PROLOGICS-INC Earningcall Transcript Of Q2 of 2024

Timothy D. Arndt -- Chief Financial Officer

Thank you, Justin, and thank you all for joining our call. We had solid execution against our
second quarter plan, which showed improvement over the first quarter, underpinned by a pickup
in overall market activity. In fact, we leased 52 million square feet in our portfolio, a 27%
increase over the first quarter and one of our highest quarters in the past few years. This helped
in delivering occupancy, which outperformed our forecast, and, more importantly, at rent change
well over 70%.

This was achieved in an environment where decision-making has remained slow as many
customers optimize existing footprints before committing to new space. As a result, we expect
many property owners to continue to prioritize occupancy in select markets with higher

availability, keeping pressure on rents. That said, the bright spot continues to be the depletion of
the supply pipeline and successive quarters of very low development starts. We believe we are
near peak vacancy, and this dearth of new supply is setting the stage for more favorable
conditions in 2025.

As evidenced by very strong rent change this quarter, our lease mark-to-market is serving to
sustain meaningful growth through this transition. In terms of results for the quarter, core FFO,
excluding promotes, was $1.36 per share and, including net promoter expense, was $1.34 per
share. We earned promote revenue within our FIBRA vehicle in Mexico, marking the seventh year
of such achievements since its IPO and speaking to the high quality of our portfolio and team in
that market. Global occupancy at our share ended the quarter at 96.5%.

Our U.S. portfolio continues to outperform the market by over 320 basis points, a meaningful
spread that has widened from our historic norm of roughly 175 basis points. As vacancy
normalizes in our markets, we expect this flight to quality to continue. We crystallized $100
million of our lease mark-to-market during the quarter.

As of June, we estimate that the net effective market rents are 42% above in-place rents,
representing $2 billion of potential NOI. Over 40% of the decline in our lease mark-to-market
ratio is due to this quarter's mark-to-market capture. Net effective rent change was nearly 74%
based on commencement and is 64% based on new signings. This metric can be volatile
between quarters due to mix, but we continue to expect full year net effective rent change to be
above 70%, illustrating the outsized mark-to-market opportunity that will remain in the near and
intermediate term.

Our same-store growth was 7.2% on a cash basis, 5.5% on a net effective basis, each strong
despite the impact of over 100 basis points of decline in average occupancy year over year, as
well as the effect of fair value lease adjustments on net effective growth from the Duke
acquisition. We deployed over $700 million into new development projects and acquisitions
during the quarter and also closed on over $1 billion in dispositions and contributions at values
exceeding our initial expectations. We continue to grow our solar energy business, with the
installed capacity of our operating portfolio now at 524 megawatts, with an additional 134
megawatts currently under construction, the total of which will generate approximately $55
million of NOI once stabilized, in line with our forecast. Finally, we raised $1.2 billion of debt
across our balance sheet and funds at a weighted average rate of 4.4% and a term of 11 years.

Outside of this total, we also launched our $1 billion commercial paper program, which has, thus
far, saved an average of 60 basis points on our short-term borrowing costs in the U.S. In terms
of our markets, there are several encouraging signs for demand, including port volumes on both
the East and West coasts, as well as increased volume of proposal activity we've seen across
our portfolio. While overall leasing has increased since the first quarter, the tone of our

conversations with customers warrants continued caution in the near term. Even though space
utilization sits at near our normal range, approximately 85%, we find that many customers
simply lack urgency, still prioritizing cost containment in light of an uncertain economic and
political environment, both of which will be clearer soon.

In the meantime, development starts remain muted and below pre-COVID levels. Quarterly
completions peaked last year at 140 million square feet and are projected to approach 50
million square feet by the fourth quarter of this year. We estimate vacancies in our U.S. and
European markets will peak over the next few quarters, likely creating a shift in tone as
customers assess the requirements heading into 2025.

Until then, rent growth will be anemic in most markets and down modestly in some. Southern
California remains its own story, where demand remains sluggish and vacancy continues to drift
higher. While we've observed some green shoots over the last 90 days, we expect soft
conditions to persist over the next 12 months. Globally, we estimate that effective market rents
declined 2% during the quarter, with 75% of the decline attributed to SoCal.

Because there is so much conflicting data available to investors, it's worth mentioning that we
measure market rent growth by evaluating effective rents achieved, not asking rents before
concessions, a difference that can be as wide as 5% to 10%. We'd summarize by highlighting
that most of the puts and takes across our global portfolio have provided conditions that are
largely stable, with reason for intermediate-term optimism due to several quarters of low starts
and subdued but positive demand. Turning to capital markets. Value saw modest increases in
the second quarter for our U.S.

and European funds. There's greater depth among buyers of logistics properties, and lenders are
more active, together reducing yield requirements. In particular, buyer pools for well-located core
product are growing now, with multiple bidders back in the mix. We saw this very clearly in a
large portfolio sale we closed this quarter, which was originally brought to the market last fall.

Interest was reasonable at the time, but we felt pricing was off, elected to wait, and achieved
28% higher value in the end. I'd like to provide a brief update on our data center business where
we are having very good momentum across our pipeline. As you know, access to power is the
key to unlocking value. And our dedicated energy and sustainability teams are leveraging our
expertise in net-zero carbon solutions, solar generation, and battery storage to ensure that we're
in the pole position with all of the major utilities.

To date, we have secured 1.3 gigawatts of power. Of this, 450 megawatts is currently under
construction in $1.2 billion of TEI, 300 megawatts is in active pre-development with an expected
$700 million of TEI, leaving 550 megawatts as available and currently undergoing build-to-suit
discussions. Beyond all of this, we are also in advanced stages of procurement for an additional

1.5 gigawatts, which is key to delivering on our five-year outlook for $7 billion to $8 billion of
total data center investment. Overall, we've made significant progress growing this business and
are optimistic about the targets we laid out at our Investor Day.

Turning to guidance. We are making few changes as the year is playing out to our expectations.
As such, we're maintaining our forecast for average occupancy, same-store, G&A, development
starts, and stabilizations. There are only a few small changes otherwise.

We are lowering our guidance for strategic capital revenue by $10 million only to account for the
impact of FX rates, which are hedged elsewhere in our P&L and will not affect overall earnings.
Due to the increased activity we're seeing in the capital markets and deals completed year to
date, we are increasing our acquisitions guidance to a new range of $1 billion to $1.5 billion and
similarly increasing our guidance for overall dispositions and contributions to a range of $2.75
billion to $3.65 billion. Ultimately, we are increasing our GAAP earnings to a range of $3.25 to
$3.45 per share. Core FFO, excluding net promoter expense, will range between $5.46 and $5.54
per share, while core FFO, including promotes, will range from $5.39 to $5.47 per share, a slight
increase at the midpoint from our prior guidance, attributed to the FIBRA promote.

Our core earnings guidance calls for nearly 8% growth at the midpoint, which ranks in the 87th
percentile of S&P 500 REITs. We've been unique in our ability to generate leading growth over a
long period of time, not only through a superior business model and portfolio, but also from our
commitment to leveraging all that comes from our scale, including adjacent verticals strategic
to our core business. Our focus is simply to continue to deliver on this industry-leading and
durable growth. As we close, I'd also like to highlight an upcoming event, our annual
Groundbreakers Thought Leadership Forum on October 2nd in London.

The program is taking shape as our best yet, exploring the surprising intersection of logistics
and health, energy, and even fashion. Additional information for the forum is available on our
website, and we hope to see you there or online. With that, I'll hand the call back to the operator
for your questions.

Questions & Answers: