Prologis Q2 FY26 earnings call PLD

The market has transitioned into its next phase of growth, with U.S. net absorption totaling 66 million square feet in Q2, the highest level since 2022. This led to a decline in vacancy to 7.2% and a 70 basis point increase in market rents. Customer demand is broadening, with notable strength in e-commerce, advanced manufacturing, and digital infrastructure, which is estimated to generate 30 million to 40 million square feet of incremental logistics demand for every $1 trillion of data center CapEx.

Prologis had an exceptional quarter in its data center business, starting a 260-megawatt build-to-suit campus with an expected investment of $800 million. Year-to-date data center starts now total $2.1 billion, exceeding the full-year guidance. The power pipeline has expanded to approximately 5.8 gigawatts, more than doubling over the past two years, with 85% positioned to support development starts through 2030. The company sees over 10 gigawatts of development opportunity over the next 10 years, with a strategy to sell assets at completion.

The company continues to execute its strategic capital strategy, closing a $1.2 billion European joint venture with La Caisse during the quarter. Prologis acquired $1.8 billion of real estate at an estimated 20% discount to replacement cost, while disposition activity totaled $800 million. The underwritten IRRs on acquisitions have exceeded those on dispositions by 140 basis points year-to-date, demonstrating ongoing portfolio optimization and enhanced long-term returns.

Europe's market recovery is nearly 12 months ahead of the U.S., characterized by robust demand and stable, tight vacancy rates at 5.2%. This has translated into significant rent growth, increasing approximately 60 basis points during the quarter and 160 basis points from the trough last year. The market benefits from healthy secular demand drivers and stringent barriers to supply, which support sustained rent growth.

The Southern California market is showing early signs of recovery, with net absorption reaching 9 million square feet in the quarter, led by the Inland Empire. Vacancy rates declined by 30 basis points quarter-on-quarter and are now below 7%. Market rents are stable, with notable increases in some pockets, indicating that the region is following the broader market inflection with a lag, as previously anticipated by management.

Prologis completed approximately $3.4 billion of financing activity across multiple currencies and geographies, ending the quarter with a debt-to-EBITDA ratio of 4.7x. Appraised values across the strategic capital platform increased by 1% quarter-over-quarter. Market cap rates remain around 5%, with in-place cap rates in the mid-4s and unlevered IRRs stable in the mid-7s, reflecting positive sentiment towards logistics real estate.