Prologis (PLD) Q1 2026 Earnings Call Transcript

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DATE

Thursday, April 16, 2026 at 12 p.m. ET

CALL PARTICIPANTS

• President — Dan Letter
• Chief Financial Officer — Tim Arndt
• Investor Relations — Justin Meng

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TAKEAWAYS

• Record Leasing Activity -- Prologis (NYSE:PLD) reported 64 million square feet of leasing signings, supported by high retention and new leasing.
• Occupancy -- Ended at 95.3%, exceeding internal expectations and factored into an upward full-year occupancy outlook.
• Retention -- Nearly 76% retention rate, indicating sustained tenant stability.
• Net Effective Rent Change -- 32%, attributed to market mix, with a full-year outlook for net effective rent change close to 40% remaining unchanged.
• Lease Mark-to-Market -- 17% on a net effective basis, reflecting a slowing rate of decline and the first market rent uptick in 2.5 years.
• Embedded NOI -- Lease mark-to-market equates to $750 million of embedded net operating income at current spot rents.
• Same-Store NOI Growth -- 6.1% net effective and 8.8% cash same-store NOI growth, benefiting from increased occupancy, rent change, and unusually low bad debt.
• Development Starts -- $2.1 billion in new projects, with $1.3 billion in data centers and $850 million in logistics (75% of logistics starts were speculative).
• Data Center Pipeline -- 1.3 gigawatts under letter of intent, and 5.6 gigawatts either secured or in advanced discussions.
• Energy Initiative -- 42 solar/storage projects completed, total installed capacity now 1.3 gigawatts.
• Asset Recycling -- $1.2 billion of assets sold or contributed, including initial U.S. Agility Fund activity and GIC seed assets.
• Joint Ventures Announced -- $1.6 billion partnership with GIC and, post-quarter, $1.2 billion joint venture with Laquette, enhancing global capital formation.
• Strategic Capital Raised -- Over $2.6 billion of third-party equity commitments across new and expanded vehicles.
• Debt Issuance -- $5 billion of new financing raised at a 3.75% weighted average rate, including a $3 billion credit facility at a 63 basis-point spread.
• Guidance Updates -- Average occupancy guidance increased to 95%-95.75%; same-store net effective NOI growth targeted at 4.5%-5.5% and cash NOI growth at 6.25%-7%.
• Strategic Capital Revenue Guidance -- Range revised to $660 million-$680 million with G&A expected at $510 million-$525 million.
• Development and Acquisition Outlook -- Starts increased to $4.5 billion-$5.5 billion (about 40% data centers); contribution/disposition activity projected at $3.5 billion-$4.5 billion; acquisitions remain $1 billion-$1.5 billion.
• Earnings Guidance -- Net earnings per share forecasted at $3.80-$4.05; core FFO, including net promote, at $6.23-$6.70, and excluding promote expense at $6.12-$6.28 (an 80-basis-point increase from prior midpoint).
• Customer Activity -- Pipeline for new leasing reached new highs post-record quarter, with large format space "essentially sold out" in Prologis' portfolio.

SUMMARY

Management introduced $2.8 billion in new joint venture partnerships, signifying strong external investor interest and broader capital access. Customer demand for data centers accelerated, with all power pipeline sites engaged in active discussions and two major projects pre-leased on long-term contracts to investment-grade technology tenants. U.S. logistics markets saw seasonally adjusted absorption of 45 million square feet, slightly ahead of Prologis' forecast, while global vacancy rates remained stable due to a construction pipeline at multiyear lows. Market rents grew 30 basis points globally, with strongest U.S. growth in Central and Southeast regions, and international momentum in Latin America, Western Europe, the U.K, and Japan. The capital markets environment exhibited increased transaction volume across asset strategies, with premium pricing achieved for high-quality, well-located assets commanding cap rates near 5% and unlevered IRRs in the mid-7% range.

• Dan Letter stated, "our business continues to perform at a very high level supported by resilient demand, disciplined execution, and the strength and scale of our global platform."
• CFO Arndt noted, "Our expectation for full-year rent change to approach 40% on a net effective basis remains unchanged."
• Management highlighted initial activity related to the $300 million invested by Prologis Ventures in over 50 companies for technological innovation and disruption resilience.
• "we are operating with a heightened level of awareness guided by the same discipline that has defined our business for decades," according to Letter, referencing the current geopolitical environment.

INDUSTRY GLOSSARY

• Core FFO: Company-defined Funds from Operations adjusted for recurring items, used as a key REIT performance metric.
• Lease Mark-to-Market: The percentage difference between current in-place contractual rents and estimated market rents.
• Same-Store NOI: Net operating income growth derived from properties owned and operated throughout both comparable periods.
• Speculative Development: Real estate development initiated without pre-leased tenant commitments.
• Letter of Intent (LOI): Nonbinding agreement indicating preliminary commitment to transact or lease, subject to further negotiation.
• Cap Rate: The ratio of a property's net operating income to its current market value, used to estimate return on real estate investments.
• Unlevered IRR: Internal rate of return calculated without considering financing leverage, reflecting asset-level yield.

Full Conference Call Transcript

Dan Letter: Thank you, Justin. Good morning, and thank you for joining us. We entered 2026 with solid momentum, and we saw that continue in our first quarter results. While the geopolitical backdrop has become more uncertain in recent weeks, our business continues to perform at a very high level supported by resilient demand, disciplined execution, and the strength and scale of our global platform. Last quarter, we outlined our top three priorities for the business. Let me highlight how our strategy is translating into results across operations, value creation, and capital formation. First, we delivered another quarter of record leasing with 64 million square feet of signings, supported by both strong retention and healthy new leasing activity.

Occupancy exceeded our expectations, and we are raising our full-year outlook. Second, we are putting our land bank to work across logistics and data centers with $2.1 billion of starts in the quarter, of which $1.3 billion was data center build-to-suits. The depth of customer interest for our data center offerings is significant, and we believe our ability to bring together land, power, and development expertise is a key differentiator for our business and positions us to capture a growing share of this opportunity. And third, we are expanding our strategic capital platform. We announced a $1.6 billion joint venture with GIC and, subsequent to quarter end, a $1.2 billion joint venture with Laquette.

These partnerships reflect strong investor demand for our platform and our ability to deploy capital into high-quality opportunities worldwide. Taken together, these initiatives reinforce a simple point. We are building a broader, more resilient platform, one that is positioned to compound growth over time. Before I pass the call to Tim, let me briefly address the geopolitical backdrop. The conflict in the Middle East has introduced yet another source of economic uncertainty, most directly through higher energy prices and renewed pressure on inflation and interest rates. Rather than speculate, I will focus on what we are seeing in our data, what we are hearing from our customers, and how we are operating the business.

Our lease signings, proposal volume, and build-to-suit pipeline point to continued strength in underlying demand. In fact, March was a very active month for new leasing. By comparison, when our business faced abrupt tariff-related uncertainty in April 2025, the pause in leasing activity was relatively immediate before thawing out in the following weeks and months. At the same time, our customer insights are grounded in direct, ongoing engagement with hundreds of real-time interactions each quarter. Seven weeks into this conflict, most are actively monitoring the situation and they are telling us 2026 business plans are unchanged. The risk today is that uncertainty slows customer decision-making. We have not seen meaningful evidence of that to date.

That said, we are operating with a heightened level of awareness guided by the same discipline that has defined our business for decades. This is a time-tested platform and the structural drivers of growth across logistics, digital infrastructure, and energy remain firmly in place. With that, I will hand the call to Tim to walk you through our results and outlook.

Tim Arndt: Thank you, Dan. Turning straight to our results, we delivered a solid quarter, executing well against our strategic priorities in a dynamic environment. First-quarter core FFO was $1.50 per share including net promote expense and $1.52 per share excluding this expense, each ahead of our expectations. We ended the quarter with occupancy of 95.3%, reflecting the seasonal drop we telegraphed and typically experience each first quarter. Retention remained very strong at nearly 76%. Net effective rent change was more muted this quarter at 32%, driven primarily by market mix. Our expectation for full-year rent change to approach 40% on a net effective basis remains unchanged. Our lease mark-to-market ended the quarter at 17% on a net effective basis.

The rate of decline has slowed meaningfully due in part to an uptick in market rents this quarter, the first increase in 2.5 years. Our lease mark-to-market represents approximately $750 million of embedded NOI at spot rents, which of course do not reflect the replacement cost rent upside that should materialize over time as occupancies improve. Same-store NOI growth was 6.1% on a net effective basis and 8.8% on cash. In addition to the year-over-year occupancy increase and the growing contribution of rent change, the period also benefited from unusually low bad debt. In terms of capital deployment, we had a fantastic quarter.

We started $2.1 billion of new development, including $850 million in logistics and $1.3 billion in two data center projects. Within logistics, approximately 75% of the starts were speculative, reflecting improving fundamentals and our confidence in the need for new supply across many of our markets. Our data center starts totaled 350 megawatts between one ground-up development at an existing campus and one conversion out of our portfolio. Both projects are pre-leased on a long-term basis to leading technology companies with strong investment-grade credit. Customer interest in our powered sites is exceptional, with 1.3 gigawatts under LOI and all of our power pipeline in some level of discussion.

We ended the quarter with 5.6 gigawatts of energy either secured or in advanced stages, which reflects the stabilization of another 150-megawatt facility during the quarter. Simply assuming a power shell format at $3 million per megawatt, our current pipeline could provide well over $15 billion of investment and multiples of that in a turnkey format, creating significant potential for value creation. We continue to scale our solar and storage business, meeting customer demand and completing 42 projects during the quarter, bringing us to a total of 1.3 gigawatts of installed capacity. In terms of capital recycling, we sold or contributed approximately $1.2 billion of assets during the quarter. This included initial activity within the U.S.

Agility Fund announced last quarter as well as seed assets for our new venture with GIC. Before turning to our markets, I would like to highlight that we marked the 10-year anniversary of Prologis Ventures, our corporate venture capital arm. We have now invested $300 million across more than 50 companies, providing visibility to emerging technologies and solutions in the supply chain to stay ahead of disruption, drive innovation, and discover new opportunities. Overall, we progressed further through the stages of inflection, with demand strengthening, vacancy topping out, and an increase in the number of markets providing positive rent growth.

Our U.S. markets absorbed 45 million square feet, a solid result on a seasonally adjusted basis, slightly ahead of our forecast and consistent with our own leasing experience in the quarter. The U.S. vacancy rate was flat sequentially at 7.5%, aided by lower completion levels as the construction pipeline remains favorable at just 1.7% of stock compared to a 10-year average of 2.6%. We still expect relative balance between supply and demand would allow vacancy to drift lower over the year. Globally, market rents grew 30 basis points during the quarter, and barring an economic slowdown, we expect growth to continue, although it may be uneven quarter to quarter as conditions firm.

In the U.S., the strongest growth remains in many of our Central and Southeast markets, while Latin America, Western Europe, the U.K., and Japan stand out internationally. Southern California is performing in line with our expectations, which is to say it is improving but will lag other markets. We are seeing stronger leasing activity and a more constructive tone from customers, and vacancy has increased modestly and rents have declined slightly, again both consistent with our outlook, as the market continues to progress through its earlier stages of inflection. Moving to our customers, our recent leasing has been supported by a broader mix of transactions across both size category and geography.

Even after delivering record leasing in the quarter, our pipeline has not only replenished, but in fact reached new highs, reflecting strong underlying and ongoing demand. With large space format now essentially sold out in our portfolio, we are seeing activity broaden into other unit sizes alongside strength in our build-to-suit demand, where our pipeline continues to be healthy. From a segment perspective, demand remains strong in essential goods and e-commerce, with increasing momentum among data center suppliers. Decision-making is marginally slower, but leasing activity remains robust and we have not seen any meaningful evidence of pullback.

In capital markets, transaction volumes have increased, with an encouraging amount of product currently in the market across core, core-plus, and value-add strategies, and spanning both single-asset and portfolio transactions. What stands out is the pricing premium for quality. Assets with strong locations, functionality, and credit are attracting the deepest buyer pools, with cap rates on market rents around 5% and unlevered IRRs in the mid-7s. Turning to strategic capital, we closed commitments for three additional vehicles, including a new venture with GIC, which will develop and hold U.S. build-to-suit opportunities, and an expansion of our relationship with Liquess through a pan-European venture focused on both development and acquisition strategies. We also launched a new acquisition vehicle in Japan.

Between these ventures, as well as the Agility Fund and CRE closings announced last quarter, we have raised over $2.6 billion of third-party equity, aligning capital with growing investment opportunities in a more accretive format. Finally, on our balance sheet, we raised $5 billion in new financings during the quarter at a weighted average rate of approximately 3.75%. This includes the $3 billion recast of one of our three credit facilities at a spread of just 63 basis points, the lowest of any REIT. Turning to guidance, which I will review at our share, we are increasing our forecast for average occupancy to a range of 95% to 95.75%.

This increase, together with our first-quarter outperformance, drives our expectations for net effective same-store growth to 4.5% to 5.5% and cash growth to 6.25% to 7%. Strategic capital revenue is now expected to range between $660 million and $680 million, and G&A is expected to range between $510 million and $525 million. As for deployment, we are increasing development starts to $4.5 billion to $5.5 billion on an owned and managed basis, with approximately 40% allocated to data center build-to-suits. Acquisitions will continue to range between $1 billion and $1.5 billion, and our combined contribution and disposition activity will range between $3.5 billion and $4.5 billion, all at our share.

Putting it together, our strong start has us increasing our outlook on earnings. Net earnings will range between $3.80 and $4.05 per share. Core FFO, including net promote expense, will range between $6.70 and $6.23 per share, while core FFO, excluding the promote expense, will range between $6.12 and $6.28 per share, an 80-basis-point increase from our prior midpoint. In closing, the strength of our business is evident against the backdrop of ongoing volatility. We are anchored by a portfolio of irreplaceable assets generating durable and growing cash flows, a disciplined approach to capital deployment, a scaled asset management platform, and a fortress balance sheet.

At the same time, we continue to expand in our adjacencies in energy and data centers, providing additional avenues for growth. We are excited by the strong start we have had, are proud of our team’s execution, and are well positioned to deliver excellent results over the balance of the year. With that, I will turn the call back to the operator for your questions.

Operator: Thank you. And at this time, we will be conducting a question and answer session. And your first question comes from Ronald Kamdem with Morgan Stanley. Please state your question.

Ronald Kamdem: Great. Congrats on the record leasing in the quarter. I think I heard you mention that the pipeline is also back at record. I guess my question is just on the leasing spreads. That looks like it slightly decelerated in the quarter. Just any comments there and how you are thinking about occupancy versus pricing going forward for the rest of the year? Thanks.

Tim Arndt: Hey, Ron. Yes. The quarter, I mentioned there was some mix going on in the numbers you see. Forty percent of the roll, by happenstance, happened to be in our West Region in the U.S., where we have some softer conditions and lower lease mark-to-market, as you are aware. So that impacted both rent change and things like free rent that you will see in the supplemental. In terms of balancing around occupancy and rent change, it is really not only market by market, it is really deal by deal.

I would say out there we have a pretty wide mix of market conditions, as you know, some exceedingly tight and some still soft, and that can happen at the submarket or even the unit level. So I would say in aggregate, we are in a mode of pushing rents in a number of markets and situations, but still preserving for some occupancy.

Justin Meng: Thank you, Ron. Operator, next question.

Operator: Your next question is [inaudible].

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