the portfolio. That’s novel in REITs as you’ll know. I think it’s really been an important part of the growth algorithm.

Leverage is typically a piece of it, of course, we would have. Then all the additions from the ancillary businesses that I’ve described, Essentials and what we can do in data centers. All of that would put you in a high single-digit kind of growth rate in a normal environment. A couple of headwinds that we have right now, we’ve seen them here in 2025. Probably still see them looking into next year would be we don’t have financial leverage. Many REITs don’t as portfolios are going through marking debt rates up to market. That’s something that Prologis is not immune to. We have an average in-place interest rate of 3.2%. We have eight years left on that rate. That’s a great favorable thing. That’s a positive item if you were marking it to market. Debt rates for our portfolio would be about 4.25%, 4.5%.

That would be our destiny if all things were equal and we rolled up. Clearly, that’s a headwind. I think that’s understood. The way we’re deploying capital, we’ve had fewer starts in the last few years. Those contributions, as those assets are stabilizing, are less than they are normally. At the same time that we’re going to be increasing, very likely capital committed to new developments, both in logistics and data centers. That can have a drag effect as you go through that transition. Ultimately, the high single-digit format is very much our belief on where the long term would be.

Unidentified speaker, Host: Okay, even with some of the uncertainty and the headwinds out there on the macro, you’re still growing at a very strong rate into kind of even next year and the years after, right? The high single digit.

Tim Arndt, CFO, Prologis: Yeah, I think that’s the long term. If I look at the setup for going into 2026, a lot of what you look at for 2026 looks like how things looked a year ago for 2025.

Unidentified speaker, Host: Yeah, great. I have a couple of minutes here, but are there any underlying trends that you think investors are sort of ignoring or not appreciating that will impact real estate and logistics in the years ahead?

Tim Arndt, CFO, Prologis: I’m not sure that they’re being ignored, but I would just emphasize it’s a, I love the asset class. I’ve worked in a couple of commercial real estate industries. I love logistics. It’s a product type that its substitutions, its options to be disrupted from technology are much fewer than we see in other property sectors over the years. It’s getting harder to build. From our earlier conversation, they’re not making any more land. It’s going to be more and more challenging to bring this product into consumers. I think that dynamic and that setup is very strong. The e-commerce growth driver that we’ve seen the last 10, 15 years is still in effect. We see continued penetration in the amount of retail sales that’ll be executed through the e-commerce channel for years to come. There’s that three times multiplier that that brings is still present.

That backdrop of both supply and demand are very favorable for the sector. I just think, you know, you go back to, who has the business model to execute on it really well in a capital-efficient way? Who is then squeezing, and this is what I really think is the case with Prologis, squeezing everything out of the platform that we can, from solar generation on the roofs to essential sales inside the building to chasing hard higher and better use conversion opportunities. I think most investors appreciate all those things, but we love the opportunity to remind everybody.

Unidentified speaker, Host: Rapid-fire questions. Number one, when the Fed starts to cut, you know, the rates and the short-end rates, what happens to the long-term yield, the 10-year yield? Does that decline, stay flat, potentially rise?

Tim Arndt, CFO, Prologis: I guess I’d want to know how is it being cut? I think it’s how this gets executed. The long end of the curve, 30, is already speaking volumes in some ways. Would it rise further? I’ll say no. It’s gotten elevated, but if it’s not executed well by either the administration or the Fed, we could have a different outcome.

Unidentified speaker, Host: Okay, number two, we didn’t talk about AI initiatives, but last year the majority of companies stated they are ramping up spending on AI initiatives. How would you characterize your plans over the next year? Higher, flat, or lower?

Tim Arndt, CFO, Prologis: Higher.

Unidentified speaker, Host: Okay. Last one, this is overall average for the sector. Do you believe same strength and why growth for your sector will be higher, lower, or same next year?

Tim Arndt, CFO, Prologis: I think with the setup, it’ll be about the same.

Unidentified speaker, Host: Thank you very much.

Tim Arndt, CFO, Prologis: Thank.

Unidentified speaker, Host: Started here. Welcome to the Prologis Roundtable. Happy to have Tim Arndt up here with us, who’s the CFO of the company. We have Justin Meng, who’s the Head of Investor Relations as well. Let me turn it over to you, Tim. We’ve got a big crowd here. Yeah, with opening remarks.

Chris, Prologis: Thank you all for joining us today. For those of you not familiar, we are Prologis. We are one of the largest owners and operators of logistics real estate in the U.S. Our strategy is one that keenly focuses in on quality of earnings, and we believe driving that quality earning stream starts with having the highest quality portfolio in the logistics real estate industry. By high quality for our product type, it really is focusing in on demographic quality. We believe in owning assets in markets that have significant populations, good population growth, high household incomes, and a significant portion of our customer base in the trade ring being renters versus owners, as people who rent their home tend to move more often than people who own and thereby have a higher probability of creating a customer for us.

Logistics real estate as a business is appealing and solves the need of basically every adult in the U.S. It is a business that is driven by folks deciding to make a decision and transacting. Through all economic cycles, whether that be folks who are getting married or sadly someone has passed away, having a child, starting a family in the more urban areas, our customers tend to be folks who are occupying smaller living spaces and have discovered that logistics real estate can be an ancillary use to a smaller living space, make their lives more comfortable. Our customers tend to stay with us longer than they anticipate when they enter the portfolio. Average length of stay right now, a little bit past 13 months. The business itself, from a product perspective, is obviously quite simple. The complex part of our business is the operational part.

We focus on having that high-quality operational technology people platform. It is a largely digital search customer acquisition business. Our customers are finding us online. Typically, they make a decision on a Tuesday that they need logistics real estate for that coming weekend. It is a very short cycle sale. Once we get that customer into the top of the funnel, then the business intelligence revenue management team kicks in. Their focus is on maximizing the revenue opportunity from that customer over their lifetime. We also focus in on quality from a balance sheet perspective, and Tim can get into more detail during Q&A, but have a very conservative capital structure, very simple capital structure, and are a large user of the investment-grade credit market on the debt side. Been a public company for 21 years, and that is Prologis.

Unidentified speaker, Host: Just in terms of operations, remind us kind of what you’re seeing July, August, updates that you put out for people that folks here that may have missed some of those updates.

Chris, Prologis: Sure. If you really step back to the beginning of the year, and again, given the short cycle nature of our business, forecasting out into the future is a challenge. When you think about entering this year, our expectation for the business on the demand side was that we did not see any obvious opportunity for a catalyst for a significant uptick or change in demand. By that, we focus in on the one segment of our customer who has somewhat been missing for the last few years, which is the person, a family who is transacting in the single-family home market. Every time a home is purchased or sold, that creates an opportunity for us to have a customer as a result of that transaction. I’m sure, as you all know, we’re averaging about a million fewer transactions in the single-family home market in the U.S.

per year than we have historically. This has been going on for a few years. With that backdrop, we thought that demand levels would remain sort of in line with what we saw in 2024. From a pricing perspective, meaning, you know, rental rate to that new customer coming into the portfolio, we were also cautious on how we would have thought 2025 would have played out from an improvement in the pricing to the new customer perspective. Dial forward, we released second quarter earnings, and we update our guidance for the balance of the year. We improved our expectations for all of our key performance metrics, same-store revenue, same-store NOI, really driven by two things. One, the impact of supply, so new facilities that have opened in our industry on our existing portfolio this year was a little bit more muted than our expectations early in the year.

Demand trends continued to be slightly more positive than we had thought they would be earlier in the year, and pricing to new customers has been better than what we thought entering the beginning of the year, somewhat because of the more muted impact of supply on the portfolio. The updated expectations that we provided for the year, the performance in July and August and the first nine or ten days here in September has been very consistent with those updated expectations. We continue to see a constructive environment on pricing to that new customer, and we continue to see demand levels that have been in line with our revised expectations.

Unidentified speaker, Host: Where are moving rents today? I guess, what’s the latest? What do you think about?

Chris, Prologis: Oh, in our portfolio in July, we talked about when we were on our earnings call, we were negative 3% to last year. In August, our customers were moving in slightly positive to last year, but we caution a bit that, you know, there’s volatility to that. I wouldn’t consider it necessarily an inflection point, but we do see those rents moving towards parity. I think there’s a case that you certainly could make that if trends that we’ve seen in July, August, and early September continue through the balance of the year, I think we’re looking at a 2026 where we may begin the year with a complete reset. We would start at parity from, generally speaking, an occupancy and a rate perspective to where we began 2025.

From that sort of flat zero, however you want to look at the delta, I think if the demand trends in 2026 without any sort of new catalyst resemble this year, which without a catalyst I would expect they would, I think you’re then starting that reset. You’re starting that march towards eventually seeing the typical kind of inflation plus growth in same-store revenues in the logistics REIT industry and at Prologis. It just takes a little while for that big ship to turn. We only churn 5% of our customers every month. Those improvements in street rates take time to flow through the P&L. As you get, obviously, into the back half of 2026, you would start to see that climb towards more normalized levels of growth.

Unidentified speaker, Host: It sounds like from that math, even in a sort of a neutral occupancy basis next year, even if you get some improvement in rent growth, you’ll see acceleration in revenue growth.

Chris, Prologis: Yeah, that would be the expectation.

Unidentified speaker, Host: To next year, right?

Chris, Prologis: What would be, you know, again, when you think about, okay, then what’s the more bullish case?

Unidentified speaker, Host: Yeah.

Chris, Prologis: I think it does come down to what is that spark that starts that fire for more transactions? Again, a little nugget of good news in mortgage rates and mortgage refinancings here. I guess yesterday, rate 6.5% on the 30-year fixed is back down to where it was about a year ago. You’re seeing a 10% or 11% increase in refinancing applications. We need something to trigger that resumption of more normal transactions there. If Fed action is one of those things and you start to see an articulation of a more consistent desire to bring down short-term rates, could that then have all the money that’s invested in money market funds and more shorter-term instruments move further out on the curve to find yield, which then could ultimately supply and demand bring down longer-term treasuries, which would then translate into better mortgage rates?

Maybe that unlocks some of this pent-up demand. When that pent-up demand is released, and at some point people want to transact and need to move, if we’re selling a million fewer homes today and all of a sudden it goes back to the more normal levels, that’s a million potential self-storage companies or self-storage customers, rather. I think that would be a tsunami of demand that would be a huge, huge catalyst for the industry.

Unidentified speaker, Host: Earlier you said, I think your assumptions going into the year was not a lot of improvement in demand, but it felt like year-to-date demand’s been better.

Chris, Prologis: A little bit, yeah.

Unidentified speaker, Host: Yeah, what’s sort of driving that? I mean, as you kind of look through.

Chris, Prologis: I think when you think of the other uses right outside of the obvious, I think it’s probably more a contribution that the headwind we would have expected from those stores that were opened in 2023 or 2024 or earlier this year was a little bit more muted than we would have thought. We’re just seeing an ability to get those customers who may have been taken up by some of those lease-up stores offering incredibly low rates to try to fill up.

Unidentified speaker, Host: Okay, and on the supply side, it feels like supply is also coming down. New starts, right? Now, is that primarily, do you think, more in kind of your markets in New York and boroughs, or are you kind of seeing that across the board in the U.S.?

Chris, Prologis: Yeah, it’s a little bit of a mixed bag. The Acela corridor, you’re certainly seeing a good reduction in the number of deliveries and folks who are interested in starting self-storage. You’re still seeing pretty healthy completions and openings of new stores on the West Coast of Florida. You’re still suffering in Atlanta, Phoenix. Texas seems like a never-ending development opportunity. You’re seeing things getting finished. I think the takeaway is a lot of things that are in planning are getting deferred, continuing to get pushed out. Starts aren’t happening. Clearly, we’re going to see fewer starts and fewer deliveries in 2026 than we did this year or the year before. I think we’re bringing it down. There are pockets that still have to absorb some supply here over the next year or two.

Unidentified speaker, Host: While we’re on the topic, maybe update investors on kind of what you’re seeing in New York and the boroughs.

Chris, Prologis: From a New York MSA perspective, Brooklyn, Bronx, Queens deliveries are at zero or approaching zero. There’s really nothing on the horizon here in terms of starts. It’s very difficult to pencil something out at this point in the cycle. Those developers then naturally, as the opportunities in the boroughs began to be more limited and the lucrative nature of them more difficult to underwrite, began to move out into Westchester, Long Island, North Jersey. I think Westchester and Long Island, the supply impact is behind us and moving in a really good direction. North Jersey, we’re kind of at the last leg of having to absorb the deliveries that have occurred there. The New York Metro feels very positive about the supply picture being our friend as we move forward over the next couple of years.

It’s a market like Chicago, like Washington, D.C., that in this part of the cycle tends to excel because you’re not necessarily as reliant on the consumer buying and selling a home. Certainly not in the Bronx. A little bit more so in Staten Island, Queens. A little bit less so in Brooklyn. You do have that missing customer in Westchester, Long Island, New Jersey.

Unidentified speaker, Host: On New York, is there anything? I know there’s been a lot of questions around the mayor and the majority there. Is there anything to think about as it relates to self-storage?

Chris, Prologis: No, I think generally speaking, from that perspective, mayors come and go and self-storage continues to do its job. We’ll adapt as we need to.

Unidentified speaker, Host: Okay, I’ll stop there for a second. I just want to make sure if there’s any questions in the audience.

Unidentified speaker, Analyst: I’d like to ask just one follow-up on ’26. You mentioned in ’25, one of the benefits has been that muted supply, that new, you know, new supply impact has been better than expected, I think you said. In ’26 in general, again, is forecasted to be down nationwide, I think 10% plus. Is that something that, you know, when you made the comment about next year, you really talked about greed? Does that even consider the fact that there could be even less pressure from new supply, or is that maybe gravy, like maybe an extra?

Chris, Prologis: Yeah, we haven’t completely updated our expectation for the percentage of our stores that are going to be impacted by new supply in 2026. Today, it sits at 24%, which is where it was in 2017, peaked at 50% in 2019. That number will come down to what degree, and then by specific store and market still working a little bit.

Unidentified speaker, Host: What’s been the customer behavior on ECRIs here? What’s the update there, right? You have one side, it feels like you’re continuing to push rates. You know, the customer remains resilient, but then on the other end, you have a macro picture where non-farm payroll’s up, let’s call it 17,000. Help us think through how you’re sort of balancing the two there.

Chris, Prologis: The existing customer base behavior is unchanged over the last 12 to 18 months. Haven’t seen any of the typical KPIs where we’re looking at changes in behavior, vacate rate, receivables over 30 days, write-offs, et cetera. The customer continues to be resilient, seems to be reasonably healthy from that perspective. The reality of the business is you stay with us until your need is over, right? It’s not a super discretionary product. The customer continues to appear to be pretty resilient, hasn’t had any behavioral changes that have had any impact on our process.

Unidentified speaker, Host: Got it. Okay. I guess, Tim, on expense controls, maybe talk around that a little bit. You’ve done a good job in kind of limiting increases over the last several years. How much is there more to do kind of on the expense side as we kind of think into next year?

Chris, Prologis: Yeah, we’ve made really good progress on a number of line items, in particular on the personnel side. If you go back five years ago, our FTEs per store sat at about 2.4.

Unidentified speaker, Host: As we’ve introduced new technology and have gotten more and more efficient in how we staff our stores, we’ve been able to lower that 2.4 FTEs down to 1.8. We think that’s the appropriate level for how we want to serve our customers. We’ve been able to achieve negative growth in our personnel line item now for three going on four straight years as a result. We think that fruit now is getting pretty high up in the tree. This year, the positive surprise that led to our change and better outlook on expense growth for the year was finally we had a good year with our property insurance renewal, which for us rolls in May. After two straight years of a lot of pressure, this year we were delighted to have a reduction in our property insurance line item.

The rest of the improvements for the year were a little bit of good news across a lot of different line items. Our hope here is from a real estate tax perspective, we have, as the industry has seen, increases over the last probably seven, eight years that range from 3.5% to 8% type increases. Hopefully, knock on wood, I think some of the pressure on that line item is behind us as fundamentals have cooled off a bit from where they were. Cap rates have ceased to continue to compress. Hopefully here for the short to medium term, we’ll be back down in the lower end of that range. Overall expectation industry-wide is I would think that the expense outlook over the next couple of years would look pretty inflationary.

Tim Arndt, CFO, Prologis: On this FTE per store, you mentioned the 1.8. Is that kind of where you want to be, or is there room to even take that further, you think?

Unidentified speaker, Host: I think that’s about where we want to be. It’s a bit of science and a bit of art in that you want to, as with most things, make sure that you’re cutting out any fat but not touching any muscle. If our store teammate is a $20 an hour type of line item, and you contrast that with each customer that walks through the door, lifetime value is north of $1,500. You want to be making sure that you’re not cutting out too many $20 and missing out on too many $1,500 opportunities. You combine that with the fact that our customers find us and want to be served in a variety of ways. About a third of our customers are totally comfortable doing an online process, moving in without ever talking to a human being. About another third want and need to have in-person interaction.

They don’t know what size they need. They don’t know how the product works. The middle third is kind of a hybrid of those things. I think where the industry is today and where our customer service model sits today, I think we’ve gotten to about the right level of staffing.

Tim Arndt, CFO, Prologis: The online rental segment, which you brought up, I know it came up last week when we were in Vegas, but kind of these AI initiatives and, you know, there’s a few people that are using ChatGPT to even rent space these days, right? Talk about kind of where are you, I mean, are you seeing that from your customers doing that today as they kind of rent storage units?

Unidentified speaker, Host: Not quite to that level, but you are certainly starting to see the beginnings of a pretty significant evolution in how folks are finding the product and how search is evolving and what’s doing it.

Tim Arndt, CFO, Prologis: Yeah, I think the evolution of search to something more AI-generated is akin to the transition from yellow page advertising to digital advertising in our space. That shift really further disconnected the publicly traded self-storage companies from the rest of the industry. As we sit here today, it is part of the reason why any asset is more valuable in our hands than it is in the hands of a private operator.

I think this change in search that is out in front of us and how it evolves is going to further disconnect the publicly traded folks who have the capital base, have the sophistication from a technology perspective, have a sophistication from the personnel perspective to take advantage of this changing dynamic and further distance the operational excellence that we have, ability to capture the customer, et cetera, relative to the private operators in the space and put them at even more of a disadvantage. I think what’s happening in its very early stages here is you’re moving from a geo search, self-storage near me, where you’re going to get a map with a paid, whoever paid the most being sort of at the top of that, but it’s a geographically delivered result. I think we’re moving towards queries that are going to be more generic.

In the sense that they’re not geo-based, it will be, for example, I need to store the contents of my one-bedroom apartment near me and I want value, right? The engine is then going to go out and look and say, okay, I need to find something authoritarian that makes me feel like you’re delivering value with that brand. I need to find the geo because of the near me. I also need something authoritarian that’s going to explain and make me feel like you understand what do I need to store the contents of my one-bedroom apartment. You’re moving from pure geo to short-form video, YouTube, blog posts, articles. Reviews even more so than currently within SEO to say, okay, well, I see CubeSmart is constantly being reviewed as providing really good value.

That’s authoritarian content from third parties to say, okay, that’s going to solve that part of the query. Now I need to figure out how much space do I need. Oh, there’s a YouTube video from CubeSmart showing me how the contents of my one-bedroom apartment completely occupy a 10 by 10 self-storage cube. That’s authoritarian. That’s very helpful. That’s going to be responsive. To the extent that we have a store that’s within geographic proximity to solve the near me, now you’re that result. When you think about executing on all of that, there are publicly traded REITs who have the capacity to be an early leader there and to do that in a real meaningful way. I think that’s going to, again, make it even more challenging for the private owners and operators to compete.

Unidentified speaker, Analyst: Are you ramping up that technology platform and the initiatives?

Unidentified speaker, Host: Yeah, it’s not necessarily the ramp up. It’s really the enhancement and escalation. I think those folks who are really taking this and looking at it today and working with Google, working with your agencies and internally to be ahead of this, again, I think this is going to be very akin to those who were quick to recognize that the yellow pages were going away and spend time thinking about how to be relevant in paid search.

Unidentified speaker, Analyst: Okay, I think we had a question.

Unidentified speaker, Analyst: Yeah, Chris, does that mean that your view of paid search, like your Google work, the replacement is worth less to you now? Is the price coming down measured with that?

Unidentified speaker, Host: Yeah, it doesn’t mean that it’s worth less to us. I think today when the non-Google options have yet to determine how they want to monetize what they have, I think you’ve got some frictional savings and opportunity within that. I think Google will tell customers clearly that they feel like they’re a little bit behind the curve in Gemini and what they want to do there. I think there may be some opportunity there as well. Ultimately, I think we land where there’s only going to be one still provider who dominates in search, whoever that may be, and we’ll be back to some economic model that certainly benefits them. There might be some frictional opportunity in the near term.

Unidentified speaker, Analyst: I guess, one follow-up on your comment about the health of the consumer, just given the.

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