Prologis (NYSE:PLD) raised its full-year outlook after reporting stronger-than-expected second-quarter results, citing record leasing activity, improving logistics market fundamentals and growing opportunities in data centers and energy.
The logistics real estate company reported Core FFO of $1.63 per share, including net promote income, and $1.60 per share excluding promotes. Chief Financial Officer Tim Arndt said both figures were ahead of expectations. The company generated $83 million of promote revenue during the quarter, driven by outperformance from three investment vehicles.
Leasing Hits Record as Occupancy Improves
Prologis signed a record 67 million square feet of leases during the quarter, which Letter said marked the company’s fourth record in the past seven quarters. Occupancy ended the quarter at 95.5%, up 20 basis points from the first quarter.
Arndt said rent change on rollover exceeded 36% on a net effective basis and 22% on a cash basis. The company realized $60 million of incremental net operating income from rent rollovers. Prologis’ portfolio lease mark-to-market remained at 17% on a net effective basis, which Arndt said represents nearly $800 million of embedded NOI opportunity without further market rent growth.
Same-store NOI growth was 6.4% on a net effective basis and 8.5% on a cash basis during the quarter.
Executives said customer demand is broadening. Managing Director Chris Caton pointed to e-commerce, advanced manufacturing, data center construction support, defense, semiconductors and supply chain reconfiguration as drivers of growth. He added that some categories tied to housing, including construction materials, furniture and appliances, remain below historical levels and could provide future upside.
Guidance Raised on Stronger Operating Performance
Prologis increased its full-year average occupancy forecast to a range of 95.25% to 95.75%. The company now expects net effective same-store growth of 5.25% to 5.75% and cash same-store growth of 6.75% to 7.25%.
The company also raised its development starts guidance, on an owned and managed basis, to $5.5 billion to $6.5 billion. Acquisitions are now expected to total $1.5 billion to $2 billion, while contributions and dispositions are expected to range from $4.25 billion to $5.25 billion.
Prologis raised its net earnings guidance to $4.40 to $4.55 per share. Core FFO is now expected to range from $6.22 to $6.30 per share, including and excluding promotes, representing a 100 basis point increase at the midpoint compared with the prior forecast.
Strategic capital revenue, excluding promotes, remained unchanged at $660 million to $680 million, while net promote income is now expected to be flat for the year. General and administrative expenses are expected to remain in the range of $510 million to $525 million.
Development and Acquisitions Accelerate
During the quarter, Prologis started more than $1.6 billion of new development projects, including about $800 million in logistics properties. Arndt said logistics starts spanned markets including San Francisco, Vancouver, the U.K., Milan, Berlin and Chennai.
The company acquired $1.8 billion of real estate during the quarter at an estimated discount to replacement cost of roughly 20%, while disposition activity totaled $800 million. Arndt said the underwritten internal rates of return on acquisitions have exceeded those on dispositions by 140 basis points year to date.
Letter emphasized the company’s land position, saying Prologis’ 14,000-acre land bank represents 240 million square feet of embedded development opportunity. He said the company expects more speculative development as market conditions improve, while the build-to-suit pipeline has continued to grow.
Data Center Pipeline Expands
Prologis executives highlighted data centers as a growing part of the company’s platform. Arndt said the company started a 260-megawatt build-to-suit campus during the quarter with total expected investment of approximately $800 million. Year-to-date data center starts now total $2.1 billion, exceeding the company’s full-year guidance for that category.
The company has now commenced nearly $4 billion of data center development, all build-to-suit projects for digital infrastructure customers. More than 50% of that capital has been invested in turnkey projects, Arndt said.
Prologis also completed a 100-megawatt powered land sale during the quarter, generating an 82% margin. Arndt said the transaction illustrated the company’s approach to monetizing projects when risk-adjusted returns are most attractive.
The company’s power pipeline expanded to approximately 5.8 gigawatts, more than doubling over the past two years. Letter said the pipeline represents about $17 billion of powered shell investment potential or up to $87 billion on a turnkey basis. Arndt said roughly 85% of the current pipeline is positioned to support development starts through 2030, and the company sees more than 10 gigawatts of development opportunity over the next decade.
Market Conditions Continue to Improve
Arndt said U.S. net absorption totaled 66 million square feet in the second quarter, the highest level since 2022. Vacancy declined to 7.2%, while market rents increased about 70 basis points quarter over quarter. Caton said Prologis now expects U.S. net absorption of 220 million square feet this year, with completions of 195 million square feet, allowing market occupancy to rise by roughly 30 basis points.
In Europe, Arndt said the recovery is nearly 12 months ahead of the U.S. market. Vacancy remained relatively tight at 5.2%, while rents increased approximately 60 basis points in the quarter and 160 basis points from last year’s trough.
Executives also pointed to limited availability in large-format space. Arndt said Prologis has very limited availability in spaces larger than 500,000 square feet and no availability in spaces larger than 1 million square feet.
On capital markets, Arndt said sentiment toward logistics real estate continues to lead other property types. Appraised values across the company’s strategic capital platform increased about 1% quarter over quarter, while market cap rates remain around 5%. Prologis ended the quarter with a debt-to-EBITDA ratio of 4.7 times after completing about $3.4 billion of financing activity across the U.S., Europe and Asia.
The company also closed a $1.2 billion European joint venture with La Caisse during the quarter. Letter said the deal reflected continued demand for high-quality logistics assets and expanded a long-standing relationship.
Prologis did not take questions related to its possible offer for SEGRO, citing regulatory restrictions under the U.K. Takeover Code. Letter said the company remains disciplined on mergers and acquisitions and that any transaction would need to meet a high bar for asset quality, strategic fit and price.
About Prologis (NYSE:PLD)
Prologis, Inc is a real estate investment trust (REIT) specializing in logistics and distribution facilities. The company focuses on acquiring, developing, and managing high-quality industrial real estate assets that support supply chain infrastructure for third-party logistics providers, e-commerce businesses, retailers and manufacturers. Its portfolio primarily consists of warehouse and distribution centers designed to optimize goods movement and storage near key transportation hubs.
With a global presence, Prologis serves customers across the Americas, Europe and Asia Pacific.
