Prologis at Nareit REITweek: Strategic Insights Amid Market Uncertainty

On Wednesday, June 4, 2025, Prologis (NYSE:PLD) participated in the Nareit REITweek: 2025 Investor Conference, offering a strategic overview that highlighted both challenges and opportunities. The fireside chat, hosted by UBS, featured Prologis’ President and CEO Dan Leonard and CFO Tim Arndt, who discussed the company’s robust market position and future growth prospects, while acknowledging uncertainties such as tariffs affecting leasing decisions.

Key Takeaways

• Prologis holds 1.3 billion square feet of operating assets and manages $63 billion in third-party capital.
• The company is optimistic about its data center business, with a 10-gigawatt pipeline.
• Tariffs have introduced uncertainty, impacting leasing decisions for about 15% of customers.
• Prologis reaffirmed its 2025 earnings guidance, anticipating a challenging year.
• The Essentials business is expanding, focusing on solar energy and operating essentials.

Financial Results and Strategy

Prologis emphasized its strong market position, managing a significant portfolio with a $41 billion development opportunity. The company has developed nearly $50 billion worth of products over 22-23 years, maintaining a nearly 30% margin. Strategic Capital business fees cover overhead, supporting Prologis’ financial stability. The Essentials business, including solar energy and mobility solutions, is a key growth area, with one gigawatt of on-site power generation expected by year-end.

Operational Updates

Industrial warehouse demand remains high, driven by e-commerce, which requires three times the warehouse space compared to traditional retail. Prologis noted that barriers to entry are increasing, particularly for infill portfolios. The company also highlighted a record 61 million square feet of signed leases in Q4 2024, despite uncertainties around tariffs introduced in April 2025.

Impact of Tariffs and Market Dynamics

Tariffs have slowed decision-making, particularly affecting 15% of Prologis’ customers tied to global trade. Although market occupancy remains high at 97%, absorption has slowed as customers shift focus from resiliency to growth. Prologis remains resilient, with a lease mark-to-market approximately 25% higher than market rents, indicating significant embedded growth potential.

Future Outlook

CEO Dan Leonard emphasized a focus on execution, with priorities including growing the operating business and fostering innovation. Prologis sees growth opportunities in its build-to-suit business, data centers, energy, and essentials, supported by strong business fundamentals and a favorable supply backdrop.

Q&A Highlights

During the Q&A, Prologis discussed its strategy of using non-dollar debt overseas to mitigate FX volatility. The company is not focused on multiples arbitrage or AUM growth in its strategic capital business. Investment decisions are driven by asset and market strategy, aiming for FX neutrality.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Nareit REITweek: 2025 Investor Conference:

Michael Goldsmith, US REIT Analyst, UBS: Well, thank you and good day everyone. Welcome to the Prologis fireside chat. I’m Michael Goldsmith, the US REIT analyst at UBS. I am pleased to introduce Dan Leonard, president and CEO of Parent and Tim Arndt, CFO of Prologis, the world’s leading industrial real estate real estate company in the industrial space for the last forty years.

Company owns 1,300,000,000 square feet of industrial warehouse property across 20 different countries, and we’re truly honored to have them here today. As a reminder, you have a cell phone, please turn it off. We don’t want any disruptions. Before we start, I’m required to read the legal disclaimers. Research analysts are required to buy certain disclosure related to the nature of our own relationship without UBS.

To any company that we’re transferring to you on the call today, is available at ubs.com/disclosure. Alternatively, please reach out and provide them after the presentation. Dan, Tim. Wow. Thanks so much for speaking with us today.

Maybe for those who are new to the story, can you provide a brief overview of the company and highlight what differentiates Perlodges?

Dan Leonard, President and CEO, Prologis: Yes, sure. Thank you. So you hit upon some of the highlights there. We are the global leader in logistics real estate. We own 1,300,000,000 square feet, nearly 6,000 buildings in 20 countries.

Those countries are responsible for about 78% of the world GDP. When you think about Prologis, think about really four businesses that we’re in. We’re in our operating business, that’s the 1,300,000,000 square feet of operating assets. We have a development business, a very large development business. We have a twenty two, twenty three year history develop almost $50,000,000,000 worth of product at nearly a 30% margin.

So a significant track record on the development side. We have a $41,000,000,000 development opportunity embedded in our land bank, where we own or control 15,000 acres of land globally. That does not include another component that we’ve recently moved into, which is data centers. With the platform that we have, with the development portfolio that we have, we have a very large data center pipeline, and we see that pipeline in the long term about 10 gigawatts. Today, we have 1.4 gigawatts of power secured.

We have another two gigawatts of power in its advanced stages. And we see, again, a 10 gigawatt pipeline there that would be on top of that $41,000,000,000 worth of development opportunity. In addition to our development business and operating business, we have an asset management business we call Strategic Capital. We have $63,000,000,000 of third party capital that we manage. Interestingly, this business is often overlooked, but it actually the fees from that business actually pay for the overhead of our company.

So it’s very significant business for us, and that’s a growing and exciting business for us. The fourth piece of our business, the fourth leg of the stool, I call it, is what we call essentials. Essentials is really all things non real estate that includes our energy business. We have 1,300,000,000 square feet of flat roofs. We have a very robust solar program on that.

By the end of this year, we’ll have one gigawatt of power that we’re generating on-site. We also have a mobility business around that and other emerging businesses in the essentials where we’re we call it operating essentials, which is all the products our customers use to operate their warehouses. We’re at the front end of that, helping them solve their issues as it relates to ramping up and moving out of the buildings. And that’s a really exciting new business that’s gaining a lot of momentum.

Michael Goldsmith, US REIT Analyst, UBS: So as we put together the building blocks to have a deeper discussion, maybe you can highlight what are the key drivers of industrial warehouse demand and what makes this a good property type?

Dan Leonard, President and CEO, Prologis: Yes, sure. So think about the supply chain, a $2,400,000,000,000 industry, right? And warehouses are essential to the supply chain, and we have the largest, highest quality portfolio in the world. Beyond just the traditional consumption that drives warehouse demand, there are really two secular drivers that we believe should be very durable to provide inflation plus growth for our business. The two drivers are e commerce.

When you think about e commerce, e commerce is act actually uses three times the warehouse space as a traditional retailer. We have all sorts of research on that. I I recommend you read that. It’s on our website. This is something that has held up for the last ten years, we see this as a as a durable tailwind for the industry.

On top of that, scarcity. Barriers to entry in this business are getting harder. They’ve been hard. They’ve been growing. Those barriers have been growing.

And since COVID, it’s gotten even more difficult to build an infill portfolio like close to the consumption centers around the globe.

Michael Goldsmith, US REIT Analyst, UBS: So maybe we can move to the current demand environment for the industrial market. So can you walk us through how things changed around the elect you know leading up to the election, you know around the election to the early part of the year into Liberation Day and and where it sits right now.

Tim Arndt, CFO, Prologis: Yeah. I can take that, Michael. So, you know, I might even go a little bit prior to that if we think about early COVID, the story logistics was how many of our customers and users wanted to build up resiliency in their supply chain. And we saw that occur in our markets in 2022, ’20 ’20 ’3. We saw market occupancy grow to 97%.

So that resiliency was being built. Then somewhere in 2023, as the economy got a little closer eye from our customers, they were starting to turn away from that resiliency and start to use much more of that space they had built for their growth. And it’s a long way of saying we had seen absorption then slow down in the back half of 2023 and into 2024. Utilization has now been rising within our buildings. We’re looking for that, that will spill over into true net absorption out in the marketplace and we’ll see occupancies rise in our markets thereafter.

But it was more acute leading up to the U. S. Election. That was a time where there was much more choice between the the candidates and the administration, much different outlooks on tariffs, and so we did see decision making begin to slow there, say, in the second and third quarter of twenty four. But the point of all that is, following the election, because at least there was some visibility and more certainty in what might transpire, we saw a release of leasing activity.

In the fourth quarter of last year, we had our all time highest quarter of signed leasing at 61,000,000 square feet. The first quarter of this year was a similar number. And it kind of just tells a story of how uncertainty can weigh on things. Now we have a situation that following what was a really strong first quarter for us and felt like we were on our way towards the inflection that we were looking for in the market, a new source of uncertainty emerged with the round of tariffs that we saw on April 2. So today, think the good news of that is we see a lot of interest.

Our proposal activity is strong, normal to strong, I would call it. That’s how many people are interested in leasing space. It’s just the decision making aspect of it. Coming out the other end of that leasing pipeline process has been slower, and we see that as probably more related to those customers of ours, we estimate this is around 15% of our use that are much more tied to global trade versus regional consumption. So we’re pleased.

We’ve been describing the last couple of days that we’re actually relatively pleased with the level of activity we see out there. We’ve calling it better than feared, but things are definitely slow right now awaiting some resolution on tariffs.

Michael Goldsmith, US REIT Analyst, UBS: And with the dynamics around tariffs evolving, based on your conversation with tenants, what are they looking for to translate that underlying demand into signed leases?

Dan Leonard, President and CEO, Prologis: Well, just piling on Tim’s comments here, it’s not a uniform story actually. We’re still leasing quite a bit of space actually. So it’s good to see the activity. And the leasing that’s getting done, it’s really categories like e commerce or those that source domestically, they’re not beholden to global trade. You see that in food and beverage, you see that in just everyday household goods, healthcare products and what have you.

So we’re seeing that in both leasing and actually build to suit demand this year has been really strong so far this year, and that’s really across U. S, Europe and Latin America actually. Many others are taking this wait and see approach. They’re just looking for more clarity. They’re not necessarily caring about what that tariff number is.

They just need to know when we’re going to have some certainty. The good news is that leasing pipeline continues to grow, and we see that pent up demand. And with the supply backdrop where it is, we think that’s a good situation for coming out of this short term noise.

Michael Goldsmith, US REIT Analyst, UBS: And you have a global portfolio. So how does that serve you during times of uncertainty? And can you walk through the health of some of the markets?

Tim Arndt, CFO, Prologis: Yeah, I’d probably take that from two angles, Michael. The first would just be thinking about the stock price, what’s going on in I think supply chain related stocks as a result of all the tariff noise have understandably reacted. I think on one aspect, those that are logistics companies, warehousing companies where we have five, ten year leases, we have a strong embedded lease mark to market. The volatility that we can wind up seeing in our annual earnings, our dividend growth etcetera is actually very low as compared to other components of the supply chain that might have more volatile daily kind of pricing. And so we’ve been drawing that out for investors to just take note of because I think we have a lot within our portfolio that’s going to actually sustain stable earnings and growth clearly to the other side of all of this tariff resolution.

That’s for one. But then for Prologis uniquely, you mentioned a global portfolio, I think it is something that is often underappreciated and lost by some investors in evaluating different logistics players because we have just we have a much more diversified table of options between markets and business lines for the earnings and the growth. We have leading results in all that regard, but on more diversified base and that’s what the global platform affords us.

Michael Goldsmith, US REIT Analyst, UBS: Supply growth has come down, which should help some of the dynamics. And then at the same time, you cut back on your development expectations for 2025. So what would get you more excited about development here?

Tim Arndt, CFO, Prologis: Well, this is a good place to draw out. I would say replacement cost rents is one thing that really guides when you might expect to see more development activity. So we think about three rents in our business. There’s the in place rent of our portfolio, you can open up our supplemental and observe that number. Then we very frequently tell you and investors what the lease mark to market is for one, which is just a measure of how much higher our market rents than those in place rents today.

And for logistics, and this goes back to my prior comment, in our portfolio, it’s about 25% higher. So that’s a lot of embedded growth, very visible in our portfolio. A third measure of rent is then replacement cost rents. Beyond what is present and available in the market right now, given the cost of land and what it takes to build a building in our markets, what yield, what rent would a developer require to build that next building? And that rent is another 20% higher than market.

And if you put all that together, the total distance between what we have in place and that replacement cost rent is about 50%. So that is a lot of visible embedded growth ahead of us. The problem is there is that gap. So Dan mentioned a $41,000,000,000 investment opportunity in our land bank and yet last year we built about $1,000,000,000 of logistics, this year is about the same. That’s a real proof point on, yes, I guess rents must not be sufficient that somebody like Prologis who’s capable of building maybe $5,000,000,000 7 billion dollars a year is doing so little, the rents just aren’t there.

So it doesn’t sound like good news, but what it means from a market force dynamic is that as we have a little bit more occupancy built in the markets and there’s some scarcity and development is going to be compelled for that reason, that’s going to take hold and we’ll see market rents get closer to those replacement cost rents.

Michael Goldsmith, US REIT Analyst, UBS: Can you comment on what you’re seeing in the transaction market right now and how pricing is behaving with volatile interest rates?

Dan Leonard, President and CEO, Prologis: Yes, sure. I would say the market the transaction market has been surprisingly resilient even over the last couple of months since April 2. We are we’ve looked at about 200 deals recently and we’ve only seen about 20 of those deals, about 10 of them drop out for whatever reason maybe, maybe it’s there’s a vacancy issue or just the quality of the real estate is not what where the interest is right now. So if you’re right down the fairway, you get a pretty deep bid sheet, sweet spot 50,000,000 to $150,000,000 of one off assets or maybe portfolios in the $300,000,000 range are getting a lot of activity. Anything outside of that, it’s pretty quiet.

But I’ve been really surprised to see how durable the market’s been.

Michael Goldsmith, US REIT Analyst, UBS: And after first quarter earnings and Tim started to talk about this a little bit, you reaffirmed your 2025 earnings guidance. And so can you talk on some of the factors that give you that confidence that earnings can remain stable this year despite kind of all this noise and volatility?

Tim Arndt, CFO, Prologis: Yes, think it starts with our expectations on the year just going back to January. We had already expected a little bit of a choppier year. We saw demand recovering and an inflection point in the year. But if you unpack our average occupancy guidance, for example, many investors and analysts understood that Prologis expects occupancies to dip anyway. And so because we had that expectation, we were set up for the year.

We were traveling through the first quarter with a good pace that we actually thought that we would upgrade some of that operating guidance, likely the earnings guidance as Liberation Day, as we’ll call it, kind of set in and we took a look at everything, there’s so much uncertainty, it was hard to establish a new base case of what those earnings would be. So instead, many of you know what we chose to do is just look at whether the range, how it would react in a in a stress case. And we tried to go out and we built a super crisis, if you will, by just examining all the past points of economic stress and how were logistics markets impacted. The worst of those turned out to be the GFC. So we kind of modeled what were those impacts, how much occupancy was lost, how much bad debt did we incur, took that into our forecast, found that it was all absorbed between the strong first quarter that we had already had and then our expectations for the year that the ranges were probably fine where they were.

So we left the range and as I mentioned today, we would say so far better than feared.

Michael Goldsmith, US REIT Analyst, UBS: Excellent. And Prologis has been opportunistic around the data center space. I know Dan’s super excited about this. So what has been your progress in the business? What do you see as the long term strategy related to data centers?

Dan Leonard, President and CEO, Prologis: Yes, sure. So I brought this up a little bit in the front end. So look at the raw material we’re starting with, nearly 6,000 buildings, 15,000 acres worth of land that we own at logistics basis, right? And with the insatiable demand we’ve seen in data centers, we’re always going to look for the highest value for any of our real estate. So we’ve had some recent success converting logistics buildings to data centers.

And we’re actually converting some of the land that we intended to build logistics on move to data centers, just much higher value. So that has been pretty exciting. We’ve got great customer relationships there. We have deep customer relationships with four or five hyperscalers. We’ve got deals going with a number of them around the world.

If you think about the Tier one markets in The United States or the Flap D markets in Europe, these are the markets in which we own our portfolio. This strategy for us long term is it could evolve, but as it is right now, we’re building these, we’re stabilizing them and we’re selling them. And we’re taking those profits and we’re putting it back into our logistics business. Right now, we have 1.4 gigawatts of power that’s secured. We’re under construction, two gigawatts right behind it.

And that pipeline, as I mentioned earlier, is 10 gigawatts. This is a real big business for us. A few people have mentioned to us in the last couple of days, we don’t talk about it enough. We don’t highlight how big of an opportunity that is. It puts us as one of the biggest players in this space globally.

Michael Goldsmith, US REIT Analyst, UBS: And that’s earnings neutral, right? It’s limited impact on earnings, but you are generating capital which could then be invested in other ways?

Dan Leonard, President and CEO, Prologis: It’s immediately earnings neutral, but you’ll see it

Michael Goldsmith, US REIT Analyst, UBS: we reinvest When you reinvest into

Dan Leonard, President and CEO, Prologis: So profits into the business,

Michael Goldsmith, US REIT Analyst, UBS: Got it. And then on the essentials business, that’s a key differentiator for tenants. Can you explain what you’re doing here? How does this drive customer loyalty? And how you can get paid for that in the process?

Tim Arndt, CFO, Prologis: Yes. There’s really three broad areas within the Essentials business. So one would be the solar business that Dan already described, and that’s a profitable capital investment business for us on its own, but obviously providing an avenue to green energy from our customers, which despite what we might all be thinking as we read the headlines, is still very much in demand, especially in places like Europe, etcetera. So that’s a strong business on its own, we provide that offering. Mobility EV charging is another aspect of it.

And then the third is what we just call the operating essentials component, which is a different take. If you think about Dan mentioned 2,400,000,000,000 of total spend on the supply chain, warehouse rent is about three to 5% of that number. So there’s a lot of spend, much of it we will never have access to, that’s acknowledged, it’s labor, it’s transportation, it’s other things. But there are very regular investments that our customers make as they move in and even out of our facilities and putting in racking, forklifts, security, WiFi equipment, all kinds of things that we’ve recognized on our scale as we’re just a large procurer of these kinds of materials on our own as a developer that we can aim some of this purchasing power and help our customers at the same time. So the vision here is to create a strong profitable business on its own.

It is EBITDA positive. It’s a contributor. It’s small in scale right now. At worst, think we kind of look at it like if it is something that just deepens the hook with our customers and makes us more of a landlord of choice, that’s a great outcome as well. So I think it’s early innings on all three of the businesses, but really going to continue to differentiate us over time.

Michael Goldsmith, US REIT Analyst, UBS: Dan, as you transition into the CEO role next year, what is your vision for the company?

Dan Leonard, President and CEO, Prologis: Well, you’ve heard in these first six, seven questions, we have very ambitious plans at Prologis. We have very sound strategy. Many of these strategies were barely scratching the surface. This essentials business that Tim just mentioned, strategic capital has a lot of exciting opportunity and of course growing our operating business and executing our development platform. So when it comes down to it, my focus is on execution.

And my top three priorities will be execution, execution, execution. We have the right team in place and really excited to see where we can take these businesses. It’s not something that there’s a playbook for. Nobody else in the industry does is doing everything that we’re doing. And so that’s where we’re going get that hyper focus.

Maybe the other priority that I have is to continuing to grow and ensure the culture around innovation at this company flourishes. It’s been there since I started here over twenty one years ago and you can very well bet that that will continue as a very key component of our strategy.

Michael Goldsmith, US REIT Analyst, UBS: Well, have a final wrap up question, but I think we can take a couple questions from the audience. Yes.

Dan Leonard, President and CEO, Prologis: So with the Essentials business,

Michael Goldsmith, US REIT Analyst, UBS: So I’ll just repeat the question in case anyone didn’t hear, but it was about is data centers can that provide value to your customers similar to some of the other verticals in essentials business?

Dan Leonard, President and CEO, Prologis: I’d say quickly, I’m jotting that down as the next idea we can talk about maybe this time next year. It’s creative, but we haven’t gone down that path at this point. We’re trying to stick to our knitting and we have a great development team. We’ve been building data center capabilities to grow the development business on the data center front and maybe we’ll learn more and we’ll dive into it if we think that we have a right to be in that space.

Tim Arndt, CFO, Prologis: The only thing I might build on that we try at times would just be getting close. It is a relationship like Amazon. So it’s not exactly the thrust of your question there, but obviously our largest customer, but it’s gonna be a very large customer hopefully for us here on the data center side, and there’s gonna be some synergies and relationships like that. I would say no. And if I take your question, the question was sort of as how does how might effects almost impact where you want to be.

We source capital for our Non U. S. Regions in each jurisdiction, both debt and equity. So I think you made a reference to the fact that we have used a lot of non dollar debt overseas to insulate the parent company from volatility and effects. I hope some of you who follow us for years have noticed that we don’t get knocked around in our earnings or our stock price as the dollar is moving up and down because of that insulation.

But our investment decisions are based more on, let’s just say, the left side of the balance sheet, what is the asset, what is the market, what is our strategy here and then we capitalize it as FX neutral as possible.

Unidentified speaker: Yes. So you mentioned strategic capital being an increasingly important part of the business. I think about the broader real estate landscape. We’ve seen a ton of investment manager consolidation in the last twenty four months. Just think about GLP, ESR, has

Tim Arndt, CFO, Prologis: I have one thought on that, maybe Dan will pile on. But look, lot of that play as I’ve sat and watched it from a distance is there’s a lot of multiples arbitrage going on in that business and it’s a lot about AUM growth. I don’t want to say at any cost, but it’s gobbling up a lot of AUM, which is almost antithetical to what Prologis does. We care very deeply about the assets that we’re owning. We want to own them for forty, fifty years for our customers, for what’s the best logistics portfolio.

So we see those things, sometimes they’re shown to us for consideration, but it’s not really consistent with our thesis.

Michael Goldsmith, US REIT Analyst, UBS: Maybe a good one to wrap up on is just if you had any closing remarks that you’d like investors to walk away from this presentation with.

Dan Leonard, President and CEO, Prologis: Sure. So these are uncertain times. A lot of noise coming out of DC every minute these days. We look at this as an opportunity for Prologis. We’re built for this.

We have a fortress balance sheet. We have all these growth opportunities, and we’re very much on the offense right now. We just talked about our build to suit business. On the logistics side, our data center business, our energy business, essentials, really excited about those opportunities right now. And if you can look past the short term noise, the fundamentals in our business are great.

We have this pent up leasing pipeline, supply the supply backdrop as we’ve talked about is in good shape. And we think if you can see through this short term coming out the other side, it’s going to be very good for our business.

Michael Goldsmith, US REIT Analyst, UBS: So with that, let’s wrap it up. Thank you very much, Dan.

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