Q2 2023 Prologis Inc Earnings Call

Conference. Please press star zero on your telephone keypad.

Please note that this conference is being recorded.

I will now turn the conference over to our host Jill Sawyer Vice President of Investor Relations. Thank you you may begin.

Thanks, Diego and good morning, everyone welcome to our second quarter 2023 earnings Conference call supplemental document is available on our website at <unk> com under Investor Relations.

I'd like to state that this conference call will contain forward looking statements under federal Securities laws. These statements are based on current expectations estimates and projections about the market and the industry in which <unk> operates as.

iof.

As well as management's beliefs and assumptions.

Forward looking statements are not guarantees of performance and actual operating results may be affected by a variety of factors for a list of those factors. Please refer to the forward looking statement notice in our 10-K or other SEC filings.

Additionally, our second quarter results press release, and supplemental do contain financial measures such as <unk> and EBITDA that are non-GAAP in accordance with Reg G. We have provided a reconciliation to those measures I'd like to welcome Tim Arent, our CFO, who will cover results real time market conditions and guidance Hamid Morgan M. Our CEO and our entire executive team are also with us today.

So would never.

With that I'll hand, the call over to Tim.

Thanks, Joe Good morning, everybody and welcome to our second quarter earnings call. We had a very good quarter with outstanding results across our uniquely diversified business. It was highlighted by record rent change for ramp up in development starts roughly half of which were build to suit and the acquisition of over $3 billion of real estate at accretive returns deepening our.

Gail in key markets.

We also earned record strategic capital income and raised $1 $2 billion in new equity across the vehicles.

We are watching markets closely and we've been clear that we expect vacancies arise over the course of the year from a normalization of demand and elevated development deliveries. We have indeed seen vacancy build and expect it to reach the mid fours in the U S by year end, but continue to believe that fundamentals will regain momentum in 2024.

With the outlook for new supply declining as development starts continue to fall. This year in short our outlook is completely unchanged and we feel great about our business.

a a a a a a a

Turning to our results core <unk>, excluding promotes was $1 25 per share and including promotes was $1 83 per share. Both ahead of our forecast. Our promote income was generated from both USF and febrile prologis and meaningfully exceeded our guidance.

<unk> generated promote revenue at prologis share of over $635 million.

And it's three year performance period assets grew by over $10 billion.

And the fund delivered an IRR of over 20% net of all fees and with very low leverage.

In terms of our operating results average occupancy for the quarter was 97, 5% down 50 basis points from the first quarter and in line with our expectations.

The.

Rent change on starts was a record on both our net effective and cash basis, 79% and 48% respectively.

Net effective rent change on signings of more forward looking view was an impressive 87% with notable rent change from Phoenix at 137%, Northern New Jersey at $150 million in southern California at 181%.

Greetings, and welcome to the Prologis second quarter of 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference.

Global markets also contributed to strong signings with Mexico at 34% the U K at 36 Central Europe at 51 in Canada at 150%.

please press star 0 on your telephone keypad. please note that this conference is being recorded.

Bottom line rent change has been both robust and broad based.

I will now turn the conference over to our host, Jill Sawyer, Vice President of Investor Relations. Thank you. Jill Sawyer, Vice President of Investor Relations.

Market rents continue to grow, albeit at a slower pace, increasing a little over one 5% in the quarter in.

Thanks, Diego. Good morning, everyone. Welcome to our second quarter 2023 earnings conference call. Supplemental document is available on our website at Prologis.com under investor relations.

In place rents grew by approximately two 5% over the quarter, the net of which translates to a lease mark to market of 66% down from 68%.

I'd like to state that this conference call will contain forward-looking statements under federal securities laws. These statements are based on current expectations, estimates, and projections about the market and the industry in which Prologis operates.

We explained last quarter that our lease mark to market would generate $2 85 per share of incremental earnings as leases roll over time without any additional market rent growth.

as well as management's beliefs and assumptions. Forward-looking statements are not guarantees of performance, and actual operating results may be affected by a variety of factors. For a list of those factors, please refer to the forward-looking statement notice in our 10-K or other SCC filings.

Interestingly that future upside is virtually unchanged at June 30, even though we crystallized rental increases over the quarter. This is because of lower lease mark to market is now being applied to a larger base of in place NOI.

Additionally, our second quarter results press release and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP . In accordance with Reg G, we have provided a reconciliation to those measures. I'd like to welcome Tim Arndt, our CFO , who will cover results, real-time market conditions and guidance. Hamid Moghadam, our CEO , and our entire executive team are also with us today.

Ultimately same store growth is our most important operating metrics in this quarter remained exceptional at eight 9% on a net effective basis and 10, 7% on cash.

I would like to highlight that even with $4 billion of investment during the quarter. The balance sheet remain remains an impeccable shape with liquidity of approximately $6 4 billion and debt to EBITDA of four two times, we raised approximately $7 billion in debt financing across four currencies at an interest rate.

With that, I'll hand the call over to Tim.

Thanks, Jill. Good morning, everybody, and welcome to our second quarter earnings call. We had a very good quarter with outstanding results across our uniquely diversified business. It was highlighted by record rent change, a ramp-up in development starts, roughly half of which were built to suit, and the acquisition of over $3 billion of real estate at accretive returns deepening our scale in key markets.

To four 9% and an average term of eight years.

Turning to our markets the trend to normalization, which we've been speaking to for some time continues.

We also earned record strategic capital income and raised $1.2 billion in new equity across the vehicles.

Proposal activity gestation and pre leasing of vacancy are all within a few percent of their pre COVID-19 levels, a period, which we've highlighted many times was itself historically strong.

We are watching markets closely and we've been clear that we expect vacancies to rise over the course of the year from a normalization of demand and elevated development deliveries.

Our ibi sentiment index ticked up in the quarter to over 58, indicating a continued strong backdrop for demand as described by our customers and further supported by utilization increasing to 85, 5%.

We've indeed seen vacancy build and expected to reach the mid-fours in the US by year-end, but continue to believe that fundamentals will regain momentum in 2024, with the outlook for new supply declining as development starts continue to fall this year. In short, our outlook is completely unchanged and we feel great about our business.

Unsurprisingly customers have been more deliberate in their decision, making amidst the uptick in vacancy. We continue to believe that this will be a short lived reprieve as construction starts have indeed declined significantly for our expectations starts in the second quarter were down approximately 40% across our U S markets and 50% in Europe.

Turning to our results, Core FFO excluding promotes was $1.25 per share and including promotes was $1.83 per share, both ahead of our forecast.

Our promote income was generated from both USLF and FEBR Prologis and meaningfully exceeded our guidance.

We see deliveries in 2020 for falling short of demand reducing vacancy over the course of next year.

USLF generated promote revenue at Prologis share of over $635 million.

Significant attention has been given to southern California in recent months, while our portfolio is over 97% leased and we are achieving record rent change vacancy has grown partially due to port operations that have not yet returned to normal adil.

In its three-year performance period, assets grew by over $10 billion, and the fund delivered an IRR of over 20%, net of all fees and with very low leverage.

Additionally, some customers are reevaluating expansion in the inland Empire diversifying operations to other southwest markets.

In terms of our operating results, average occupancy for the quarter was 97.5%, down 50 basis points from the first quarter and in line with our expectations.

With all of this in mind, we've reduced our rent growth forecast for southern California in 2023.

Rent change on starts was a record on both a net effective and cash basis, 79 and 48% respectively.

However, given what is still low vacancy together with structural headwinds to new supply and a huge consumption base. We believe strongly in this market.

Net effective rent change on signings of more forward-looking view was an impressive 87%, with notable rent change from Phoenix at 137%, Northern New Jersey at 150%, and Southern California at 181%.

The global nature of our portfolio means that we will see markets contribute to growth in different periods evening out peaks and troughs. We see this playing out in a number of markets across the globe, where our rent growth forecast cast is increasing this quarter, such as Las Vegas, Texas, Europe, and Mexico to name a few.

Global markets also contributed to strong signings with Mexico at 34%, the UK at 36%, Central Europe at 51%, and Canada at 150%.

All of this together with the more than 5% rent growth to date.

Bottom line, rent change has been both robust and broad-based.

As us re forecasting the full year to a range of 7% to 9% on a global basis.

Market rents continue to grow, albeit at a slower pace, increasing a little over 1.5% in the quarter.

What matters more than what will transpire in the next six months is what we see over the medium term, which is growth that will be fueled by escalating replacement costs growing barriers to new supply and ongoing secular drivers of demand.

In place rents grew by approximately 2.5% over the quarter, the net of which translates to a lease marked market of 66% down from 68%.

We explained last quarter that our lease market would generate $2.85 per share of incremental earnings as leases roll over time without any additional market rent growth.

Late in the second quarter, we announced and closed on the acquisition of over <unk>.

14 million square foot portfolio in many of our best U S markets, we estimate an 8% Unlevered IRR simply at the property level exclusive of additional return driven by property management synergies essentials opportunities, including solar and the upside we expect through revenue management.

Interestingly, that future upside is virtually unchanged at June 30th, even though we crystallized rental increases over the quarter. This is because a lower lease mark-to-market is now being applied to a larger base of in-place POI.

While this was the largest transaction in the quarter overall activity increased slightly bringing additional price discovery to the market.

Ultimately, same-store growth is our most important operating metric, and this quarter it remained exceptional at 8.9% on a net effective basis and 10.7% on cash.

In Europe values have been relatively stable experiencing a 1% decline over the second quarter.

Latin America saw an increase in values with write ups in Brazil, and Mexico of 2% and 5% respectively.

I'd like to highlight that even with $4 billion of investment during the quarter, the balance sheet remains in impeccable shape with liquidity of approximately $6.4 billion and debt to EBITDA 4.2 times.

And write downs in the U S were in line with expectations.

Proximately, 5%.

Diving the cumulative decline over the last year to 12%.

We raised approximately $7 billion in debt financing across four currencies at an interest rate of 4.9% and an average term of eight years.

With this move we view the values is fair and are proceeding on redemptions in USF for the third quarter.

New redemption requests in the quarter totaled approximately $800 million.

Turning to our markets, the trend to normalization, which we've been speaking to for some time, continues. Proposal activity, gestation, and pre-leasing of vacancy are all within a few percent of their pre-COVID levels, a period which we've highlighted many times was itself historically strong.

And was concentrated in USF in our China venture where values have held up better.

Together with other activity the net redemption Q stands at approximately $1 6 billion.

Outside of the open ended funds the company raised an incremental $1 2 billion comprised of $500 million and the fever, and NPR as well as a new $700 million commitment for a complementary vehicle in Japan P. J L F, which is detailed in our supplemental.

Our IBI sentiment index picked up in the quarter to over 58, indicating a continued strong backdrop for demand as described by our customers and further supported by utilization increasing to 85.5%.

Unsurprisingly, customers have been more deliberate in their decision-making amidst the uptick in vacancy.

Before turning to guidance I'd like to mention a few updates across our essentials business.

We continue to believe that this will be a short-lived reprieve as construction starts have indeed declined significantly for our expectations

We added 45 megawatts of new solar production and storage in the first half of the year, bringing our platform total to 450 megawatts nearly 50% of the way to our one gigawatt goal for 2025.

It starts in the second quarter. We're down approximately 40% across our US markets and 50% in Europe .

Additionally for largest mobility, our EV business is more than 65 fleet charging sites in the pipeline across the U S and Europe.

We see deliveries in 2024 falling short of demand, reducing vacancy over the course of next year.

Significant attention has been given to Southern California in recent months. While our portfolio is over 97% leased and we are achieving record rent change, vacancy has grown partially due to port operations that have not yet returned to normal.

In terms of our outlook for the balance of the year.

We are guiding average occupancy to range between 97% to 97, 5%.

We are increasing our same store guidance to eight and three quarters to 9.25% on a net effective basis and nine 5% to 10% on a cash basis.

Additionally, some customers are reevaluating expansion in the Inland Empire, diversifying operations to other southwest markets.

Net effective rent change propelling same store should continue to accelerate in the next two quarters and average approximately 80% over the year.

With all this in mind, we've reduced our rent growth forecast for Southern California in 2023. However, given what is still low vacancy, together with structural headwinds to new supply and a huge consumption base, we believe strongly in this market.

We are maintaining our G&A guidance to range between $3 80, and $390 million and are increasing our strategic capital revenue guidance, excluding promotes to range between 520 and $530 million.

The global nature of our portfolio means that we'll see markets contribute to growth in different periods, evening out peaks and troughs. We see this playing out in a number of markets across the globe where our rent growth forecast is increasing this quarter, such as Las Vegas, Texas, Europe and Mexico to name a few.

As a result of the outperformance in U S. <unk> promote we are increasing our forecast for net promote income to $475 million year to date, we are in excess of this amount the amortization expense will continue over the back half of the year.

All of this together with the more than 5% rent growth to date has us re-forecasting the full year to a range of 7-9% on a global basis.

Development starts picked up during the quarter with commencement of 12 projects around the globe.

While we remain very selective on new spec starts we are maintaining our guidance of two $5 billion to $3 billion for the year.

What matters more than what will transpire in the next six months is what we see over the medium term, which is growth that will be fueled by escalating replacement costs, growing barriers to new supply, and ongoing secular drivers of demand.

We had over $550 million in contribution and disposition activity during the quarter concentrated in Japan, and Mexico and are maintaining guidance of $2 billion to $3 billion.

Late in the second quarter we announced and closed on the acquisition of over 14 million square foot portfolio in many of our best U.S. markets.

Putting it altogether, we are increasing guidance for GAAP earnings to range between $3 30, and $3 40 per share.

We are increasing core <unk>, including promotes guidance to a range of $5 56 to $5 60 per share and.

We estimate an 8% unlevered IRR simply at the property level, exclusive of additional return driven by property management synergies, essentials, opportunities, including solar, and the upside we expect through revenue management.

An increasing core <unk>, excluding promotes to range between 506, and $5 10 per share with the midpoint representing over 10% annual growth, marking our fourth consecutive year of double digit earnings growth.

While this was the largest transaction in the quarter, overall activity increased slightly, bringing additional price discovery to the market.

The quarter highlighted in many ways that prologis has diversified itself across geographies business lines and capital sources, while rents in some markets decelerate others with different demand drivers are now accelerating we're seeing the same balance with property values has demonstrated over the quarter.

In Europe , values have been relatively stable, experiencing a 1% decline over the second quarter.

Latin America saw an increase in values with write-ups in Brazil and Mexico of 2 and 5 percent respectively.

Further we generate incremental cash flows and value creation outside of the pure rent business in.

And closely related and synergistic platforms, namely strategic capital development and now essentials.

With this move, we view the values as fair and are proceeding on redemptions in USLF for the third quarter.

Our fund raising efforts also demonstrate the value of having alternatives clearly are wide access to debt capital has been a tremendous advantage, but we also benefit from access to varied equity sources for our ventures by utilizing open end vehicles, Jv's and public structures, we have the ability to be opportunistic and proactive and <unk>.

New redemption requests in the quarter totaled approximately $800 million and was concentrated in USLF and our China venture where values have held up better.

Together with other activity, the Net Redemption Q stands at approximately 1.6 billion dollars.

<unk> capital markets.

Outside of the open-ended funds, the company raised an incremental $1.2 billion comprised of $500 million in the FIBRA and NPR, as well as a new $700 million commitment for a complementary vehicle in Japan, PJLF, which is detailed in our supplemental. Before turning to guidance, I'd like to mention a few updates across our essentials business.

As we close I would like to remind you of two upcoming events of prolonged just later in the year.

Our groundbreaker as thought leadership Forum on September 27th right here in San Francisco, and our Investor Forum on December 13th in New York.

Additional information for each is available on our website.

With that I will hand, it back to the operator for your questions.

Thank you.

At this time, we will be conducting a question and answer session.

Press Star one on your telephone each time, you would like to ask a question.

A confirmation tone will indicate that your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

365 fleet charging sites in the pipeline across the US and Europe .

In terms of our outlook for the balance of the year,

One moment, please while we poll for questions.

We are guiding average occupancy to range between 97 and 97.5 percent.

We are increasing our same store guidance to 8.75% to 9.25% on a net effective basis and 9.5% to 10% on a cash basis.

Our first question comes from Tom Catherwood with <unk>. Please state your question.

Thank you and good morning, all Tim appreciate your commentary around guidance on projected rent growth kind of a two part question on that first have you adjusted your projection for U S rent growth I think it was previously 10% and you mentioned it globally.

Net effective rent change propelling same store should continue to accelerate in the next two quarters and average approximately 80% over the year.

We are maintaining our G&A guidance to range between $380 and $390 million and are increasing our Strategic Capital Revenue guidance, excluding promotes, to range between $520 and $530 million.

Now.

And then can you provide some more detail around those markets or regions, where as you said <unk> seen rent growth in values kind of exceed expectations and then Conversely are there others like southern California that have somewhat lagged your expectations.

As a result of the outperformance in USLFs promote, we are increasing our forecast for net promote income to $475 million. Year to date, we are in excess of this amount, but amortization expense will continue over the back half of the year. Development starts picked up during the quarter with commencements of 12 projects around the globe.

Hey, Tom I'll start and probably puts it to Chris here for some help on the market detail but.

U S. At this point I would put in a similar range really given the way to the U S and the notion that we're going to put these things in ranges probably from here, it's going to be very similar to the globe. So I would just think of them as essentially the same and then in terms of markets.

And while we remain very selective on new spec starts, we are maintaining our guidance of $2.5 to $3 billion for the year. We had over $550 million in contribution and disposition activity during the quarter concentrated in Japan and Mexico and are maintaining guidance of $2 to $3 billion.

Clearly I mentioned in my remarks that southern California is the market that we've downgraded thats broadly the base of our change in pretty much the only market.

Putting it all together, we are increasing guidance for GAAP earnings to range between $330 and $340 per share.

It is matched by various market says I also detailed.

We are increasing Core FFO including promotes guidance to a range of $556 to $560 per share, and increasing Core FFO excluding promotes to range between $506 and $510 per share.

Any in southeast U S, but it's pretty broad around the U S as well as globally that are picking up the slack and holding.

The average pretty close when you put it in a range.

with the midpoint representing over 10% annual growth, marking our fourth consecutive year of double-digit earnings growth.

Our next question comes from Blaine Heck with Wells Fargo. Please state your question.

The quarter highlighted many ways that Prologis has diversified itself across geographies, business lines and capital sources.

Great. Thanks, Good morning, So we noticed lease proposals trended downward throughout the quarter and gestation increased towards the end of the quarter can you just talk about what factors might be driving those trends and whether you think we will continue to see lease proposals trend down or should we expect an inflection in the second half.

While rents in some markets decelerate, others with different demand drivers are now accelerating. We're seeing the same balance with property values as demonstrated over the quarter.

Further, we generate incremental cash flows and value creation outside of the pure rent business, in closely related and synergistic platforms, namely strategic capital development and now essentials.

Hey, it's Chris Gaydon, so really when we look at that data the right way to look at that is against our open availabilities and when you put those proposals against our open availabilities are actually in line or above the historical average 48% is that number it's something we've used in the past on these calls.

Our fundraising efforts also demonstrate the value of having alternatives.

Clearly, our wide access to debt capital has been a tremendous advantage, but we also benefit from access to varied equity sources for our ventures.

And so how do we make the proposal numbers you are talking about tie with that view, while there are two or three drivers.

By utilizing open-end vehicles, JVs, and public structures, we have the ability to be opportunistic and proactive in changing capital markets.

The first is that the availability is just the role that we have in the next 12 months are low relative to history. The second is those proposal volumes do include sometimes multiple proposals on a single unit.

As we close, I'd like to remind you of two upcoming events of Prologis later in the year. Our Groundbreakers Thought Leadership Forum on September 27th right here in San Francisco, and our Investor Forum on December 13th in New York. Additional information for each is available on our website.

And that has declined over the last year as we've discussed previously and then third there is some seasonality where June would be a soft month.

With that, I will hand it back to the operator for your questions.

Okay.

Our next question comes from Craig Mailman with Citi. Please state your question.

Thank you. And at this time we will be conducting a question and answer session. Press star one on your telephone each time you would like to ask a question.

Yes, thank you very much.

Maybe it's open to your questions here, I guess, maybe Tim and Chris to follow up on.

A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Tom's question around the market rent growth it looks like the U S dropped about 200 basis points I mean could you give us.

Some more numbers around what the biggest moving parts of that were from a market perspective.

One moment please while we pull for questions. Our first question comes from Tom Catherwood with BTIG. Please state your question.

And then separately on.

Occupancy here.

You guys came down 80 bps sequentially on an ending core rocks familiar 50 basis points on average.

Socal, New Jersey Central Valley, Atlanta, all kind of came down here I'm.

Thank you and good morning all. Tim, appreciate your commentary around guidance on projected rent growth. Kind of a two-part question on that. First, have you adjusted your projection for U.S. rent growth? I think it was previously 10% and you mentioned it.

Just curious if there is.

Are you seeing.

The most supply or have you had any incremental impact from the Blackstone acquisition.

That was right on top of those numbers.

Yes, so on the on the rent piece, we're not going to go through market rent growth at a market level for for a variety of reasons I think the takeaway we want you and everyone to be left with is just how it can all come into a balance and we're very pleased to see that we're able to hold the forecast at least in a.

globally now? And then, you know, can you provide some more detail around those markets or regions where as you said you've seen, you know, rent growth and values kind of exceed expectations? And then conversely are there others like Southern California that have somewhat lagged your expectations? Hey Tom, I'll start and uh...

Pretty tight range to where we were previously and on the occupancy side you are right about where the ending pieces I would just comment that that's in line with our forecast. If you look at our average same store average occupancy guidance that we had previously and that we have this quarter. It's unchanged. So the decline that we.

Probably pitch it to Chris here for some help on the market detail. But the U.S. at this point I would put in a similar range. Really given the weight of the U.S. and the notion that we're going to put these things in ranges probably from here, it's going to be very similar to the globe, so I would just think of them as essentially the same. And then in terms of markets,

Have expected over the year remains and everything that <unk> seen this quarter is in line with those expectations.

You know, clearly I mentioned in my remarks that Southern California is the market that we've downgraded. That's broadly the base of our change and pretty much the only market. And it is met by various markets as I also detailed, many in Southeast US, but it's pretty broad around the US as well as globally that are picking up the slack and holding.

Yes, the one thing I would add to that is that I think we mentioned to you last quarter that we would be continuing to push rents pretty hard and would like to see occupancies are bit lower than 98%. So what youre seeing is consistent with what we're planning to do and actually we accomplished what we wanted to do in that fleet.

you know, the average pretty close when you put it in a range.

We track the number of leases that we lose because of price and how hydro, we're pushing and we modulate around that to figure out the tradeoff between rents and occupancy. So we did see as a result of our efforts.

Our next question comes from Blaine Heck with Wells Fargo. Please state your question. Great, thanks. Good morning. So we noticed lease proposals trended downward throughout the quarter and gestation increased towards the end of the quarter. Can you just talk about what factors might be driving those trends?

An uptick in.

And basically the percentage of deals lost due to price. It went up from about 10% to about 20%, which is kind of where we would like to have it so its intangible.

whether you think we'll continue to see lease proposals trend down or should we expect an inflection in the second half.

Hey, it's Chris Caton. So really when we look at that data, the right way to look at that is against our open availabilities. And when you put those proposals against our open availabilities, they're actually in-line or above the historical average. Forty-eight percent is that number. It's something we've used in the past on these calls.

Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please state your question.

Hi, good morning, everyone.

Maybe like you mentioned, there's been a lot of discussion about southern California, I'll ask another one there.

But I guess just thinking about.

And so how do we make the proposal numbers you're talking about tie with that view? Well, there are two or three drivers. The first is that the availabilities, just the role that we have in the next 12 months, are low relative to history. The second is those proposal volumes do include...

The idea that it might be lagging now can you give more details on what could be causing the change.

In that market.

How long it could last in which market.

Potentially face similar issues.

Sure, let me take a stab at that because I am.

I've seen this now a couple of times.

Over the last 30 40 years, Southern California is really being adversely affected by two things one port volumes I think this labor strike has gone on longer than most people anticipated.

sometimes multiple proposals on a single unit, and that has declined over the last year as we've discussed previously. And then third, there's some seasonality where June would be a soft month.

Our next question comes from Craig Mailman with Citi. Please state your question.

And the timing of it was such that people had to make decisions about the Christmas season, and they've shifted volumes to other ports.

Thank you very much. Maybe a slip in two questions here. I guess maybe Tim and Chris to follow up on Tom's question around the market rank growth. It looks like the U.S. dropped about 200 bases for us. I mean, could you give us.

And that affects southern California, and honestly the longer this goes out I believe the worst it will be for southern California in terms of doing permanent damage from now from everything we hear and we are not an expert on this.

some more numbers around what the biggest moving parts of that were from a market perspective. And then separately on occupancy here, you guys came down 80 bits sequentially on ending Core Rock City, and now you're at 50 base points on average. But SoCal, New Jersey, Central Valley, and the other 50, you guys came down 80 bits sequentially on ending Core Rock City, and now you're at 50 base points on average. And then separately on occupancy here, you guys came down 80 bits sequentially on ending

Things are apparently heading in a positive direction with respect to a resolution, but you read the same things we do so I don't have any unique cap perspectives on that.

The other difference with southern California is just pricing I mean.

You had between 2020 two.

130% increase in rents in southern California that compares.

To less than half of that for the overall markets that we operate in so there is more price sensitivity now because it's a very very expensive market. So to the extent possible people will shift to adjacent markets and and.

On the rent piece, we're not going to go through market rent growth at a market level for a variety of reasons. I think the takeaway we want you and everyone to be left with is just how it can all come into a balance, and we're very pleased to see that we're able to hold the forecast at least in a pretty tight range to where we were previously. And on the occupancy side, you're right about where the ending piece...

Combined it's not just price, but up until a quarter ago occupancy in the inland Empire was 99.

Point something percent so people couldn't even get the space that they want it I think we've been more normalized vacancy level and we're still not at normal I mean normalized in my experience is 95% occupancy.

That would have been great for the last 15 or 20 years I think it was more normalized occupancy youll see.

And the resolution of the Labor strike I think you see a more normal pattern from which you can draw some conclusions.

Thank you and our next question comes from Steve <unk> with Evercore. Please state your question.

expectations.

Yeah, the one thing I would add to that is that I think we mentioned to you last quarter that we would be continuing to push rents pretty hard and would like to see occupancy a bit lower than 98%. So what you're seeing is consistent with what we're planning to do and actually we accomplished what we wanted to do in that we...

Yeah. Thanks, Hey, good morning, I guess, maybe kind of a two parter just hamid if you could just maybe talk about demand by size of tenant.

Newly whether youre seeing any real disparities in sort of the end of 250 or under 100 and anything kind of on the bigger side and then just I guess your confidence level around the level of development starts. It's obviously, a very backend weighted sort of hockey stick figure for the second half of the year or so.

We tracked the number of leases that we lose because of price and how hard we were pushing, and we modulated around that to figure out the trade-off between rents and occupancy. So we did see as a result of our efforts an uptick in basically the percentage of deals.

Much of those projects are currently teed up and what do you think that split of starts looks like between the third and the fourth quarters.

Yes, let me start on the development volume and then.

lost due to price. It went up from about 10% to about 20%, which is kind of where we would like to have it. So it's intentional.

Pitch it over to Dan for the other commentary, we do not care about development starts we do not care about the acquisition guidance, where he will we make all of these decisions one by one and only when it makes sense.

Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please state your question. Hi, good morning everyone. Maybe like you mentioned, there's been a lot of discussion about Southern California, so I'll ask another one there. But I guess just thinking about...

To pull the trigger on this they are buying large already more or less and we could on a discretionary basis start all of them today, but that would not be a wise thing to do and we're not going to do it just to meet some artificial guidance I think the main driver of earnings in this company, which is what we all.

the idea that it might be lagging now, can you give more details on what could be causing the change in that market? Kind of how long it could last and which market could potentially face similar issues?

Care about is rental growth and same store growth and all I can tell you is that with mid sixties.

Sure, let me take a stab at that because I've seen this now a couple of times over the last 30, 40 years. Southern California is really being adversely affected by two things. One port volumes. I think this labor strike has gone on longer than most people anticipated. Find a place where you can catch the number of gathering times.

Mark to market you can model whatever scenario, you want including zero rent growth from here on out and for the next four years five years Youre going to get the same store NOI increase of seven 5% with no rental growth from this point forward you put in our normalized forecast.

For our rental growth, our best guess and that same store growth will be at eight 5%. Both of those numbers are consistent with low double digit earnings growth, while maintaining our leverage which is which is so low so.

The timing of it was such that people had to make decisions about the Christmas season, and they've shifted volumes to other ports, and that affects Southern California. And honestly, the longer this goes out, I believe the worse it will be for Southern California in terms of doing permanent damage.

Need development starts to drive anything and we're not trying to get in a position.

Now, from everything we hear, and we're not an expert on this, things are apparently heading in a positive direction with respect to a resolution, but you read the same things we do. I don't have any unique perspectives on that.

Our jeopardizing our pricing power by virtue of wanting to meet an artificial development goal now having said all of that.

We will start the ones that we think we can lease it efficiently and economically and and quickly.

The other difference with Southern California is just pricing. I mean, you know, you have between 2022 , about 130% increase in rents in Southern California. That compares to less than half of that for the overall markets that we operate in.

The land is there.

Approvals are there and our ability to put buildings up is there. So there is no benefit in front end loading that south and pushing it.

Wishing it ahead of where it needs to be Dan do you want to address the size question, yes sure. So.

So, there is more price sensitivity now because it's a very, very expensive market. So, to the extent possible, people will shift to adjacent markets. And combined, it's not just price, but up until a quarter ago, occupancy in the Inland Empire was 99.6%.

We have we're seeing continued broad based demand across all size ranges now theres certainly our pockets.

In certain markets.

There is some some risk and maybe the bulk.

Those are markets, we've talked about historically.

point something percent. So people couldn't even get the space that they wanted. I think with a more normalized vacancy level, and we're still not at normal. I mean, normalized in my experience is 95% occupancy, and that would have been great for the last 15 or 20 years. I think with more normalized occupancy, you'll see.

South Dallas, North Fort worth Indianapolis is getting a fair amount of bulk built out.

But and then I would say west Phoenix, as well, but what I would say with our portfolio overall will really isolated from any of this bulk risk and we're really confident in the demand across all size ranges.

and a resolution of the labor strike, I think you see a more normal pattern from which you can draw some conclusions.

Thank you and your next question comes from key bin Kim with <unk>. Please state your question.

Thank you. And our next question comes from Steve Sockwa with Evercore. Please state your question.

Thanks, Tom turning to your capital deployment for $3 billion of Blackstone deal at 575% stabilized cap rate can you just discuss.

Yeah, thanks. Good morning. I guess really kind of a two-parter. Just, Hamid, if you could just maybe talk about demand by size of tenant and whether you're seeing any real disparities in sort of the under 250 or under 100 and anything kind of on the bigger side.

How you view the attractiveness of this deal versus some other opportunities that you might have had such as stock buybacks or development.

Or do you simply think the.

The value per square foot.

And then, you know, just I guess your confidence level around the level of development starts, it's obviously a very back-end weighted, you know, sort of hockey stick figure for the second half of the year. So, you know, how much of those projects are currently teed up, and, you know, what do you think that split of starts looks like between the third and the fourth quarters? Yeah, let me start on the development volume, and then I'll...

Probably should decrease much further from here on out.

Yes, I mean, certainly portfolios that we would acquire would be at a discount to replacement cost and replacement cost has moved up tremendously in the last couple of years by virtue of forget about the land piece, because that's a squishy piece that's related to.

pitch it over to Dan for the other commentary. We do not care about development starts. We do not care about acquisition guidance. We will, we make all these decisions one by one and only when it makes sense to pull the trigger on these.

To rent and all that but the construction piece is really really escalate. It so two by standing inventory in our best markets is always a really great thing that we look at the quality of the portfolio was quite high I would say very close to our own portfolio.

The percentage that we would dispose of zero so.

They're buying large already, more or less, and we could, on a discretionary basis, start all of them today. But that would not be a wise thing to do, and we're not going to do it just to meet some artificial guidance. I think the main driver of earnings in this company, which is what we all care about.

Hand selected to meet our requirements I wouldn't call. It the steel we didn't steal anything I think it's a market rate transaction and with the upside built into the rents 8% IRR in a world that I think is going to be a sub 3% inflation rate.

is rental growth and same-store growth. And all I can tell you is that with mid-60s, mark-to-market, you can model whatever scenario you want, including zero rent growth from here on out. And for the next four years, five years, you're going to get same-store and all I increase.

And then all of the added things, we can put on top of it and with the essentials and all that are developed capital at those rates all day long.

Your next question comes from Michael Goldsmith with UBS. Please state your question.

of 7.5%. We know rental growth from this point forward. You put in our normalized forecast for rental growth our best guess and that same store growth will be at 8.5%.

Good morning, Thanks, a lot for taking my question.

The lease percentage of the development pipeline has been dropping.

Pretty materially kind of back to 2019 levels what are the factors there and does this impact your ability to hit your yields expected on these developments.

Both of those numbers are consistent with low double-digit earnings growth while maintaining our leverage, which is so low. So, we don't need development starts to drive anything, and we're not going to get in a position of jeopardizing our pricing power by virtue of wanting to meet an artificial development goal. Now, having said all that,

Yeah, I think maybe the best way of summarizing this call would be we're back to 2019.

We are getting added in 25 different ways, but the easiest way to think about it is demand supply rental growth all of those things.

We will start the ones that we think we can lease efficiently and economically and quickly. And the land is there, the approvals are there, and our ability to put buildings up is there. So there's no benefit in front-end loading that stuff and pushing it forward.

Our trending back to 2019 pre Covid and if you take 20% to 22 out of the picture and imagine that in 2019 and somebody would tell you that in 2023 Youre still talking about the dynamics of 2009, 2019 market I wouldn't be jumping up and down.

pushing it ahead of where it needs to be. Dan, do you want to address the size question? Yeah, sure. So, we have, we're seeing continued broad-based demand across all size ranges. Now, there certainly are pockets of, in certain markets, that there's some risk and maybe the bulk.

Now I'm happy about that so that's where we are and almost any question I am not trying to avoid your question, but it would be the same answer on plenty of other parameters as well we're back to 2019.

Yeah.

And those are markets we've talked about historically. South Dallas, North Fort Worth, Indianapolis is getting a fair amount of bulk built out. And then I would say West Phoenix as well. But what I would say with our portfolio overall. Music.

Our next question comes from Nick Goldman with Baird. Please state your question.

Hey, good morning, Hamid kind of touched on you guys competing on price by 20% of tenants not renewing because of that but retention is dropping down to 70%. So all of those tenants that arent renewing or are they not where do they end up going do they go to a new supply or a new product that's being delivered or is it more sort of scenario, where theyre just completely priced out with them.

We're really isolated from any of this bulk risk, and we're really confident in the demand across all side ranges. Thank you, and your next question comes from Kee Bin Kim with Truist. Please state your question.

Market.

No. They go somewhere else I mean, those are real needs and at the end of the day warehouse rent as a percentage of total logistic to us is relatively small so they're not going to go out of business because of that I mean frankly.

Thanks. Turning to your capital deployments, the $3 billion Blackstone deal at a 5.75 stabilized cap rate, can you just discuss how you viewed the attractiveness of this deal versus some other opportunities that you might have had, such as spot buybacks for development, or do you simply think, um,

Pressure on energy prices on fuel prices and labor prices on all of that if youre going to worry about something those are more significant than their ability to pay rent.

70% is not a unusually low retention rate I mean, if you again forget about the last three years, where there was no space and people had no choice.

the value per square foot, probably shouldn't decrease much further from here on out.

Yeah, I mean certainly portfolios that we would acquire would be at a discount to replacement costs and replacement costs have moved up tremendously in the last couple of years by virtue of, forget about the land piece because that's a squishy piece that's related to rent and all that but the construction pieces really really escalate.

That would be a very normal rate of retention for us going back and looking at it over 10 to 20 year timeframe. So.

And we are trying to find out what the efficient point is.

Losing customers because of price, we can make that number be zero, but that would not be wise because that means we're not pushing rents as hard so 20% is definitely still below where I would start worrying about dialing it the other way if it got to about 30% we may want to.

Moderate on that but still generally speaking the bias is towards pushing rents and not occupancies now in markets, where that is not the case, we'll dial it back some but thats a decision we make day to day based on the data that we see it's not a top down type of decision.

selected to meet our requirements. I wouldn't call it a steal. We didn't steal anything. I think it's a market rate transaction and with the upside built into the rents, you know, 8% IRR in a world that I think is going to be a sub 3% inflation rate and then all the added things we can put on top of it with the same.

Yes.

Our next question comes from Ronald Camden with Morgan Stanley. Please state your question.

Hey, just a couple quick ones.

Just going back to the market rent growth forecast and also southern California.

Can you give us some contacts insurance what was the first half growth.

On the market right growth number one and then number two when you talk about sort of the southern California decelerating is there a way to get some contacts or is it just the deceleration or should we be bracing for thanks to potentially turn negative in that market.

of the development pipeline has been dropping pretty materially kind of back to 2019 levels. What are the factors there and does this impact your ability to hit your yields expected on these developments? What are the factors that impact your ability to hit your yields?

So.

Yeah, I think maybe the best way of summarizing this call would be we're back to 2019. Okay? We're getting at it in, you know, 25 different ways. But the easiest way to think about it is demand, supply, rental growth, all of those things.

Couple of things first of all the most important thing about southern California is the gas in the tank.

Rental growth going forward I mean, the gas in the tank in Southern California is I don't know.

The exact number but it's probably over 100% on your average lease. So whether you think rents are going to grow 3% or negative, 3% or 10% or whatever it's not going to affect that number one iota.

are trending back to 2019 pre-COVID. And if you take 20 to 22 out of the picture and imagine that in 2019 somebody would tell you that in 2023 you're still talking about the dynamics of 2019 market,

Are there markets in southern California, and elsewhere, where you could see rental growth sliding sure of course, there are when something is escalated by 150% I wouldn't be surprised if it back slipped some do I worry about southern California, becoming a difficult market no I would.

I would be jumping up and down, happy about that. So, that's where we are. And almost any question, I'm not trying to avoid your question, but it would be the same answer on 20 other parameters as well. We're back to 2019.

To have more southern California, because that means we have more cars with more gas in the tank. So there are some markets that may continue to escalate, but they are still not going to be as good as a market that has embedded growth of well over 100%. So im not trying to duck. Your question, but we're global company its a $1 2 billion square feet.

Our next question comes from Nick Dallman with Baird. Please state your question.

Hey, good morning. I mean kind of touched on you guys competing on price by 20% of tenants not renewing because of that. But retention is dropping down to 70%. So of those tenants that aren't renewing, are they not? Where do they end up going? Do they go to a new supply or a new product that's being delivered? Or is it more sort of scenario where they're just completely priced out of the market?

With portfolio and I think it would not be a productive use of my time or anybody elses your time to drill down into sub market or individual rents because frankly, we don't spend a lot of time ourselves looking at that.

We look at it bottomed bottoms up deal by deal and then we make our long term investment decisions based on some macro bets on what I am telling us that we like southern California, because of its embedded mark to market.

Okay.

Okay.

the pressure on energy prices and fuel prices and labor prices and all that, if you're going to worry about something, those are more significant than their ability to pay rent. Seventy percent is not an unusually low retention rate. I mean, if you, again, forget about the last three years where there was no space and people had no choice.

Our next question comes from Michael Carroll with RBC capital markets. Please state your question.

Yeah. Thanks, I guess, just directed to Tim I believe last quarter, you indicated the 'twenty 'twenty four lease explorations had an 85 plus percent mark to market. I mean can you touch on what is included in that estimate does that reflect expected market rent growth in 2023, and if so does that 85% target and staff.

That would be a very normal rate of retention for us, going back and looking at it over a 10, 20-year timeframe. So, and we are trying to find out what the efficient point is for losing customers because of price. You know, we can make that number be zero, but that would not be wise because that means we're not pushing rents as hard. So...

Hold today.

We would be in the 80%, let me put it that way right now and that would contemplate.

Market rent growth from here.

So.

We feel good about still hitting that kind of number but we will give full guidance on it later in the year.

Yes, I don't think we know anything that suggests a different number than what we told you before.

20% is definitely still below where I would start worrying about dialing it the other way. If it got to about 30%, we may want to moderate on that. But still, generally speaking, the bias is towards pushing rents and not occupancies.

No.

So.

Actually the same number.

Your next question comes from Camille bundle with Bank of America. Please state your question.

Good morning, just to clarify on <unk> comment around.

Folios embedded NOI gravity.

Now, markets where that is not the case, we'll dial it back some. But that's a decision we make day to day based on the data that we see. It's not a top down type of decision.

French grew another 5% is youre projecting in the back half of this year are you expecting core NOI growth to be tracking above that 7% luncheon or more closely to the growth you're projecting this year.

Our next question comes from Ronald Camden with Morgan Stanley . Please state your question. Hey, just a couple quick ones. Just going back to the market rent growth forecast and also Southern California, can you give us some context in terms of what was the first half growth on the market rent growth number one and then...

Kim from your opening remarks, it sounds like market rents have grown in line with expectations to date have moderated into Q2 can you just comment on how the pace of growth looks like for the remainder of the year based on your team's protection.

So I'll take the first one I think I wanted to be sure. We're not conflating a couple of things on same store. So immediate illustration earlier was about a four year horizon. What we think will unfold in terms of market rent growth that would be that roughly eight 5% average and I'll go with average same store NOI growth.

Number two, when you talk about sort of Southern California decelerating, is there a way to get some context on is it just deceleration or should we be bracing for things to potentially turn negative in that market? So, a couple of things. First of all, the most important thing about Southern California is the gas in the tank.

Not the rent growth same store NOI growth sorry.

Don't even have the number for grant growth because frankly, I don't really spend a lot of that is a very volatile number yes, so and that number by the way incidentally.

not rental growth going forward. I mean, the gas in the tank in Southern California is, I don't know the exact number, but it's probably over 100% on your average lease. So, whether you think rents are going to grow 3% or negative 3% or 10% or whatever.

And incorporates what will happen in Duke in terms of its fair value lease adjustments and what we think will happen in occupancy so thats kind of fully baked in.

It's not going to affect that number one iota. Are there markets in Southern California and elsewhere where you could see rental growth sliding? Sure, of course there are. When something has escalated by 150%, I wouldn't be surprised if it backslid some.

That's a four year discussion in terms of this year theres going to be very little that could change in any direction on market rents that would affect this year's <unk>.

Same store growth just too much of the lease mark to market in the year frankly are now baked that.

We're going to land pretty tightly in the range that I <unk>.

Do I worry about Southern California becoming a difficult market? No. I would like to have more Southern California because that means we have more cars with more gas in the tank. So there are some markets that may continue to escalate, but they're still not going to be as good as a market that has embedded growth of well over 100%.

Yes sure.

And then as it relates to the rent growth detailed tims script included.

Way for you to kind of reconcile that and I think within the numbers. The main thing to know is many markets. Both in the U S and globally continue to have really healthy pricing power a meaningful move in market rents, but the aggregate number is adjusted downward.

So I'm not trying to duck your question, but we're a global company. It's a 1.2 billion square foot portfolio, and I think it would not be a productive use of my time or anybody else's, your time, to drill down into sub-market or individual rents. Because frankly, we don't spend a lot of time ourselves looking at that. We look at it bottoms up, a deal by deal, and then we make our long-term investment decisions at some point in our backyard.

Based on the views on southern California that we've discussed here.

Our next question comes from John Kim with BMO capital markets. Please go ahead.

Thank you just to follow up on the $3 billion acquisition you made.

How much of that did it contribute to your full year guidance range. If at all and can you comment on the pricing just given 4% going in cap rate not many buyers have production cost of capital. So I was wondering how you came to that level and how many competing bids or buyers that were at that level.

based on some macro bets. And what I'm telling you is that we like Southern California because of its embedded market to market. Our next question comes from Michael Carroll with RBC Capital Markets. Please state your question.

Yes, I'll kick off on the on the earnings side, it's about a half a cent roughly of our of our raise would be attributable attributable to that.

Yep thanks I guess just directed to Tim I believe last quarter that you indicated the 2024 lease expirations had an 85 plus percent mark to market I mean can you touch on what is included in that estimate does that reflect expected market rank growth in 2023 and

The remainder would be the same store component.

Yes.

On the number of competing buyers and all of that we don't know, but we actually we work collaboratively with the seller to pick your portfolio that made sense for them and makes sense for us. So it wasn't like there was a package in a competitive environment, but look.

I would argue that two of the largest players in this space kind of know what's going on in the market and they don't need to know in light of third party validation of where pricing is.

And we came to an agreement reasonably quickly on that so.

So we're really pleased about it because we don't have to go through the brain damage of cleaning up the portfolio. We bought what we wanted to buy at the price that we wanted to buy and presumably they they've got the price that they want at the end and.

Everybody was very happy about that and wed love to do more of that.

Your next question comes from Nicholas <unk> with Scotiabank. Please state your question.

Thanks, just a question in terms of what Youre seeing with activity in the <unk> space. Some commentary we've heard specifically about la.

And <unk> was that the market is very tight so tenants took as much space as they could get in many cases took some excess space.

Recent years and now that those same tenants in some cases are putting sublease space on the market and then you also have less demand.

From the user group, maybe its a port issue.

In the near term, but I guess I'm just wondering are broadly on three PL.

What the activity of that tenant base looks like.

<unk> across your portfolio.

Yes, I'm going to make a general comment then applies maybe a bit more to three pls, but it applies to everybody Southern California is a market where embedded mark to market is well over 100%.

The <unk> business is a very low margin business very thin margin business.

If you've taken 10% more space than you needed and now with the changed outlook do you think you need 10% less than you need at before that's a 20% swing in how much space you are going to need over the over there longer term.

If you can make.

<unk> or four X, what you would make it a year in a year moving boxes around.

By sub leasing that space, you would do that so that propensity to adjust your space to your needs.

Is much greater in this cycle because of the significant mark to market. That's embedded in some of these leases now if you're in the market.

Where you know and I can't think of a market like that but let's say you were in a market where you are essentially a market are 10% below by the time, you pay and leasing commission and encourage the downtime and maybe put some.

<unk> in this space you are not going to make money on that space. So it's more of a cost avoidance and therefore not much of that happens southern California is actually viewed as a source of profit for these guys to sublease their real estate, so theyre going to do it much quicker than before and that's in fact, what we've seen so and it all goes back to <unk>.

Having less than 1% vacancy in this market not too long ago. So look southern California has been a crazy rent growth market.

The remainder would be the same store component.

Yeah and on the number of competing buyers and all of that we don't know, but we actually we work collaboratively with the seller to pick a portfolio that makes sense for them and makes sense for us. So it wasn't like there was a package in a competitive environment, but look.

As long as I remember, whether you look at 30 years or five years or three years, but the last three years have been.

I've just been ridiculous and for anybody to think that that would continue forever.

I would argue that two of the largest players in this space kind of know what's going on in the market and they don't need to know a lot of third party validation of where pricing is and we came to an agreement reasonably quickly onto that so so we're really pleased about it because we don't have to go through the brain damage of clean.

We certainly don't make our investment decisions based on that and we don't operate our portfolio like that so.

We're not surprised about what's going on in southern California.

Our next question comes from Vikram Malhotra with Mizuho. Please state your question.

Thanks for taking the question two questions. One just looking at the lease proposal chart correct me if I'm wrong I think this is all in square feet.

Up the portfolio, we bought what we wanted to buy at the price that we wanted to buy and presumably they they've got the price that they want it and and everybody was very happy about that and we'd love to do more of that.

And I'm just wondering how this would compare.

Whether you look at it as a percent of explorations.

Portfolio, just because you're a much bigger portfolio today with Duke in there and other other acquisitions.

Your next question comes from Nicholas <unk> with Scotia Bank. Please state your question.

Thanks, just a question in terms of what you're seeing with activity in a three P. L space I mean, some commentary we've heard specifically about la.

As a percent of the portfolio is there something unique in terms of the trend downward it would seem as a percentage it's probably.

I N. Three P. L was that you know it was a market is very tight so tenants took as much space as they could get in many cases. It took some excess space you know in recent years and you know now that those same tenants in some cases are putting sublease space on the market and then you also have less demand.

Much lower.

To clarify that number one and then just number two bigger picture I mean, if you're talking about normalization in trends still healthy levels, but let's just say normalizing to 2019.

Where do you think the risk premiums should be for public private warehouse space.

From the use of group, maybe its a port issue.

Should it be higher is that fair as it is today. Thanks.

In the near term, but I guess I'm just wondering how broadly on three P. L. You know what the activity of that tenant base looks like in.

Yes, let me start with that.

In 2009, there was a big difference between now and 2019 2019, I don't remember the exact number but I think vacancy rates were north of 5%, maybe even north of 6%.

And across your portfolio.

Yeah, I'm going to make a general comment then it applies a maybe a bit more to three P. L. But it applies to everybody southern.

Corneas end market, where embedded mark to market is well over 100%.

Today and the outlook in 2019 was that we had a long run of improving market conditions and I think it calls like this we are all worrying about for the sixth year in a row, where their supply will exceed demand.

The three P. L business is a very low margin business very thin margin business.

If you've taken 10% more space than you would need it and now with the changed outlook do you think you need 10% less than you need at before that's a 20% swing in how much space you are going to need over the over there longer term.

Hey, Dan.

That today.

It's the same market, except the vacancy rates are substantially lower than they were at that time, and we have less of a concern about supply.

Beyond this year that is then we head in 2019.

If you can make three or four X what you would make it a year in a year moving boxes around.

No.

It's a slightly different market, but the dynamics are not that unusual with respect to public to private I continue to believe.

Sub leasing that space, you would do that so that propensity to adjust your space to your needs.

I don't know about the sector, but I continue to believe that we trade at a modest discount to two <unk> private values.

Is much greater in this cycle because of the significant mark to market. That's embedded in some of these leases now if you're in the market.

And I think once capital flows start up again once the denominator effect.

Where you know and I can't think of a market like that but let's say you were in a market, where you're essentially a market or 10% below by the time you pay a leasing commission and incurred the downtime and maybe put some tis in this space you are not going to make money on that space. So it's more of a cost avoidance and therefore not much of that happens southern California.

<unk> starts going the other way because of improvements in public markets I think that will be validated. So I do think private values in general are slightly higher than public values, where these companies are priced.

And then Vikram on proposal volumes, yes that square footage and as to reconciling it I'd point you to the answer given earlier. So the same question and happy to go through it offline if that's not sufficient for you.

He is actually viewed as a source of profit for these guys to sublease their real estate, so theyre going to do it much quicker than before and that's in fact, what we've seen so and and it all goes back to having less than 1% vacancy in this market not too long ago. So look southern California has been.

Thank you and our next question comes from Todd Thomas with Keybanc Capital markets. Please state your question.

In a crazy rent growth market for the for as long as I remember, whether you look at 30 years or five years or three years, but the last three years have been have just been ridiculous and for anybody to think that that would continue forever.

Hi, Thanks.

Another one on market rent growth.

You've previously talked about about a three to 500 basis point spread in market rent growth between coastal and non coastal markets.

In light of your comments around Southern California can you just talk about how you expect that.

I, we certainly don't make our investment decisions based on that and we don't operate our portfolio like that so we're.

Spreads to trend as you look ahead to 2024 and are there other coastal markets that you would include in the discussion with southern California, as you think about it.

We're not surprised about what's going on in southern California.

Yeah.

Our next question comes from Vikram Malhotra with Mizuho. Please state your question.

The labor strikes and the impact that that's having at the ports.

And thanks for fitting the question. There's two questions. One just looking at the lease proposals chart I'm correct me if I'm wrong I think this is all in square feet.

Yes, I want to be clear about what we said.

If you look at all of the markets that we operate in southern California is going to have the highest rent growth of all not market rent growth.

And I'm just wondering how this would compare you know whether you look at it as a percent of explorations or or or the portfolio, just because you're a much bigger portfolio today with Duke in there and other our other acquisitions.

Maybe the monitor market rent growth, we modulate, but because of the mark to market Southern California for the foreseeable future and by that I mean, five years plus is going to have the highest growth rate of any market that I can think of Chris.

As a percent of the portfolio is there something unique in terms of you know the trend downward it would seem as a percentage it's probably.

Chris.

100%, yes, and that can go on literally for five to 10 years. So.

Much lower so.

If you could clarify that number one and then just number two bigger picture I mean, if you're talking about normalization in trends.

Because of the Mark to market is so huge.

Now in terms of the market rent growth.

Healthy levels, but let's just say normalizing to 2019.

I don't know, we'll find out but it's our view has moderated but that really doesn't matter, it's kind of like adding 2% to 3% in one direction or the other to a number that's north of a 100%. So I think we're focusing on the wrong issues.

Where do you think the risk premiums should be for public private warehouse space and it should it be higher is that fair as it is today. Thanks.

Yeah, let me start with that in in 2009, there was a big difference between now and 2019 2019, I don't remember the exact number but I think vacancy rates were north of 5%, maybe even north of 6%.

I don't really know the answer to your question if I did I'd tell you.

Our next question comes from Anthony Powell with Barclays. Please state your question.

Hi, Good morning, just a question on contribution it looks like you started on this quarter with the Japan and Mexico.

Today and the outlook in 2019 was that we had a long run of improving market conditions and I think it calls like this we are all worried about for the sixth year in a row, where their supply would have seen demand okay.

It still the plan to restart contributions in the U S and in Europe later, this year and how should that how is it progressing overall.

Yeah, I'll start and pitch it over to Carsten looked.

That today.

Look the reason we stopped contribution is not because we didn't have the capacity to buy these assets in our funds. We did because they are very low leveraged. The reason we did is that we couldnt.

It's the same market, except the vacancy rates are substantially lower than they were at that time, and we have less of a concern about supply.

Beyond this year that is then than we had in 2019 so.

Really look our investors in the eyes, and say that we all have clarity around the values for the fund or for the properties that are being contributed.

It's a slightly different market, but the dynamics are not that unusual with respect to public to private I continue to believe.

So we're not in a rush to do that.

I don't know about the sector, but I continue to believe that we trade at a modest discount to two and private values.

There are some companies that force these.

These decisions back in the last cycle that.

And we didn't.

And we fared much better than those companies that force of course the contributions.

And I think once capital flows started up again once the denominator effect starts going the other way because of improvements in public markets I think that will be validated. So I do think private values in in general are slightly higher than public values, where these companies are priced.

As long as there is clarity on valuations, we will contribute assets at least we would be willing to contribute assets, but I would remind all of you at the end of the day the independent advisory boards for each fund makes a decision of whether they want to accept those contributions are not it's not a must put.

And then vikram on the proposal volumes, yes that square footage and as to reconciling it I'd point you to the answer given earlier. So the same question and happy to go through it offline if that's not sufficient for you.

Just take kind of a situation at all so.

But we couldnt very much look them in the eyes and say that.

This is the value because there was uncertainty around it in the markets that you mentioned there is clarity around the values Europe, we felt that it reached a point of clarity at the end of last quarter and we believe the U S is now becoming very clear to.

Thank you and our next question comes from Todd Thomas with Keybanc Capital markets. Please state your question.

Hi, Thanks.

Just another one on market rent growth.

And the whole process took about three quarters from the downturn, which is what we expect this to take based on based on experience. So you should expect contributions to continue.

You've previously talked about about a three to 500 basis point spread and in market rent growth between coastal and non coastal markets and in light of your comments around southern California can you just talk about how you expect that.

And then sort of a normal or maybe somewhat modulator pace.

Our next question comes from Mike <unk> with Oh go ahead.

The trend as you look ahead to 2024 and are there other coastal markets that you would include in the discussion with southern California as you think about the.

Carsten do you have anything to add to that no I think that's right I mean, we will probably look at contributions in Q4, no Russia suicide.

The labor strikes and the impact that that's having at the ports.

Going through the ordinary course of business and split it between both in Europe and the U S.

Yeah, I wanted to be clear about what we said.

Look at all of the markets that we operate in southern California is going to have the highest rent growth of all not market rent growth.

Thank you and our next question from Michael Mueller with Jpmorgan. Please go ahead.

Thanks.

Following up on that contribution question are you seeing any traction yet in the third quarter with dispositions.

Maybe the monitor market rent growth, we modulate, but because of the mark to market Southern California for the foreseeable future and by that I mean, five years plus is going to have the highest growth rate of any market that I can think of Chris right.

We are not trying to dispose of a whole lot because remember we're.

Almost through all of the Liberty ones, and Duke had very little dispositions associated with it we sold a couple of them of late and the latest Blackstone portfolio has zero dispositions in it so.

Yeah, and and that can go on literally for five to 10 years. So.

Because of Mark to market is so huge.

Now in terms of the market rent growth.

Other than the normal sort of Bluebird dispositions, we're kind of reaching the end of cleaning up the portfolio. There. There are a few deals here and there, but then what would you add to that I would say the transaction market is opening up and we're very confident we're going to be able to dispose of what we want when we want but it's not a material amount.

I don't know, we'll find out but it's our view has moderated but that really doesn't matter, if it's kind of like adding 2% to 3% in one direction or the other to a number that's north of a 100%. So I think we're focusing on the wrong issues I don't I don't really know the answer to your question if I did that tally.

Move the needle one on our company.

Next question comes from Craig Mailman with Citi. Please state your question.

Okay.

Our next question comes from Anthony Powell with Barclays. Please state your question.

Thanks, It's actually Nick Joseph here with Craig just went back to the comment you made earlier.

Hi, Good morning, just a question on contributions.

On the Blackstone portfolio deal you Couldnt talked with the seller.

Starting in this quarter with the Japan and Mexico.

What will work for both sides.

Still the plan to restart contributions in the U S and in Europe later, this year and how should that how theyre progressing overall.

Obviously down a lot there was a lot to choose from so what are you focused on either from a portfolio or strategic perspective in terms of the assets you acquired.

Yeah, I'll start them pitch it over to Carsten I look the reason we stopped contribution it's not because we didn't have the capacity to to buy these assets in our funds we did because they're very low leverage. The reason we did is that we couldn't really look our investors in the in the eyes and say that we all have clarity.

While the markets that we like in the long term and I can tell you that during the course of those.

That analysis in that thinking.

What the market rent is going to do in the next six months to the last decimal point was not a consideration.

It's those are markets that we really believe based on daily interactions with customers as to where.

Round the values for that fund or for the properties that are being contributed so we're not in a rush to do that.

Demand is going to be where we see that trend.

There were some companies that forced these these.

In supply.

Which are by the way, let's we haven't talked about that in a couple of quarters, but supply is becoming extremely difficult to bring online in places like California in fact, I'm kind of worried about it.

<unk> back in the last cycle that that and we didn't and.

And we fared much better than those companies that force of course, the contributions so as long as there is clarity on valuations, we will contribute assets at least we would be willing to contribute assets, but I would remind all of you at the end of the day the independent Advisory Board for each fund makes a decision.

Because because some of these places are shutting down I mean, we spent a lot of time with the legislature trying to defeat AB 1000, which was a proposal to basically stop all warehouse development in southern California.

<unk> of whether they want to accept those contributions are not it's not a must put must take kind of a situation at all so but we couldn't very much look them in the eyes and say that are you know this is the value because there was uncertainty around it in the markets that you mentioned there is clarity around the values Europe .

So.

So.

In selecting selecting those assets we've focused on the markets that we liked a lot and.

And we were prepared to pay.

Accept a lower yield for those markets because they have more embedded growth.

We felt that it reached a point of clarity at the end of last quarter and we believe the U S is now becoming very clear to them.

Our next question comes from Jamie Feldman with Wells Fargo. Please state your question.

Thank you and thanks for taking my question. So I wanted to get your thoughts on just the different regions.

The whole process took about three quarters from the downturn, which is what we expected it to take based on based on experience. So you should expect our contributions to continue.

Coming out of what should be a recession, if we get a recession and theres a lot of talk about European wages really lagging the U S. Obviously, that's a big driver of retail spending in your business can you just talk about what might be different as you think about putting capital to work across.

Europe Asia, and the U S or in North America.

Given what you know.

Some of these macro trends we are seeing.

Yes U S has got the highest rent growth over time.

If any of these markets because it's a more dynamic economy bigger GDP growth I think than Europe, certainly, but Europe has always been a sort of <unk>.

Speaker 1: To require operator assistance during.

Speaker 1: Conference Please press Star zero on your telephone key pad. Please note.

Speaker 1: That this conference is being recorded. I will now turn the conference over to our host.

More muted market in terms of supply vacancy rates are always lower in Europe and land is metered out by usually government authorities. It's not so much of a free market you go buy from the farmer and land. So it's a more muted growth growth pattern than the U S. One.

Speaker 1: jill sawyer, Vice President of Investor Relations. Thank you.

Speaker 2: You may be.

Speaker 3: Thanks Diego. Good morning everyone. Welcome to our second quarter. twent thousand twenty.

Speaker 4: Earnings conference call.

Speaker 3: Supplemental document is available on our website at cologis com under Investor Relations.

Speaker 4: I'd like to say that this conference call will contain forward-looking statements under federal.

But we mitigate that because we employ more.

Speaker 5: 30 BTS.

Speaker 4: These statements are based on current expectations, estimates and projections about the market and the industry in which preloggious operates, as well as management's beliefs and assumptions.

<unk> structure in.

In Europe, so that combination of the earnings on the fund management business plus the growth in the underlying real estate business makes up for the <unk>.

Speaker 4: Forward-looking statements are not guarantees of performance and actual operating results may be affected by a variety of factors. For a list of those tors, Please refer to the forward-looking statement noted in our 10 -k or other SEC filings.

Makes up for that difference Asia, China used to be a powerhouse in terms of economic growth is frankly has surprised everybody coming out of it with respect to how slowed spend to turnaround.

We are not trying to dispose of a whole lot because remember we're in.

Speaker 4: Additionally, our second quarter results press release and supplemental doue contain financial measures such as FFO and EBITDA that our non-GAAP and accordance with regg Le has provided a reconciliation to those measures. I'd like to welcome Tim ar't, our CFO , who will cover results, real-time market conditions and guidance. I mean mogga M r CEO and our entire executive team are also with us today, but that'll hand the call over to Tim.

Almost through all of the Liberty ones, and Duke had very little dispositions associated with it we sold a couple of them of late and the latest Blackstone portfolio has zero dispositions in it so.

I'm not smart enough to know whether that said, that's a long term trend or a short term trend, but that market has gone from basically 10% per year type of GDP growth to more like a 5%.

I mean other than the normal sort of Bluebird dispositions, we're kind of reaching the end of cleaning up the portfolio. There. There are a few deals here and there, but then what would you add to that I would say the transaction market is opening up and we're very confident we're going to be able to dispose of what we want when we want but it's not a material amount, it's not going to move the needle one on.

Rate of growth.

Japan, probably the best long term market for us from a development point of view is always had low rent growth, 1% to 2% rent growth would be great, but boy. There is no capex theres no turnover there is.

Speaker 6: Thanks jill. Good morning everybody and welcome to our second quarter earnings call. We had a very good quarter. Outstanding results across our uniquely diversified business was highlighted by record rent change, a ramp-up in development starts, roughly half of which were built to suit, and the acquisition of over $3 billion of real estate at accretive returns, deepening our scale in key markets.

Our company.

And yields have maintained themselves in Japan, better than anywhere else Theres been no cap rate expansion in Japan at all and remember there is hardly any mark to market. So there is no cap rate expansion and in fact, I would say theres, probably 10 to 15 basis points of compression in the last.

Next question comes from Craig Mailman with Citi. Please state your question.

It's actually Nick Joseph here with Craig just went back to the comment you made earlier.

Speaker 6: We also earned record strategic capital income and raisise $1.2 billion in new equity across the vehicles.

The Blackstone portfolio deal you talked with the seller kind of what would work for both sides.

Speaker 6: We are watching markets closely and we've been clear that we expect vacanci to rise over the course of the year from a normalization of demand and elevated development deliveries. We've indeed seen vacancy build and expect to reach the mid- fours in the? U's by year-end, but continueabto believe that fundamentals will regain momentum in 2024, with the outlook for new supply declining as development starts continue to fall this year.

Obviously down a lot there was a lot to choose from so kind of what are you focused on either from a portfolio or strategic perspective in terms of the assets you acquired.

In the last 12 months. So it's a good development market and from an operating point of view, we talk cap rates, but at the end of the day. The cash flows in Japan are very strong because very little of it leaks out.

While the markets that we like in the long term and I can tell you that during the course of those.

Capex and other things so.

Each market is different and each market.

That analysis in that thinking.

When you look at it as a portfolio plays its role within our overall business.

What the market rent is going to do in the next six months to the last decimal point was not a consideration.

Speaker 6: In short, our outlook is completely unchanged and we feel great about our business.

Thank you and our final question for today comes from Camille bottle with Bank of America. Please state your question.

It's those are markets that we really believe based on daily interactions with customers as to where.

Speaker 6: Turning to our results, core FFO, excluding promotes, was a dollar 25 per share and including promotes, was a dollar 83 per share, both ahead of our forecast. Our promote income was generated from both U sf and feverbro pro logist and meaningfully exceed our guidance.

Demand is going to be where we see that trends and supply.

Hi, Thanks for taking my question does the valuation of your U S allies fun take into account. The recent portfolio acquisition, you announced or is that more of a comp for next quarter.

Which are by the way and lets you know we haven't talked about that in a couple of quarters, but supply is becoming extremely difficult to bring online in places like California in fact, I'm kind of worried about it.

Speaker 6: U uslf generated promote revenue at pro larest share of over $635 million.

Okay.

Good question Camilo I don't know, we bought that portfolio on balance sheet. So it's not a fund investment so.

Speaker 6: In its three -year performance period, assets grew by over $1 billion and the fund delivered an IRR of over 20%, net of all fees and with very low leverage.

Because because some of these places are shutting down I mean, we spent a lot of time with the legislature trying to defeat a b 1000, which was a proposal to basically stop all warehouse development in southern California.

But but I honestly don't know how long, it's going to take the appraisers to reflect that but and we bought it at a very consistent level of valuation to what we thought valuations would be this quarter and I think we were right about that so I think the market has adjusted in terms of.

Speaker 6: In terms of our operating results. Average occupancy for the quarter was 97 cent point, a 5% down 50 basis points from the first quarter and, in line with our expectations, rent change on starts was a record on both a net effective and cash basis: 79% and 48% respectively.

So.

So.

In selecting selecting those assets, we focus on the markets that we liked a lot and.

Understanding where values are going I think we're at the tail end of those those adjustments.

We were prepared to pay a except a lower yield for those markets because they have more embedded growth.

Speaker 6: Net effective of rent change on signings of more forward-looking view was an impressive 87% with notable rent change from Phoenix at 137% Northern New Jersey at one 50 and Southern California at one hundred and eighty-one percent and.

You were the last question can meal. So thank you all for your interest in the company, we certainly feel very good about our business going forward and.

Our next question comes from Jamie Feldman with Wells Fargo. Please state your question.

Thank you and thanks for taking my question. So I wanted to get your thoughts on just the different regions.

And hope that we will have the opportunity to speak to you more over the summer.

Speaker 6: Global markets also contributed to strong signings, with Mexico at 34%, the U? K at 36, Central Europe at 51, in Canada at 150%. Bottom line rent change has been both robust and broad-based.

Thank you everyone.

Coming out of what should be a recession, if we get a recession. There's a lot of talk about European wages really lagging the U S. Obviously, that's a big driver of retail spending in your business can you just talk about what might be different as you think about putting capital to work across.

Thank you and that concludes today's conference all parties may disconnect have a good day.

Speaker 6: Market rents continued to grow albeit at a slower pace increasing a little over one point point a half percent in the quarter in place rents grew by approximately two point a half percent over the quarter the net of which translates to a lease Mark tomarket of 66% down from 68% and.

Europe Asia, and the U S or in North America.

Given what you know.

Some of these macro trends we are seeing.

Yes U S has got the highest rent growth over time.

Any of these markets because it's a more dynamic economy bigger GDP growth I think than Europe , certainly, but Europe has always been a sort of <unk>.

Speaker 6: We explained last quarter that our lease mark-to-market would generate $2 and 85 cents per share of incremental earnings as lease as well over time, without any additional market rent growth. Interestingly, that future upside is virtually unchanged at June thirtieth, even though we crystallize rental increases over the quarter. This is because a lower lease mark-tomarket is now being applied to a larger base of in-place NOI.

More muted market in terms of supply vacancy rates are always lower in Europe and land is metered out by usually government authorities is not so much of a free market you go buy from the farmer and land. So it's a more muted growth growth pattern than the U S months, but we.

Speaker 6: Ultimately, same-store growth is our most important operating metric and this quarter remained exceptional at 9% on a net effective basis and 11% on cash.

Mitigate that because we employ more of a fund structure in Europe . So that combination of the earnings on the fund management business plus the growth in the underlying real estate business makes up for the makes up for that difference Asia, China used to be.

Speaker 6: I'd like to highlight that, even with $4 billion of investment during the quarter, the balance sheet remains in impecable shape, with liquidity of approximately six point $4 billion and debt-to EBITDA four point two times. We raised approximately $7 billion in debt financing across four currencies at an interest rate of four point nine percent and an average term of eight years.

Be a powerhouse in terms of economic growth is frankly has surprised everybody coming out of it with respect to how slowed spend to turnaround.

Not smart enough to know whether that said, that's a long term trend or a short term trend, but that market has gone from basically 10% per year type of GDP growth to more like a 5%.

Speaker 6: Turning to our markets, the trend to normalization which we've been speaking to for some time continues. Proposal activity, gestation and pre-leasing of vacancy are all within a few percent of their pre-coed levels, a period which- we've highlighted many times- was itself historically strong.

Rate of growth.

Japan, probably the best long term market for us from a development point of view is always had low rent growth, 1% to 2% rent growth would be great, but boy. There is no capex theres no turnover there as you know and yields have maintained themselves in Japan better than anywhere else.

Speaker 6: Our ibi sentiment index ticked up in the quarter to over 58, indicating a continued strong backdrop for demand, as described by our customers and further supported by utilization increasing to 85 centpoint a half percent and.

There's been no cap rate expansion in Japan at all and remember there is hardly any mark to market. So there is no cap rate expansion and in fact, I would say theres, probably 10 to 15 basis points of compression in the last.

Speaker 6: Unsurprisingly, customers have been more deliberate in their decision-making amidst the uptick in vacancy. We continue to believe that there will be a short-lived reprieved, as construction starts have indeed declined significantly for our expectations.

In the last 12 months. So it's a good development market and from an operating point of view, we talked cap rates, but at the end of the day. The cash flows in Japan are very strong because very little of it leaks out to.

Speaker 6: Starts in the second quarter were down approximately 40% across our? U's markets and 50% in Europe . We see deliveries in 2024 falling short of demand, reducing vacancy over the course of next year.

Capex and other things so.

Each market is different and each market.

Speaker 6: Significant attention has been given to Southern California in recent months. While our portfolio is over 97% lease and we are achieving record rent change, vacancy has grown, partially due to port operations that have not yet returned to normal.

When you look at it as a portfolio plays its role within our overall business.

Thank you and our final question for today comes from Camille bottle with Bank of America. Please state your question.

Speaker 6: Additionally, some customers are reevaluating expansion in the Inland Empire, diversifying operations to other Southwest markets.

Hi, Thanks for taking my question just the valuation of your U S. L. A fun take into account. The recent portfolio acquisition, you announced or is that more of a comp for next quarter.

Speaker 6: With all this in mind, we've reduced our rent growth forecast 4- Southern California in 2023. however, given what is still low vacancy, together with structural headwinds to new supply and a huge consumption base, we believe strongly in this market.

Okay.

Good question Camilo I don't know, we bought that portfolio on balance sheet. So it's not a fund investment so.

Speaker 6: The global nature of our portfolio means that we'll see markets contribute to growth in different periods, even in now, peaks and trough. We see this playing out in a number of markets across the globe where our rent growth forecats cast is increasing this quarter, such as Las Vegas Texas, Europe and Mexico, to name a few.

But but I honestly don't know how long, it's going to take the appraisers to reflect that but and we bought it at a very consistent level of valuation to what we thought valuations would be this quarter and I think we were right about that so I think the market has adjusted in terms of.

Understanding where values are going I think we're at the tail end of those those adjustments.

Speaker 6: All this, together with the more than 5% rent growth to date, has us reforecasting the full year to arrange of 7% to 9% on a global basis.

Your last question Camille So thank you all for your interest in the company, we certainly feel very good about our business going forward and.

Speaker 6: What matters more than what will transpire in the next six months is what we see over the medium term, which is growth that will be fueled by escalating replacement costs, growing barriers to new supply and ongoing secular drivers of demand.

And hope that we will have the opportunity to speak to you more over the summer.

Thank you everyone.

Thank you and that concludes today's conference all parties may disconnect have a good day.

Speaker 6: Late in the second quarter we announced and closed on the acquisition of over 14 million squarefoot portfolio in many of our best? U's markets.

Speaker 6: We estimate an 8% unlevered IRR simply at the property level, exclusive of additional return, driven by property management synergies essentials opportunities, including solar, and the upside we expect through revenue management.

Speaker 6: While this was the largest transaction in the quarter, overall activity increased slightly, bring additional price discovery to the market.

Speaker 6: In Europe , the values have been relatively stable, experiencing a 1% decline over the second quarter.

Speaker 6: Latin America saw an increase in values, with write-ups in Brazil and Mexico of 2% and 5% respectively, and write-downs in the U's were in line with expectations.

Speaker 6: Approximately 5%, driving the cumulative decline over the last year to 12%.

Speaker 6: With this move. We view the values as fair and are proceeding on redemptions in U slf for the third quarter.

Speaker 6: New redemption request in the quarter totaled approximately $8 million and was concentrated in U slf and our China venture, where values have held up better.

Speaker 6: Together with other activity. The net redemption Q stands at approximately $1.6 billion.

Speaker 6: Outside of the open-ended funds, the company raised an incremental $1.2 billion comprised of $5 million in the febra and NPR, as well as a new $7 million commitment for a complementary vehicle in Japan pjlf, which is detailed in our supplemental.

Speaker 6: Before turning to guidance, I'd like to mention a few updates across our essentials business. We added fourforty-five megawatts of new solar production and storage in the first half of the year, bring our platform total to 450 megawatts, nearly 50% of delay to our one gigawwatt goal for 2020. -five.

Speaker 6: Additionally prologg's mobility. Our EV business has more than 65 fleet charging fights in the pipeline across the U's and Europe .

Speaker 6: In terms of our outlook for the balance of the year, we are guiding average occupancy to range between 97 centand 97% and a half percent.

Speaker 6: We are increasing our same-store guidance to eight percentin three quarters to 9% cent aquarter percent on a net effective basis and 9% half cent to 10% on a cash basis.

Speaker 6: Net effect of rent change propelling same-stoourres should continue to accelerate in the next two quarters and average approximately 80% over the year.

Speaker 6: We are maintaining our GNA guidance to range between $38.39 billion and are increasing our strategic capital revenue guidance, excluding promotes, to range between $52.53 billion.

Speaker 6: As a result of the outperformance in U's LPs' promote, we are increasing our forecast for net promote income to $475 million year-to-date. We are in excess of this amount, but amortization expense will continue over the back half of the year.

Speaker 6: We had over 55 million in contribution and disposition activity during the quarter, concentrated in Japan and Mexico, and are maintaining guidance of two to $3 billion.

Speaker 6: Putting it all together, we are increasing guidance for GAAP earnings range between 300 and tyand 300 and thirty per share. We are increasing core fo, including promotes guidance to arrange of five to fiftysix to 5- 60 per share and increasing core fo excluding promotes, torange between 3, sixand 5- 10 per share, with the midpoint representing over 10% annual growth, marking our fourth consecutive year of double-digitearnings growth.

Speaker 6: The quarter highlighted many ways that prologist has diversified itself across geographies, business lines and capital sources. While rents in some markets decelerate, others with different demand drivers are now accelerating. We re seeing the same balance with property values, as demonstrated over the quarter.

Speaker 6: Further we generate incremental cash flows and value creation outside of the pure rents business and closely related and synergistic platforms, namely strategic capital development and now essentials.

Speaker 6: Our fundraising efforts also demonstrate the value of having alternatives. Clearly, our wide access to debt capital has been a tremendous advantage, but we also benefit from access to varied equity sources for our ventures. By utilizing open-end vehicles, JVs and public structures, we have the ability to be opportunistic and proactive in changing capital markets.

Speaker 6: As we close, I'd like to remind you of two upcoming events of prologist later in the year: our groundbreakers thought leadership forum on September twenty-seventh right here in San Francisco, and our Investor forum on December thirteenth in New York. Additional information for each is available on our website. With that, i'will hand it back to the operator for your questions.

Speaker 7: And at this time.

Speaker 1: Be conducting a question and answer session. Press Star one on your telephone each time you would like to ask a question. A conferenm.

Speaker 1: ntoone in indicate that your line is in the question CUE. You may press Star to if you would like to remove your question from the CUE. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the starke.

Speaker 7: Well normally Please, while we pull for question.

Speaker 1: Our first question comes from Tom Catherwood with.

Speaker 8: T I G.

Speaker 9: Thank you and good morning all ll Tim. Appreciate your commentary around guidance on projected rent growth, kind of a two part question on that. First, have you adjusted your projection for U's rent growth? I think it was previously 10% and you mentioned it globally now and then, can you provide some more detail around those markets or regions, whereas you said you've seen you know rent growth and values kind of exceed expectations, and then conversely, are there others like Southern California that have somewhat lagged your expectations?

Speaker 6: I'll start and probably pitch it the Chris here for some help on the market detail. But the? U's at this point I would put in a similar range. Really, given the weight of the's and the notion that we're going to put these things in ranges, probably from here it's going to be very similar to the globees. So I would just think of them as essentially the same.

Speaker 6: And then, in terms of markets, you know clearly I mentioned in my remarks that Southern California is the market that we've downgraded, that's broadly that the base of our change and pretty much the only market- and it is met by various marke- says are also detailed. Many in Southeast u's- but it's pretty broad around the? U's as well as globally, that are picking up the slack and holding, you know, the average pretty close when you put it in a range.

Speaker 10: Our next question.

Speaker 1: Comes from Blaine hack with wals Fargo. Please do your question.

Speaker 6: Okay good morning. So we noticed lease proposals trend downward throughout the quarter and gest ation increase towards the end of the quarter. Can you just talk about what factors might be driving those trends and whether you think we'll continue to see lease proposal trend down or should we expect an inflection in the second half?

Speaker 11: It's Chris k. So really, when we look at that data, the right way to look at that is against our open availabilities and when you put those proposal against their open av, ailabilities they're actually in line or above the historical average. 48% is that number. It's something we've used in the past on these calls. And so how do we make proposal numbers you're talking about tie with that view?

Speaker 11: Well, there are two or three drivers. The first is that the availabilities, just the role that we have in the next 12 months, are low relative to history. The second is those proposal volumes do include sometimes multiple proposals on a single unit, and that has declined over the last year, as we've discussed previously. And then third, there are some seasonality where June would be a soft month.

Speaker 12: Our next question.

Speaker 1: Comes from Craig Mailman with City. Please there quest.

Speaker 13: I thank you very much. Maybe lipp to questions here. I guess maybe Tim and chrissta fall. Tom's question around the market ran coros. It looks at the? U's dropped about two your basis boards and mean could you give us some more numbers around what the biggest moving parts of that were from a market perspective and then separatelyon an occupancy here you, you guys seen that 80 bps sequentially on.

Speaker 13: You know ending core rocks, they know your 50 days points on average. But you know So Cal, New Jersey, Central Valley atla, all kind of came down here. Just curious that there's. You know if that's where you're seeing the most supply or if you had any incremental impacts on the Blackstone acquisition that was. Weigh on some of those numbers.

Speaker 11: Yes So on the rent piece, we're not going to go through market rent growth at a market level for a variety of reasons. I think the takeaway we want you and everyone to be left with is just how it can all come into a balance and we're very pleased to see that we're able to hold the forecast at least in a pretty tight range to where we were previously.

Speaker 6: And on the occupancy side, you're right about where the ending pieces. I would just comment that that's in line with our forecast. If you look at our average average occupancy guidance that we have previously and that we have this quarter, it's unchanged. So the decline that we have expected over the year remains and everything that you see in this quarter is in line with those expectations.

Speaker 14: Yes the one thing I would add to that is that I think we mentioned to you last quarter that we would be continuing to push rents pretty hard and would like to see occupancies a bit lower than 98%. So what you're seeing is consistent with what we're planning to do and actually we accomplished what we wanted to do in that we we tracked a number of leases that we lose because of price and how hard we're pushing and we modulate around that to figure out the tradeoff between rents and occupancy.

Speaker 15: So we did see, as a result of our efforts, an uptick in basically the percentage of deals loss D price. It went up from about 10% to about 20%, which is kind of where we would like to have it. So it's intentionble.

Speaker 1: Thank you our next question comes from.

Speaker 1: Caitlin burls with Goldman Sachs. Please state your question.

Speaker 16: Hi good morning. Everyone may be like to mention this in a lot of discussion about Southern California, So soi'll ask another one there. But I guess, just thinking about the idea that it might be lagging now, can you give more details on what could be causing the change in that market, kind of how long it could last in which market could?

Speaker 16: Potentially ped similar issues.

Speaker 14: Sure let me take a stab at that, because I've seen this now a couple of times over the last 30, 40 years. Southern California is really being adversely affect that by two things. 1- port volumes. I think this labor strike has gone on longer than most people anticipated and the timing of it was such that people had to make decisions about the Christmas season and they've shifted volumes to other ports and that affect Southern California and honestly, the longer this goes out, I believe the worst it will be for Southern California in terms of doing permanent damage.

Speaker 14: Now, from everything we hear- and we're not an expert on this- things are apparently heading in a positive direction with respect to a resolution, but you read the same things we do, So I don't have any unique respectctives on that.

Speaker 14: The other. The other difference with Southern California is just priceing. I mean you know you had between 20 and 20 two, about 130% increase in rents in Southern California. That compares to less than half of that for the overall markets that we operate it. So there is more price sensitivity now because it's a very, very expensive market. So to the extent possible people will shift to adjacent markets and and combined it's not just price but up until it's horderof go.

Speaker 14: Occupancy in the Inland Empire was 99 points point something percent, So people couldn't even get the space that they want it. I think with a more normalized vacancy level- and we're still not at normal, I mean normalized in my experience is 95% occupancy and that would have been great for the last 15 or 20 years. I think with more normalized occupancy you'll see keep and and a resolution of the labor strike.

Speaker 15: I think you see a more normal pattern from which you can draw some conclusions.

Speaker 1: Steve sockwell with evercor. Please state your questions.

Speaker 14: Yeah let me start on the development volume and then pitch over to then for the other commentary. We not care about development starts, we do not care about acquisition guidance. We will. We make all these decisions one by one and only when it makes sense to ll the trigger on these. They're buying large already, more or less, and we could, on a discretionary basis, start all of them today, but that would not be a wise thing to do and we're not going to do it just to meet some artificial guidance.

Speaker 15: I think the main driver of earnings in this company, which is what we all care about, is a rental growth and same store growth. And all I can tell you is that with mid Sixty's Mark to market, you can model whatever scenario you want, including zero rent growth. From here on out and for the next four years, five years, you're going to get same store, and I increase seven and a half percent.

Speaker 1: We no rental growth. From this point forward, you put in our normalized forecast for a rental growth, our best guest, and that same store growth will be at eight and a half percent. Both of those numbers our conist with low double digit earnings growth while maintaining our leverage, which is which is so low. So we don't need development starts to drive anything and we're not going to get in a position our jeopardizing our pricing power by virtue of wanting to meet an artificial development.

Speaker 14: Now, having said all that, we we will start the ones that we think we can lease efficiently and economically and and quickly. And the land is there, the approvals are there and our ability to put buildings up is there. So there's no benefit in front and loading that stuff. I'm pushing it, pushing it ahead of where it needs to be. D you want to address the size question?

Speaker 11: Sure, So we have. We're seeing continued broad based demand and across all size ranges. Now there'are certainly our pockets of in certain markets that there's some, some risk and maybe the bulk. Those are markets we talked about historically: South Dallas North, for wor and ablish is getting fairamoun of bulk built out, But in then i'would say West Phoenix is well, But when I would say with our portfolio overall we really isolated from any of this bulk risk and we're really confident in the demand across all side.

Speaker 10: Thank you, and your next question comes from.

Speaker 10: He been Kim with truest. Please to your question.

Speaker 14: Turning to your capital deployments, with $3 billion backstone deal at a five point seven five stabilwized cap rate, can you just discuss how you viewed the attractiveness of the deal versus some other opportunities that you might have had, such as spot buybacks, stoor development, or do you simply think the value per square foot price should T decrease much further from here on out?

Speaker 14: Yes I mean certainly portfolios that we would acquire would be at a discount to replacement cost, and replacement cost has moved up tremendously in the last couple of years by virtue of forget about the land piece, because that's this quushy piece that's related to rents and all that, but the construction piece is really, really escalated. So to buy standing inventory in our best markets is always a really great thing that we look at.

Speaker 15: The quality of the portfolio was quite high, I would say very close to our own portfolio. The percentage that we would dispose of is zero, So it was hand select, meet our requirements. I wouldn't call it the steel. We didn't steal anything. I think it's a market rate transaction and with the upside built into the rents, 8% IRR, a world that I think is going to be a sub 3% inflation rate, and then all the added things we can put on top of it with the essential and all that develop capital at those rates all day long.

Speaker 10: Your next question comes from Michael Goldsmith with UBS. Please state your question.

Speaker 17: Good morning. Thanks so off for taking my question. The lease personcent I drup. The development pipeline has been duping pretty materially kind of back to 2019 levels. What are the factors there, and does this impact your ability to hure yields expected on these developments?

Speaker 14: Yes I think maybe the best way of summarizing this call would be: we're back to 2019. okay, we're getting at it in 25 different ways, but the easiest way to think about it is demand supply, rental growth, all of those things.

Speaker 14: Are trending back to 2019 for coit And if you take 20 to 20 two out of the picture and imagine that in 2019, somebody would tell you that in two thousand and 20 three, you're still talking about the dynamics of two thousand and 2019 market. I would be jumping up and down happy about that. So that's where we are and almost any question. I'm not trying to avoid your question, but it would be the same answer on 20 other parameters as well.

Speaker 15: We're back to 2019.

Speaker 10: A next question comes from.

Speaker 1: nickdolman with bare.d Please to your questions.

Speaker 6: Hey good morning. I mean kind of touched on you guys competing on price, like 20% attendants' not renewing because of that, but retention is dropping down to 70%. So all those times that aren't renewing, are they not? Where do they end up going? Do they go to a new supply or a new product that's being delivered, or is it more so scenario where they're just completely priced out of the market?

Speaker 15: No they go somewhere else. I mean, those are real needs and at the end of the day, warehouse rent is as a percentage of total, which is the cost is is relatively small, So they're not going to go out of business because of that. I mean frankly, the pressure on energy prices and fuel prices and labor prices, on all thatif you're going to worry about something, those are more significant than their ability to pay rent.

Speaker 1: 70% is not a unusually low retention rate. I mean, if you again forget about the last three years where there was no space and people have no choice, that that would be a very normal rate of retention for us. Going back and looking at it, the retten 20 year time frame So in and we are trying to find out what the efficient point is for losing customers because of price.

Speaker 1: You know we can make that number be zero, but that would not be wise because that means we're not pushing rent as heart. So 20% is definitely still below where I would start worrying about dialing. Get the other way. If it got to about 30%, we may want to moderate on that, but still, generally speaking, the biases towards pushing rents and not occupancies- now markets where that is not the case- will dial back some.

Speaker 1: But that's a decision we make day to today based on the dayata that we see. It's not a top down type of decision.

Speaker 10: Our next question comes from Ronald Camden with Morgan Stanley . Please state your questionions.

Speaker 14: Hey just a couple of quick ones just going back to the market, rent growth forecast and also Southern California, and can you give us a context in terms what was?

Speaker 18: The first half growth.

Speaker 19: On the Mar.

Speaker 18: Could write growth number one and then number two when you talk about sort of Southern California decelerating. Is there a way to get some context on? Is this to?

Speaker 18: Just a deceleration, or should we be bracing for things to potentially turn negatives in that market?

Speaker 1: So a couple things. First of all, the most important thing about Southern California is the gas in the tank, not rental growth going forward. I mean, the gas in the tank in Southern California is- I don't know the exact number, but it's probably over 100% on your average lease. So whether you think rents are going to grow 3% or negative 3% or 10% or whatever, it's not going to affect that number one iota.

Speaker 14: Are there markets in Southern California and elsewhere where you could see rental growth sliding?

Speaker 15: Sure of course there are.

Speaker 1: When something has escalated by 150%, I would't be surprised if it back slid fromump. Do I worry about Southern California becoming a difficult market? No, I would like to have more Southern califor, nia because that means we have more cars with more gas in the tank. So there'are some markets that may continue to escalate, but there's still not going to be as good as a market that has embedded growth of well over 100%.

Speaker 1: So I'm not trying to duck your question, but we're global company. It's a one point two billion square foot portfolio and I think it would not be a productive use of my time or anybody else- is your time- to drill down into market or individual rents because frankly, we don't spend a lot of time ourselves looking at that. We look at it bottom bottoms up, a deal by deal, and then we make our long term investment decisions based on some macro bets, and what I'm telling you is that we like Southern California because of its embedded market market.

Speaker 10: Our next question comes from Michael Carol with RBC capital markets. Please take your question.

Speaker 20: Yes Thank, I guess just directed to Tim. I believe last quarter that you indicated the 2024 lease expirations had an 85 plus percent markter-market. I mean, can you touch on what is included in that estimate? Does that reflect expected market r in growrossed in 2023 and, if So, does that 85% target and staff still hold today?

Speaker 6: We would be in the eighty's- let me put it that way right now- and that would contemplate the market rent growth from here. So we feel good about still hitting that kind of number, but we would give full guidance on it later in the year.

Speaker 14: Yes I don't think we know anything that suggests a different number than what we told you before, So it's essentially the same number.

Speaker 10: Your next question comes from camille boontle, with Bank of America. Please state your question.

Speaker 21: Good morning. So to clarify on heavid's comment, around the portfolios embedded NOI growth, if renscrew and another 5% of you're projecting in the back half of this year, are you expecting core NOI growth to be tracking above that 7% mention or more closely to the growth you're projecting this year and Tim? From your opening remarks that sounds like market runs have grown in line with expectation to date but moderated into two Q. can you just comment on how the pace of growth looks like for the remainder of the year based on your team's production?

Speaker 6: So I'll take the first one I think I want to be sure we're not compleflating a couple of things on same store. So mes illustration earlier was about a, a four year horizon, what we think will unfold in terms of market rent growth. That would be that roughly eight and a half percent average and I'll go an average same store and no I growth. Not the rent growth, same store and no I growth's RY.

Speaker 1: I don't even have the number for rent growth because frankly, I don't spend a lot of that's a very volatile number So, and that number, by the way, incidentally incorporates what will happen in do in terms of its fair value at lease adjustments andwhat we thinkwillhappen occupancy. So that's kind of fullyly baked and that's a four year discussion. In terms of this year there's going to be very little that could change in any direction on market L that would affect this year's same store growth.

Speaker 6: Too much of the lease mark-to market and the year frankly, are now baked that we're going to land pretty tightly in the range that I I learn, or next year.

Speaker 6: Yeah true.

Speaker 11: And then, as it relates to the rent growth, detailed Tim script included, a way for you to kind of reconcile that. And I think, within the numbers the main thing to know is many markets, both in the? U's and globally, continue to have really healthy pricing power and meaningful move in market rents. But the aggregate number is adjusted downward based on the disease on Southern California that we've discussed here.

Speaker 10: Our next question comes from John Kim. With BMO capital markets, Please go ahead.

Speaker 10: youjust to follow-up on the $3 billion acquisition you made. How much of that did it contribute to your full year guidance raise, if at all, and can you comment on the pricing, just given 4% going in cap rate? Not many buyers have prooions cost of capital So I was wondering how you came that level and how many competing bids or buyers there were at that level.

Speaker 11: yeahi'll pick up on the. On the earnings side it's about a half a cent roughly of our. Our rays would be attribut.able attributable to that. The remainder would be the same store component.

Speaker 14: Yeah and on the number of competing buyers and all that, I we don't know, but we actually work collaboratively with this seller to pick a portfolio that made sense for them and made sense for us. So it wasn't like there was a package and a competitive environment. But look, I would argue that two of the largest players in this space kind of know what's going on in the market.

Speaker 15: Then they don't need to know a lot of third party validation of where pricing is, and we came to an agreement reasonably quickly on that. So So we're really pleased about it because we don't have to go through the brain damage or cleaning up the portfolio. We bought what we wanted to buy at the price that we wanted to buy and presumably they- they got the price that they wanted and and everybody was very happy about that and we'd love to do more the.

Speaker 10: Your next question comes from Nicholas uico with skoltia bank. Please say your questionions.

Speaker 11: Thanks just a question in terms of you know what you're seeing with activity in a three p L space? I mean some commentary we heard specifically about you L a in three p was. That know was a market very tight to. Tenants took those much spaces they could. Again, many cases took some excess space. You know in recent years and you know now that those same tenants in some cases are putting suy space on the market and you also have less demand from the user group.

Speaker 22: Maybe it's a you port issue in the near term. I guess I'm just wondering broadly on three p, you know what the activity of that tenant base looks like? You know in across your portfolio?

Speaker 1: Yes I'm going to make a general comment that it applies maybe a bit more to three pl, but it applies to everybody. Southern California is a market where embedded mark-to-market is well over 100%.

Speaker 15: The three pl business is a very low margin business, very thin margin business.

Speaker 15: If you think in 10% more space than you need it and now, with the change all outlook, you think you need 10% less than you need it before, that's a 20% swing in how much space you're going to need over the over their longer term. If you can make three or four x what you would make at a year in a year moving boxes around by suleasing that space, you would do that so that propensity to adjust your space to your needs is much greater in this cycle because of this significant market tomarket that's embedded in some of these leases.

Speaker 1: Now, if you're in market where you know I can't think a marketlike that, but let's say you were in ket where you're essentially a market or 10% below, by the time you pay at leasing commission and incurred the downtime and maybe put some T is in the space, you're not going to make money on that space, So it's more of a cost of voidance and therefore not much of that happens.

Speaker 1: Southern California is actually viewed as a source of profit for these guys to suleast their real estate, So they're going to do it much quicker than before and that's in fact what we think. So and and it all goes back to having less than 1% vacancy in in this market not too longer ago. So look, Southern California has been a crazy rent growth market for the or as long as I remember, whether you look at 30 years or five years or three years, but the last three years have been have just been ridiculous and for anybody to think that that would continue forever, I we certainly don't make our investment decisions based on that and we don't operate our portfolio like that.

Speaker 15: So we're not surprised about what's going on in in Southern California.

Speaker 10: Our next question comes from vicam mahocha, with misszu Please.

Speaker 23: Your question.

Speaker 24: And thanks for the question there two two questionions one just looking at the lease proposal chart correctme if I'm wrong I think this is all in square feet and I'm just wondering how this would compare you know whether you look at it as a percent of expirations or p or the portfolio just because you're a much bigger portfolio today with du in there and other other acquisitions So as a percent of the portfolio is there's something unique in terms of you know the trend downward it would seem as a percentage it's probably much lower So if you clarify that number one and then just number two bigger picture I mean if you're talking about normalization in trends to still healthy levels but that's just a normalizing to two thousand and nineteen where do you think the risk premium should be for you know public private warehouse space should be higher is it fair as it is today Thank.

Speaker 15: Yeah let me start with that in 2009 there was a big difference between now in 2019 2019 I remembered the exact number But I think vacancy rates were north of 5% maybe even north of 6% today and the outlook in 2019 was that we had a long run of improving market conditions and I think it calls like this we are all worrying about for the sixth year in a row whether supply would exceed demth ok.

Speaker 25: That.

Speaker 15: That today.

Speaker 15: It's the same market, except the vacancy rates are substantially lower than they were at that time and we have less of a concern about supply beyond this year. That is than we had in 2019. So it's a slightly different market, but the dynamics are not that unusual. With respect to public, to private, I continue to believe that. I don't know about the sector, but I continue to believe that we trade in modest discount to to an avm- private values, and I think once capital flows start up again, once the denyineor effect starts going the other way because of improvements in public markets, I think that will be validated.

Speaker 1: So I do think private values in general are slightly higher than public values where these companies are priced.

Speaker 11: Then vicram, on the proposal volumes. Yes, that square footage. And as to reconciling it, I'd point you to the answer given earlier to the same question, and happy to go through it offline if that's not sufficient for you.

Speaker 10: Thank you, and our next question comes from TOD Thomas with Keybank capital markets. Please see your question.

Speaker 26: Just another one on market rent growth. You previously talked about about a three 500 basis point spread in market rent growth between coastal and noncoastal market. In light of your comments around Southern California, can you just talk about how you expect that spread the trend as you look ahead to 2024 and are there other coastal markets that you would include in the discussion with Southern California as you think about the labor strikes and the impact that that's having at the ports?

Speaker 14: Yes I want to be clear about what we said.

Speaker 15: If you look at all the markets that we operate in, Southern California is going to have the highest rent growth of all n-market rent growth.

Speaker 15: Maybe the moderate market rent growth we modulate. But because of the mark to market, Southern California 4- that foreseeable future- and by that I mean five years plus- is going to have the highest growth rate of any market that I can think of. Chris vie- hundred percent Yeah, and that' been go on literally for five to 10 years. So because the market to market is so huge now in terms of the market rent growth- I don't know, we'll find out, but it's our view- has moderated it, but that really doesn't matter it.

Speaker 15: It's kind of like adding two to 3% in one direction or the other to a number that's north of one hundred percent. So I think we're focusing on the wrong issues. I don'.t, I don't really know the answer to your question. If I did, I tell you.

Speaker 10: Our next question com.

Speaker 10: Anthony Powell with Barclays. Please state your question.

Speaker 27: Good mor it's. This question on contributions was like you restarted them this quarter with Japan and Mexico. Is this still the plan to restart contributions in the U's or of Europe later this year and how how they're progressing overall?

Speaker 15: yesi'll started, pictured over to garsman. Look, the reason we stop contribution, it's not because we didn't have the capacity to to buy these assets in our funds. We did because there are very low leverage. The reason we did is that we couldn't really look our investors in the in the eyes and say that we all have clarity around the values for the fund for, for the properties that are being contribute.

Speaker 15: So we're not in a rush to do that. You know there were some companies that force these, these decisions back in the last cycle that and we didn't and we fared much better than those companies that force, force the contributions. So as long as there is clarity on valuations, we will contribute assets, at least we would be willing to contribut assets.

Speaker 15: But I remind all of you, at the end of the day, that independent advisory boards for each fund makes the decisions of whether they want to accept those contributions or not. It's not a must put, must take kind of a situation at all. So but we couldn't very much look him in the eyes and say that you know, this is the value because there was uncertainty around it in the markets that you mentioned.

Speaker 15: There is clarity around the valu Europe . We felt that it reached the point of clarity at the end, the last quarter, and we believe the? U's is not becoming very clear to, and the whole process took about three quarters from the downturn, which is what we expected this to take, based on, based on experience. So you should expect contributions to continue the sort of a normal or maybe somewhat modulated pace.

Speaker 10: Our next question comes from Mike marer, with go ahead.

Speaker 15: Do you have anything that? No, I think that's right. I mean, we will probably look at contributions in Q4. No Russia ide going through that ordinary course of business and SP it between both in Europe and the? U S.

Speaker 12: Thank you and our next question from mikeel Mueller with JP Morgan, Please go ahead.

Speaker 28: I guess, following up on that contribution question, are you seeing any traction yet in the third quarter with dispositions?

Speaker 14: We are not trying to dispose of a whole lot because remember, we're almost through all the Liberty ones and Duke had very little dispositions associated with. We filled a couple of them of late and the latest Blackstone portfolio as zero dispositions in it. So I mean other than the normal sort of blue bird dispositions, we're kind of reaching the end of cleaning up the portfolio there.

Speaker 14: There area few deals here and there. But then what would you have, would J? The transaction market is opening up and we're very confident we're going to be able to dispose of what we want when we want. But it's not a material amount, it's not going to move the needto on on our company.

Speaker 10: Next question comes.

Speaker 12: Craig Mailman with City. Please state your question.

Speaker 1: Actually nickto just appear with Craig. Just going back to a comment you made earlier on the Blackstone portfolio deal, you couldn't be worked with the seller kind of what would work for both sides. Obviously they on a lot clear there was a lot to choose from. So what were you focused on, either from a portfolio or strategic perspective, in terms of the assetts you acqured?

Speaker 14: Well the markets that we like in the long term, and I can tell you that during, in the course of those, that analysis and that thinking what the market rent is going to do in the next six months, to the last decimal point, was not a consideration. I mean, you know it's, it's. Those are markets that we really believe, based on daily interactions with customers as to where you know demand is going to be, where we see that friendren in supply, which are, by the way, let's.

Speaker 15: You know we haven't talked about that in the couple of quarters, but supply is becoming extremely difficult to bring online in places like California. In fact, I'm kind of worried about it because, because some of these places are shutting down. I mean, we spent a lot of time with the legislature trying to Defeat a B 1000, which was a proposal to basically stop all warehouse development in Southern California.

Speaker 1: So So, in selecting, selecting those assets, we focused on the markets that we liked a lot and we were prepared to pay a, except a lower yield, for those markets because they have more embedded growth.

Speaker 10: Our next question comes from.

Speaker 10: Jamie Feldman with Wes Fargo. Please state your question.

Speaker 29: Thank you and thanks for taking my question. So know, I want to get your thoughts on just the different regions you know coming out of what should be a recession, if we get a recession, you know there's a lot of talk about, you know, European wages really lagging the? U's. Obviously that's a big driver of retail spending in your business. Can you just talk about what might be different as you think about putting capital to work across?

Speaker 29: You know Europe Asia, in the? U's for North America, given what you know, might you know some of these macro trends we're seeing?

Speaker 30: Yes U us is got highest rent growth over time of any of these markets because it's a more dynamic economy, bigger G D p growth, I think. Then Europe certainly. But Europe has always been a sort of more muted market in terms of supply. Vacancy rates are of always lower in Europe and land is meter out by- usually government authorities's, not so much of a free market, you go by from the farmer, an land.

Speaker 14: So it's it's a more muted growth growth pattern than than the? U's. 1, but we mitigate that because we employ more a fund structure in Europe . So the combination of the earnings on the fund management business plus the growth in the under a real estate business makes up for the makes up for that difference. Asia, -china, used to be a power house in terms of economic growth.

Speaker 14: It frankly has surprised everybody. Coming out of it would respect to house. Slow it's been to turn around. I'm not sm enough to know whether that's a, that's a long term trend or a ortterm trend, but that market has gone from basically 10% per your type of growth to more like a 5% rate of growth. Japan, probably the best long term market for us from a development point of view, has always had low rent growth.

Speaker 1: one to 2% rent growth would be great. But Boy, there's no CapEx, there's no turnnoover. There is, you know, and yields have maintained themselves in Japan better than anywhere else. There's been no ca rate expansion in Japan at all and remember there's hardly any market to market. So there's no cap rate expansion and in fact that would say there's probably 10, 15 basis points of compression in the last, in the last 12 months.

Speaker 14: So it's a good development market and from an operating point of view we talku ca ates, But at the end of the day the cash flows in Japan are very strong. There's very little of it leaks out to CapEx on other thing. So each market has different and each market, when you look at it as a portfolio, plays that's role within our overall business.

Speaker 12: Thank you, and our final question for today comes from camill botle with Bank of America. Please state your questions.

Speaker 21: Hi Thanks for taking my question. Does the valuation of your U's ls fund taking into account the recent portfolio acquisition you announced, or is that more of a call for next quarter?

Speaker 14: Good question to me. I don't know. We bought that portfolio on balance sheet, So it's not a fun investment So, but I am honestly don't know how long it's going to take the appraisors to reflect that, but we bought it at a very consistent level of valuation to what we thought valuations would be this quarter and I think we're right about that. So I think the market has adjusted in terms of understanding where values are going.

Speaker 1: I think we're at the tail end of those adjustments.

Speaker 15: You were the last question, can me So? Thank you all for your interest in the company. We certainly feel very good about our business going forward and the hope that we will have the opportunity to speak to you more over the summer.

Speaker 15: Thank you everyone, Thank you, and that concludes today's conference partgamentmay disconnect have a good day.