Prologis, Inc. (PLD) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A session reveal strong financial performance with increased guidance in several areas, including rent change and same-store NOI growth. The company's strategic capital revenue and development starts are also rising, indicating robust business expansion. While there are some uncertainties in the data center projects, the overall sentiment is positive, with strong occupancy rates and growth potential in key markets. The positive aspects outweigh the concerns, suggesting a likely positive stock price movement in the short term.
Key Financial Performance
Core FFO (Funds From Operations) $1.44 per share for the fourth quarter, including net promote expense, and $1.46 per share excluding net promote expense. This was at the top end of guidance ranges, driven by strong leasing and operational performance.
Average Occupancy 95.3% for the quarter and 95% for the full year, with period-end occupancy at 95.8%. This was driven by strong new leasing and healthy retention of 78%.
Net Effective Rent Change 44% for the quarter, contributing approximately $60 million of annualized NOI. For the year, net effective rent change exceeded 50%, driven by market rent growth and portfolio performance.
Net Effective Lease Mark-to-Market 18%, representing nearly $800 million of embedded NOI yet to be realized. The rate of decline in lease mark-to-market has slowed, with some markets seeing expansion due to rent growth outpacing portfolio churn.
Same-Store NOI Growth 4.7% on a net effective basis and 5.7% on a cash basis for the quarter. For the full year, net effective same-store growth was 4.8%, hitting the top end of the range. This was driven by strong leasing and rent growth.
Capital Deployment $900 million of value-maximized assets sold and $625 million acquired at attractive discounts, generating a positive 150 basis point spread in expected IRR. Development starts totaled $1.1 billion for the quarter and $3.1 billion for the year, with build-to-suits representing 61% of the total.
Energy Business Total installed capacity reached 1.1 gigawatts, surpassing the 1-gigawatt goal set 4 years ago. This was achieved through strategic investments in energy solutions.
International Market Performance Latin America showed robust consumption trends, Europe posted its first quarter of positive rental growth in 2 years, and Japan achieved occupancy above 97%, outperforming the market by nearly 600 basis points.
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Operating Highlights
Data Centers: Prologis is expanding its data center business with a focus on procuring power, securing build-to-suit lease transactions, delivering world-class facilities, and harvesting value through asset sales. They expanded power access to 5.7 gigawatts, stabilized 72 megawatts of projects, and sold a state-of-the-art turnkey facility. Demand is strong, with 1.2 gigawatts in LOI or pending lease execution.
Energy Solutions: Prologis surpassed its 1-gigawatt goal for installed capacity, reaching 1.1 gigawatts. They plan to add more capacity to leverage untapped potential across their portfolio.
International Market Performance: Latin America showed robust consumption trends, supporting high occupancy and rent growth. Europe posted its first quarter of positive rental growth in two years, and Japan achieved occupancy above 97%, outperforming the market by nearly 600 basis points.
E-commerce Growth: E-commerce represented 20% of new leasing activity in 2025, its best year since 2021. Large retailers are expanding and diversifying networks to improve delivery times and efficiency.
Leasing and Occupancy: Prologis signed 57 million square feet of leases in Q4, achieving 96% occupancy. Retention was 78%, and net effective rent change was 44%, contributing $60 million in annualized NOI.
Development Platform: Prologis started $1.1 billion in new logistics projects in Q4, with 48% being build-to-suit. For the year, $3.1 billion in projects were started, with 61% build-to-suit.
Strategic Capital Initiatives: Prologis formed two new investment vehicles in the U.S. and China, including the IPO of the China AMC Prologis Logistics REIT. They also launched the U.S. Agility Fund for development and value-add opportunities.
Shareholder Returns: Prologis is enhancing shareholder returns by growing assets under management and developing new investment strategies to deliver consistent performance across geographies.
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Risk or Challenges
Tariff policy uncertainty: Uncertainty around tariff policy is highlighted as a concern, though it is now treated more as a planning assumption rather than an impediment.
Market rent fluctuations: Market rents have declined at their slowest rate since 2023, but there is still a risk of fluctuations in rents across various markets.
Economic uncertainties: Periods of uncertainty and unexpected challenges in 2025 are mentioned, which could impact operations and financial performance.
Supply chain and logistics challenges: The company faces challenges in maintaining high occupancy and meeting demand in large space formats, which could impact operational efficiency.
Regulatory and geopolitical risks: The IPO of the China AMC Prologis Logistics REIT and operations in international markets like China and Europe expose the company to regulatory and geopolitical risks.
Energy and infrastructure development risks: While the company has made progress in energy and data center development, there are risks associated with procuring power, securing leases, and delivering facilities.
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Guidance & Outlook
Extending leadership as a best-in-class operator: Focus on using data analytics, deploying site-specific energy solutions, and advancing venture initiatives to enhance the platform. Aim to provide unmatched service, innovative solutions, and mission-critical reliability.
Value creation in logistics real estate and data centers: Positioned to deliver next-generation, strategically located facilities. Equipped to develop critical infrastructure with a growing power pipeline and multidisciplinary expertise.
Enhancing shareholder returns: Focus on growth in assets under management, developing new vehicles and strategies to build on performance, transparency, and partnership.
Occupancy and leasing: Forecasting average occupancy between 94.75% and 95.75% for 2026, with a seasonal drop in Q1 before rebuilding over the year. Signed 57 million square feet of leases in Q4 2025, driving occupancy toward 96%.
Net effective same-store growth: Forecasted to range between 4.25% and 5.25% on a net effective basis and 5.75% to 6.75% on a cash basis, driven predominantly by rent change.
Development starts: Forecasting development starts between $4 billion and $5 billion on an owned and managed basis, with approximately 40% of activity in the Data Center business.
Acquisitions and dispositions: Acquisitions forecasted between $1 billion and $1.5 billion. Combined contribution and disposition activity forecasted between $3.25 billion and $4.25 billion.
Core FFO guidance: Core FFO, including net promote expense, forecasted between $6 and $6.20 per share. Core FFO, excluding net promote expense, forecasted between $6.05 and $6.25 per share.
Data Center business: Increased visibility and confidence around new starts, with 40% of development activity in this sector. Expanded power access to 5.7 gigawatts, with 1.2 gigawatts in LOI or pending lease execution.
Energy business: Achieved 1.1 gigawatts of installed capacity, surpassing the 1-gigawatt goal. Plans to add additional capacity given significant untapped potential.
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Shareholder Return Plan
Enhancing Shareholder Returns: Prologis is focused on enhancing shareholder returns through continued growth in assets under management. They are developing new vehicles and strategies that build on their track record of performance, transparency, and partnership.
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Key Q&A
Q:Can you speak about any changes in strategic initiatives that may come with your leadership at Prologis, specifically around the strategic capital side of the business and potential data center-focused funds?
A:Dan Letter emphasized focusing on compounding the core logistics business, broadening the platform, and leaning into high-return adjacent businesses like data centers and energy. He expects significant growth in strategic capital AUM through existing and new vehicles. Tim Arndt added that discussions with large investors about co-investing in data centers have been productive, with capital not being a constraint. They are determining the best capital structure and expect updates in the coming months.
Q:Can you dive deeper into your assumption around market rent growth for 2026 and quantify it?
A:Christopher Caton explained that market vacancies are expected to improve, with net absorption forecasted to reach 200 million square feet in 2026, up from 155 million last year. Deliveries are expected to decline to 180-185 million square feet, reducing vacancies to 7.1%-7.2%. Positive rent growth is anticipated to emerge more clearly over the year.
Q:Can you provide details on the 1.2 gigawatts in LOI or advanced negotiations for data centers and its reflection in development start guidance?
A:Tim Arndt mentioned a small number of imminent starts, with 40% of the $4-5 billion owned and managed range expected to be in data centers. He noted potential for outperformance in both logistics and data centers, with flexibility in project formats (powered shell vs. turnkey). Dan Letter highlighted the significant land bank and ability to make quick decisions on starts.
Q:Is there any update on the 10-gigawatt outlook for data centers, given the progress to almost 6 gigawatts?
A:Dan Letter stated that the 10-gigawatt pipeline remains a valid target, with opportunities spread across their extensive land and building portfolio. However, the timeline for site readiness and energization is variable, and no further updates were provided.
Q:What gives you confidence in the forecasted occupancy growth and offsets limiting FFO growth this year?
A:Tim Arndt noted that recent years of low absorption were outliers, and the forecasted 25 basis point increase in average occupancy is achievable. He also mentioned that strong core growth is offset by factors like lighter levels of starts in prior years and ongoing impacts from the Duke acquisition.
Q:Can you provide color on the pickup in occupancy in Europe and Asia in 4Q?
A:Tim Arndt highlighted strong occupancy in Europe and Japan, with momentum building globally. Christopher Caton added that demand is healthy, and vacancies are lower outside the U.S.
Q:Can you discuss the potential pipeline for capital deployment in data centers and industrial sectors?
A:Dan Letter and Tim Arndt emphasized significant opportunities, with decisions made based on market conditions. They highlighted flexibility in ramping up deployment and noted that investment decisions are made weekly at the investment committee level.
Q:What percentage of the land bank is in the money for new construction?
A:Tim Arndt explained that the land bank is valued at 110% of book value, with a mix of projects at varying levels of profitability. Dan Letter added that about 2/3 of logistics starts are in the U.S., with strong markets in Latin America and Europe.
Q:Can you clarify the 1.2 gigawatts under LOI for data centers and the timeline for power delivery?
A:Tim Arndt stated that 60%-70% of the program is expected to be powered shell, with some projects transitioning to turnkey. Dan Letter explained that advanced stages involve preliminary utility agreements, with secured power requiring binding agreements and infrastructure commitments, typically taking 1-2 years.
Q:Why is the spread for the 2026 FFO outlook wider, and what is the health of the Southern California market?
A:Tim Arndt attributed the wider FFO range to higher earnings per share, making percentage variability more pronounced. Christopher Caton noted improving demand and absorption in Southern California, with Class A properties and the Inland Empire outperforming.
Q:Does the 2026 fund contribution guidance include new vehicles?
A:Tim Arndt clarified that the guidance includes contributions from the Agility Fund, which will take some land contributions from Prologis marked up to fair value.
Q:What drives the acceleration in same-store growth for 2026?
A:Tim Arndt explained that the acceleration is due to decreasing rent change contributions, reduced occupancy drag, and lighter impacts from the Duke acquisition, which still affects growth by 75-100 basis points.
Q:Can you discuss the cadence of stabilizations during 2026 and its impact on FFO growth?
A:Tim Arndt noted that stabilization timing depends on leasing achievements, with speculative projects typically leasing up in 7-9 months. Build-to-suits stabilize immediately upon completion.
Q:How is the 5+ gigawatts of power for data centers geographically distributed?
A:Dan Letter stated that the power is distributed across Tier 1 and Tier 2 markets in the U.S. and Europe, including Northern Virginia, Silicon Valley, Chicago, and FLAP-D markets in Europe.
Q:What is included in same-store guidance for occupancy growth and solar contributions?
A:Tim Arndt mentioned that occupancy gains are dispersed across geographies, with more weight in the U.S. Solar revenues are included in NOI but remain nominal compared to overall rental operations.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the breakdown of data center projects, the exact percentage of the land bank 'in the money,' and the precise timeline for power delivery in data center projects. Additionally, updates on the 10-gigawatt data center pipeline were vague, with no new information provided beyond reaffirming the target.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CEO Arndt
CFO Managing
Director statement
Head Investor
Instructions conference
Letter CEO
Relations VP
VP Head
ability mindset
advantage today
analytics decision
asset capital
assumption risk
center discipline
center track
choice vehicle
class analytics
commitment excellence
compound value
conference Meng
conference today
conversation investor
creativity customer
customer focus
decision site
dedication creativity
detail result
development generation
discipline term
discussion risk
engagement market
estate center
excellence strength
expectation statement
expertise infrastructure
facility advantage
filing discussion
momentum
partner
relationship
scale
solution
strategy
track record
PLD Transcript
Prologis, Inc. (PLD) Q4 2025 Earnings Call Transcript
Positive1-21
The earnings call summary and Q&A session reveal strong financial performance with increased guidance in several areas, including rent change and same-store NOI growth. The company's strategic capital revenue and development starts are also rising, indicating robust business expansion. While there are some uncertainties in the data center projects, the overall sentiment is positive, with strong occupancy rates and growth potential in key markets. The positive aspects outweigh the concerns, suggesting a likely positive stock price movement in the short term.
Prologis, Inc. (PLD) Q3 2025 Earnings Call Transcript
Unknown10-15
The earnings call presented a mixed picture. While there were positive elements like increased strategic capital revenue and development starts, alongside optimistic market rent growth and strong demand in certain sectors, there were also concerns. These include slightly elevated bad debt expenses, decelerating same-store NOI growth, and unclear management responses on data center strategies. The Q&A section highlighted both strengths and weaknesses, resulting in an overall neutral sentiment, with no clear catalyst to drive a strong stock price movement.
Prologis, Inc. (PLD) Presents At BofA Securities 2025 Global Real Estate Conference (Transcript)
Neutral9-10
Prologis, Inc. (PLD) Q2 2025 Earnings Call Transcript
Unknown7-16
The earnings call presents a mixed outlook: strong leasing activity and strategic expansions are offset by increased expenses and reduced guidance. The Q&A section reveals concerns about bad debt and macroeconomic uncertainty, but also highlights potential long-term growth in key markets. The lack of clear guidance on certain issues tempers optimism. Overall, the sentiment is neutral, with no strong catalysts to drive significant stock price movement.
PLD Slides
PLD Report
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