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    PLD
    Earnings call· Jun 2025(Q2 FY25)

    Prologis Q2 FY25 earnings call PLD

    Jul 16, 2025 Source

    Executive summary

    Prologis Q2 FY25 — Strong Build-to-Suit Activity and Narrowed Full-Year Guidance

    Prologis delivered a strong second quarter, exceeding expectations with robust build-to-suit activity and resilient occupancy despite subdued net absorption and a modest rise in market vacancy. The company narrowed and increased its full-year guidance, reflecting improved visibility and confidence in its strategic capital and development pipelines. Management noted a growing leasing pipeline and increasing customer urgency, anticipating a future acceleration in demand as macro uncertainty potentially clears.

    Highlights

    5

    • Core FFO, excluding net promotes, of $1.47 per share, ahead of forecast.

    • Occupancy ended at 95.1%, outperforming the market by 290 basis points.

    • Monetized $75 million of NOI through rent change, with 53% net effective and 35% cash rent change.

    • Started $900 million in new development, with $1.1 billion in build-to-suit starts for H1 FY25, a record.

    • Increased full-year development starts guidance to $2.25 billion to $2.75 billion.

    Concerns

    4

    • Net absorption was subdued at 28 million square feet in Q2 FY25, with market vacancy ticking up 10 basis points to 7.4%.

    • Net outflows in open-ended vehicles of approximately $300 million during the quarter.

    • Market rents declined approximately 1.4% during the quarter.

    • Bad debt remains elevated, bouncing between 35-40 basis points, compared to a historical average closer to 20 basis points.

    Guidance & targets

    11
    CategoryTargetConfidence
    Core FFO, excluding net promote expense
    $5.80-$5.85 per share
    high materiality
    High
    Core FFO, including net promote expense
    $5.75-$5.80 per share
    high materiality
    High
    Average occupancy (Prologis share)
    94.75%-94.25%
    medium materiality
    High
    Full-year rent change
    low to mid-50s
    medium materiality
    High
    Full-year same-store NOI growth (net effective)
    3.75%-4.25%
    high materiality
    High
    Full-year same-store NOI growth (cash)
    4.25%-4.75%
    high materiality
    High
    G&A
    $450 million to $470 million
    medium materiality
    High
    Strategic capital revenue
    $570 million to $590 million
    medium materiality
    High
    Development starts (Prologis share)
    $2.25 billion to $2.75 billion
    high materiality
    High
    Combined disposition and contribution (Prologis share)
    $1 billion to $1.75 billion
    medium materiality
    High
    GAAP earnings
    $3 to $3.15 per share
    high materiality
    High

    Operational metrics

    36
    Core FFO, including net promote income
    $1.46ahead of forecast
    Q2 FY25
    Core FFO, excluding net promote income
    $1.47ahead of forecast
    Q2 FY25
    Occupancy
    95.1%down 10 bps sequentially
    Q2 FY25 end
    Rent change (net effective basis)
    53%
    Q2 FY25
    Rent change (cash basis)
    35%
    Q2 FY25
    Lease mark-to-market
    22%
    Q2 FY25 end
    Net effective same-store growth
    4.8%
    Q2 FY25
    Cash same-store growth
    4.9%
    Q2 FY25
    New development starts
    $900 million
    Q2 FY25
    Build-to-suit starts
    $1.1 billionlargest start to a year
    H1 FY25
    Data center development investment
    $300 millionincremental investment
    Q2 FY25
    Power procurement (advanced stages)
    2.2 gigawatts200 megawatts added
    Q2 FY25 end
    Power procurement (fully secured)
    1.1 gigawatts
    Q2 FY25 end
    Power procurement (under construction)
    300 megawatts
    Q2 FY25 end
    Solar production and storage
    1.1 gigawatts
    Q2 FY25 end
    Financing activity
    $5.8 billion
    Q2 FY25
    Recast global credit line
    $3 billionreduced spread
    Q2 FY25

    One of three Prologis global credit lines.

    Liquidity
    >$7 billion
    Q2 FY25 end
    Commercial paper program (EUR)
    EUR 1 billion
    Q2 FY25

    New facility added.

    Strategic capital business net outflows (open-ended vehicles)
    $300 million
    Q2 FY25
    Market rents declined
    1.4%
    Q2 FY25
    Market values
    essentially flat
    Q2 FY25
    US net absorption
    28 millionsubdued
    Q2 FY25
    Leasing pipeline
    130 millionhistorically high levels
    Q2 FY25 end

    Reflects significant interest and need for space, and lengthening of decision-making time.

    Build-to-suit pipeline
    >25 million
    Q2 FY25 end
    Land bank opportunity
    $41 billion
    current
    Utilization (gray space and 3PL capacity)
    85%up 50 bps
    Q2 FY25

    Approaching a 2-year trend, reflecting growth in supply chain and some inventory build.

    IBI activity index
    dropped to lowest levelsince Q1 FY23
    Q2 FY25

    Consistent with softer economic climate and uncertainty.

    Bad debt
    35-40 bpselevated vs. historical ~20 bps
    Q2 FY25

    Expected to be around 40 bps over the balance of the year; defaults have been NPV positive due to higher market rents.

    World GDP covered by markets
    78%
    current

    Prologis operates in 75 consumption centers globally.

    Net absorption
    21 million
    Q1 FY25

    Compared to 28 million square feet in Q2 FY25.

    Net absorption
    49 million
    H1 FY25

    Year-to-date net absorption.

    Lease termination fee income
    $28 millionunusually high
    Q2 FY25

    Typically $5 million to $10 million per quarter. Forecasted and contemplated in previous guidance.

    Power demands of regular warehouse
    5
    current

    Approximately correct for non-temperature-controlled warehouses.

    Power demands with full automation
    255x increase
    future

    With full automation, EV charging of worklists, and light trucks.

    3PLs share of leasing
    1/3slightly down from prior 2 quarters
    Q2 FY25

    Prior two quarters were records for 3PL leasing.

    Industry KPIs

    12
    MetricValueDetails
    Occupancy rate95.1%%
    Lease mark to market22%%
    Quarterly leasing volume—
    Leasing spread cash basis35%%
    Bad debt credit loss level35-40 bpsbps
    Data center land bank pipeline2.2 gigawattsGW
    Turnover costs and concessions—
    Market fundamentals rent growthdeclined 1.4%%
    Leasing spread net effective basis53%%
    Investment cap rate stabilized yield—
    Development starts dollar value and mix$900 millionUSD
    Same store noi growth cash vs net effective4.9% (cash) / 4.8% (net effective)%

    Orderbook & backlog

    2
    Leasing pipeline130 million square feetQ2 FY25 end

    up 19% year-on-year

    Reflects significant interest and need for space, as well as lengthening of decision-making time; expected to show up in future quarters.

    Build-to-suit pipeline>25 million square feetQ2 FY25 end

    Comprises over 30 projects in active dialogue; underscores how larger customers are being strategic and positioning for growth.

    Capital programs

    1
    Austin Data Center Developmentunderway
    Period spend: $300 million

    Benefit: with a top hyperscaler

    Incremental investment in ongoing data center development in Austin, Texas.

    Risks & headwinds

    5
    Subdued net absorption and rising market vacancyQ2 FY25, expected to remain choppy over next few quarters

    Net absorption of 28 million sq ft in Q2 FY25; market vacancy up 10 bps to 7.4%; market rents declined 1.4%.

    Mitigation: Supply pipeline is depleting and development starts are low, setting the stage for favorable conditions as demand improves. Over 20% spread between market and replacement cost rents.

    Macro uncertainty and policy volatility impacting decision-makingNext few quarters

    Leasing velocity initially down 20% post-April 2 tariff surprises, ending Q2 down 10% from normal. IBI activity index dropped to lowest since Q1 FY23.

    Mitigation: Customers are recalibrating, not retreating; demand is piling up as evidenced by historically high leasing pipeline; larger customers are making long-term strategic investments; underlying activity reflects an active market.

    Elevated bad debt levelsBalance of the year

    Bouncing between 35-40 basis points, compared to historical average closer to 20 basis points.

    Mitigation: Defaults have been NPV positive, as the opportunity to capture higher market rents earlier than expected more than offsets downtime experienced.

    Net outflows in open-ended strategic capital vehiclesQ2 FY25

    Approximately $300 million in net outflows during Q2 FY25.

    Mitigation: Teams are developing new offerings more representative of the breadth of activities, with further reporting expected in coming quarters.

    Legislative changes reducing incentives for new solar projects in the U.S.Over time

    Will reduce incentives for new projects over time.

    Mitigation: Expected consequential upward pressure on energy prices will uphold returns. Prologis remains committed to and excited about the broader global potential of its distributed energy platform.

    What to watch in Q3 FY25

    5

    Leasing Pipeline Conversion

    next quarter
    Current130 million square feet
    TargetIncreased signed leases

    Why it matters

    Indicates demand acceleration and resolution of customer decision-making delays, translating into future revenue.

    from the sentiment implied by our leasing pipeline which stands at 130 million square feet, reaching historically high levels in recent weeks. We see it as reflecting both the significant interest and need for space as well as a lengthening of the time and decision-making which we expect to see show up in future quarters through longer gestation timing as deals get made.

    Q&A highlights

    6

    What is driving the historically high leasing pipeline and how does it connect to the decision to increase development starts and acquisitions?

    The leasing pipeline is diverse across deal stages, types, and customer industries, with concentrated growth in larger deals and increased 3PL engagement. The $1 billion increase in development starts includes a $300 million data center and a mix of build-to-suit and spec, driven by a strong build-to-suit pipeline.

    “The pipeline is up 19% year-on-year. One of the hallmarks here is diversity. We see good balance and good growth across different deal stages.”

    asked by Ronald Kamdem · answered by Christopher Caton

    2 min read5 chapters

    Detailed Narrative

    01

    Market Conditions and Customer Sentiment

    Management observed customers "recalibrating, not retreating," with leasing velocity accelerating through the quarter, particularly in June. Despite subdued net absorption and a 1.4% decline in market rents, the company's leasing pipeline reached historically high levels, indicating significant interest and a piling up of demand. Larger customers are increasingly looking past headlines and making strategic, long-term investments. Historically, 44% of the time, the vacancy rate in the last 25 years has exceeded 7.4%, suggesting current levels are not unprecedented🌐.

    02

    Development and Data Center Momentum

    Prologis reported a record start to the year for build-to-suit activity, totaling $1.1 billion in the first half, including a $300 million incremental investment in a data center development in Austin, Texas. The company continues to procure power, adding 200 megawatts to its advanced stages category, bringing the total to 2.2 gigawatts, alongside 1.1 gigawatts fully secured and 300 megawatts under construction. This activity underscores how larger customers are positioning for growth.

    03

    Balance Sheet and Capital Management

    The company closed $5.8 billion in financing activity, including a $3 billion recast of a global credit line at a reduced spread, contributing to over $7 billion in liquidity. A new EUR 1 billion commercial paper program was added, expected to generate 40-60 basis points in savings. Strategic capital business saw net outflows of $300 million in open-ended vehicles, but new offerings are being developed to broaden activities.

    04

    Long-Term Market Outlook

    Management expressed confidence in the long-term prospects of the business, citing a significant mark-to-market, rising replacement costs, and the expectation that current market vacancy rates (7.4%) are near their peak. They anticipate that delayed business will translate to more activity in the future, with pricing power expected to return when vacancy rates normalize to around 5%, which has historically been the 'magic number.' Absorption during COVID reached 375 million square feet, a one-time📎 surge not expected to repeat.

    05

    Same-Store NOI Deceleration

    The implied deceleration in cash same-store NOI growth in the back half of the year (to about 3.5% from mid-5% in H1) is primarily attributed to tougher year-over-year comparisons and a normalization of rent change contributions, which, while still strong, are coming in at lower levels than the peak years. Some one-time📎 income from 2024 also won't repeat, contributing to the expected moderation.

    AI-generated summary of the company’s earnings call. Not investment advice.