Q1 2024 Prologis Inc Earnings Call

Operator: Greetings and welcome to the Prologis First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Greetings and welcome to the pro largest first quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad and as a reminder, this conference is being re.

Operator: And as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Natasha Law, Director of Investor Relations. Thank you, Natasha. You may begin.

Accordingly.

It is now my pleasure to introduce your host Natasha law director of Investor Relations. Thank you Natasha you may begin.

Natasha Law: Thanks, John. Good morning, everyone.

Natasha: Thanks, John Good morning, everyone. Welcome to our first quarter 2024 earnings conference call. The supplemental document is available on our website at <unk> Dot com under Investor Relations I'd.

Natasha Law: Welcome to our first quarter 2024 earnings conference call. The supplemental document is available on our website at prologis.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 Prologis operates, as well as management's beliefs and assumptions. Forward-looking statements are not guaranteed to perform, and actual operating results may be affected by a variety of factors.

Speaker Change: 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 paralleled just operate as well as management's beliefs and.

Speaker Change: Okay.

Speaker Change: 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.

Natasha Law: For a list of those factors, please refer to the forward-looking statement notice in our 10-K or other SEC filings. Additionally, our first quarter earnings, press release, and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP, and 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. With that, I will hand the call over to Tim.

Speaker Change: 10-K, our other SEC filings.

Speaker Change: Additionally, our first quarter earnings press release, and supplemental do contain financial measures such as EBITDA.

Ebitdas that are non-GAAP and in accordance with Reg G. We have provided a reconciliation to those measures.

Speaker Change: I'd like to welcome Tim Horne, our CFO, who will cover results real time market conditions.

Timothy D. Arndt: And then me knocking on our CEO and our entire executive team are also with us today.

Timothy D. Arndt: I will hand, the call over to Chad.

Timothy D. Arndt: Good morning, and thank you for joining our call. We had a good start to the year in terms of our operating and financial results in the first quarter. We delivered strong rent changes, drove occupancy slightly ahead of our forecast, raised nearly $5 billion in capital, including $750 million in strategic capital, and made important headway in our energy business. That said, as we evaluate the market, persistent inflation and high interest rates have kept more customers focused on controlling costs.

Timothy D. Arndt: Morning, and thank you for joining our call.

Timothy D. Arndt: We've had a good start to the year in terms of our operating and financial results in the first quarter. We delivered strong rent change drove occupancy slightly ahead of our forecast reached nearly $5 billion in capital, including $750 million in strategic capital and made important headway in our energy business.

Timothy D. Arndt: That said as we evaluate the market persistent inflation and high interest rates has kept more customers focused on controlling costs.

Timothy D. Arndt: The resulting delay in decision-making, easily observed through the first quarter's below-average net absorption, will translate to lower leasing volume within the year. Accordingly, we've opted to adjust our guidance early, getting ahead of what looks like a period of occupancy below our forecast in the near term and its effect on same-store and a number of our higher-rent markets. This is punctuated, of course, by a more pronounced period of corrections still underway in Southern California.

Timothy D. Arndt: The resulting delay in decision, making easily observed through the first quarter is below average net absorption will translate to lower leasing volume within the year.

Timothy D. Arndt: Accordingly.

Timothy D. Arndt: Opted to adjust our guidance early getting ahead of what looks like a period of occupancy below our forecast in the near term and its effect on same store and a number of our higher rent markets.

Timothy D. Arndt: This is punctuate it of course by a more pronounced period of correction still underway in southern California.

Timothy D. Arndt: New starts, however, continue to be surprisingly disciplined, adding to the expectation for limited new supply in the back half of 24, but also extending deeper into 25. When considered alongside muted demand, we arrive at a view that the operating environment has only changed modestly in aggregate and that demand is simply pushing out by a few quarters. The outcome of this may simply mean moving towards a long-term occupancy expectation more swiftly this year, which sets up for a better next year.

Timothy D. Arndt: New starts however continues to be surprisingly discipline, adding to the expectation for limited new supply in the back half of 'twenty, four but also extending deeper into 'twenty five.

Timothy D. Arndt: When considered alongside muted demand we arrive at a view that the operating environment is only changed modestly in aggregate and that demand is simply pushing out by a few quarters.

Timothy D. Arndt: The outcome of this may simply mean moving towards our long term occupancy expectation more swiftly this year, which sets up for a better next year.

Timothy D. Arndt: Turning to our results for the quarter, core FFO excluding promotes was $131 per share, and including net promote expense was $128 per share, essentially in line with our forecast. Occupancy in the portfolio ended the quarter at 97 percent. For context, the U.S. market declined 310 basis points since its peak in the summer of 22, while our portfolio's occupancy has only declined 80 basis points, resulting in vacancy today for Prologis that is less than half of that in our markets and reflective of our portfolio quality. Net effective rent change was 68% based on commencements and 70% based on new signings.

Timothy D. Arndt: Turning to our results for the quarter of course that flow excluding promotes was $1 31 per share.

Timothy D. Arndt: <unk> net promote expense was 128 per share essentially in line with our forecast.

Timothy D. Arndt: Occupancy in the portfolio ended the quarter at 97%.

For context, the U S market declined 310 basis points since its peak in the summer of 'twenty two while our portfolio's occupancy is only declined 80 basis points, resulting in vacancy today for prolonged just that is less than half of that in our markets and reflective of our portfolio quality.

Timothy D. Arndt: Net effective rent change was 68% based on commencement and 70% based on new signings.

Timothy D. Arndt: Following this in-place increase and changes in market rents, our net effective leased market stands at 50%, representing over $2.2 billion of rent to harvest without any additional market rent growth from here. Rent growth captured just for the single quarter was approximately $110 million on an annualized basis and at our share. Our same store growth on a cash basis was 5.7% and on a net effective basis was 4.1%.

Timothy D. Arndt: Following this in place increase and changes in market rents, our net effective lease mark to market stands at 50% representing over $2 $2 billion of rent to harvest without any additional market rent growth from here.

Timothy D. Arndt: Rent growth capture just for the single quarter was approximately $110 million on an annualized basis and that our share.

Our same store growth on a cash basis was five 7% and on a net effective basis was four 1%.

Timothy D. Arndt: The same store rent change alone was strong at approximately 9% but is impacted by a 130 basis point change in year-over-year vacancy as well as 150 basis points from fair value lease adjustments with the Duke Portfolio's inclusion in our same store pool. Additionally, there were approximately 175 basis points of items specific to the quarter, including one-time reconciling items from 2023, as well as unfavorable comps from low expenses last. We started over $270 million of new developments in the quarter, bringing our portfolio to approximately $7.5 billion at our share, with estimated value creation of over $1.7 billion, a number we feel increasingly confident in with value stabilizing.

Timothy D. Arndt: The same store from rent change alone was strong at approximately 9%, but it was impacted by a 130 basis point change in year over year. They can see it was 150 basis points from fair value lease adjustments with the Duke portfolios inclusion in our same store pool.

Timothy D. Arndt: Additionally, there were approximately 175 basis points of items specific to the quarter, including onetime reconciling items from 2023 as well as unfavorable comps from wall expenses last year.

Timothy D. Arndt: We started over $270 million of new developments in the quarter, bringing our portfolio to approximately $7 $5 billion at our share with estimated value creation of over $1 $7 billion, a number we feel increasingly confident and with value stabilizing.

Timothy D. Arndt: In our energy business, we've made meaningful progress on this year's deployment, including the signing of 405 megawatts of long term storage related contracts with investment grade utilities.

Timothy D. Arndt: In our energy business, we've made meaningful progress on this year's deployment, including the signing of 405 megawatts of long-term storage-related contracts with investment-grade utilities. We also delivered the largest ED fleet charging project in the United States, less than 15 miles from both the ports of Los Angeles and Long Beach.

Also delivered the largest EV charging project in the United States less than 15 miles from both the ports of L. A and long beach.

Timothy D. Arndt: Finally, we raised $4 $1 billion of debt across our balance sheet and funds at a weighted average rate of four 7% and a term of 10 years.

Timothy D. Arndt: That portfolio has an overall in place rate of just three 1% with more than nine years of average remaining life and liquidity at the end of the quarter of over $5 $8 billion.

Timothy D. Arndt: Finally, we raised $4.1 billion of debt across our balance sheet and funds at a weighted average rate of 4.7% for a term of 10 years. Our debt portfolio has an overall in-place rate of just 3.1%, with more than nine years of average remaining life and liquidity at the end of the quarter of over $5.8 billion. Turning to market conditions, most broad economic data from unemployment to retail sales to the health of the consumer remain very strong, and while our tour proposal and other proprietary metrics are similarly positive, overall leasing activity and net absorption are running below expectations. Net absorption in the U.S., for example, was very low this quarter at just 27 million square feet.

Timothy D. Arndt: Turning to market conditions, most broad economic data from unemployment to retail sales to the health of the consumer remained very strong.

Timothy D. Arndt: While our tour proposal and other proprietary metrics are similarly positive.

Overall leasing activity and net absorption are running below expectations.

Timothy D. Arndt: <unk> in the U S. For example was very low this quarter at just 27 million square feet.

Timothy D. Arndt: The macro landscape in supply chains continue to generate a need for space. We think it prudent to expect continued headwinds on overall absorption over the next few quarters.

Timothy D. Arndt: The interest rate environment and its associated volatility have weighed on customer decision, making especially as the 10 year has increased 70 basis points from its level, just 90 days ago and expectations for fed rate cuts have moved from potentially six to now possibly zero.

Timothy D. Arndt: In parallel sublease space utilization rates highlight that some customers have available capacity driven in part by the high rate of absorption through the pandemic.

Timothy D. Arndt: So while the macro landscape and supply chains continue to generate a need for space, we think it is prudent to expect continued headwinds on overall absorption over the next few quarters. The interest rate environment and its associated volatility have weighed on customer decision-making, especially as the 10-year has increased 70 basis points from its level just 90 days ago, and expectations for Fed rate cuts have moved from potentially six to now possibly zero.

Timothy D. Arndt: This dynamic of available space intersecting with the desire for cost containment is what leads to lower absorption and is playing out at different rates across sub markets and customers.

Timothy D. Arndt: For example, while slow leasing has persisted so far this year for less capitalized customers and <unk>, we see a handful of large e-commerce and retail customers further along in this process such as Amazon, who voice caution two years ago that is now active in several global markets and as openly discussed plans to commit to <unk>.

Timothy D. Arndt: In parallel, sublease and space utilization rates highlight that some customers have available capacity driven in part by the high rate of absorption through the pandemic. This dynamic of available space intersecting with the desire for cost containment is what leads to lower absorption and is playing out at different rates across submarkets and customers. For example, while slow leasing has persisted so far, this year, for less capitalized customers and 3PLs, we see a handful of large e-commerce and retail customers further along in this process, such as Amazon, which voiced caution two years ago but is now active in several global markets and has openly discussed plans to commit to significant amounts of new space. The overall leasing slowdown is felt most acutely in only a handful of markets, Southern California and the Inland Empire being the most acute.

Timothy D. Arndt: <unk> amounts of new space.

Timothy D. Arndt: The overall leasing slowdown is most felt in only a handful of markets Southern California, and the inland Empire being the most acute.

In fact rents in most of our U S markets are generally flat several are hot and it is mainly elongated downtime affecting near term occupancy and NOI.

Timothy D. Arndt: While southern California leasing has been challenging it has not slowed the tremendous uplift we realize every single quarter from rent change on rollover, which was 120% for the market in the first quarter with the inland Empire at 156% nearly the highest in our portfolio.

Timothy D. Arndt: In Europe rents grew overall during the quarter, which we believe will remain the case over the balance of the year.

Timothy D. Arndt: And of course, Latam continues to impress with very high occupancy and market rent growth that has led the globe in recent quarters.

Timothy D. Arndt: Overall global market rents declined slightly over 1% in the quarter, driven mostly by southern California, and would've been slightly positive it's excluded.

Timothy D. Arndt: I'd like to spend a moment on Baltimore, where we own over 18 million square feet and it's been a dynamic market of ours for decades.

Timothy D. Arndt: In fact, rents in most of our U.S. markets are generally flat, several are up, and it is mainly elongated downtime affecting near-term occupancy and NOI. While Southern California leasing has been challenging, it has not slowed the tremendous uplift we realize every single quarter from rent change on rollover, which was 120% for the market in the first quarter, with the Inland Empire at 156%, nearly the highest in our In Europe, rents grew overall during the quarter, which we believe will remain the case over the balance of the year.

Timothy D. Arndt: Our employees customers and properties are all safe following the bridge collapsed last month, and our customers expect to be able to withstand the disruption with little impact to their businesses.

Timothy D. Arndt: Shifting to capital markets.

Timothy D. Arndt: <unk> increased in all of our geographies, except for China, which saw a very small decline.

Timothy D. Arndt: Over the last year and a half global values have decreased despite increases in cash flow due to cap rate expansion as cap rates have stabilized cash flow growth now has the ability to translate to value growth.

Timothy D. Arndt: Even though modest the value uplift in the U S and Europe are important and strategic capital investors have been looking for values to not only bottom, but actually turned upwards before committing new capital.

Timothy D. Arndt: And, of course, Latham continues to impress with very high occupancy and market rent growth that has led the globe in recent quarters. Overall, global market rents declined slightly over 1% in the quarter, driven mostly by Southern California, and would have been slightly positive if excluded. I'd like to spend a moment on Baltimore, where we own over 18 million square feet and where we have been a dynamic market of ours for decades. Our employees, customers, and properties are all safe following the bridge collapse last month, and our customers expect to be able to withstand the disruption with little impact on their business.

Timothy D. Arndt: With Europe, a bit ahead of the U S. In this regard it is indeed, where we've seen stronger fundraising interest in recent quarters.

Timothy D. Arndt: We also had a successful equity raise and fever for largest raising over $500 million for deployment into both assets to be contributed from our balance sheet as well as pursuits of third party acquisitions.

Timothy D. Arndt: Transaction volumes and activity has ticked up in recent weeks and pricing has certainly improved as always we're actively looking at acquisition opportunities across all of our markets, but our focus remains on the development of our land bank, which provides an opportunity for over $38 billion of build out with a return on incremental capital of them.

Timothy D. Arndt: Approximately eight 5%.

Timothy D. Arndt: Okay.

Timothy D. Arndt: In terms of guidance in light of our views on demand and leasing pace in the coming quarters.

Timothy D. Arndt: Moving to capital markets, valuations increased in all of our geographies except for China, which saw a very small decline. However, over the last year and a half, global values have decreased despite increases in cash flow due to cap rate expansion.

Timothy D. Arndt: We are reducing our average occupancy guidance to range between 95, and three quarters 96, and three quarters percent.

Timothy D. Arndt: Of the 75 basis point adjustment from the midpoint, it's important to understand that approximately two thirds of this change stems from our higher our higher rent markets, meaning they create a disproportionate impact on same store in 2024.

Timothy D. Arndt: As cap rates have stabilized, cash flow growth now has the ability to translate to value growth. Even though modest, the value uplift in the U.S. and Europe is important, as strategic capital investors have been looking for values to not only bottom but actually turn upwards before committing new capital. With Europe a bit ahead of the U.S. in this regard, it is indeed where we've seen stronger fundraising interest in recent quarters. We also had a successful equity raise in Fever Prologis, raising over $500 million for deployment into both assets to be contributed from our balance sheet, as well as pursuits of third-party acquisition. Transaction volumes and activity have ticked up in recent weeks, and pricing has certainly improved.

Timothy D. Arndt: Same store growth on a net effective basis will range between five and a half and six 5% a reduction of 150 basis points, which accounts for the average occupancy declined slightly lower rent change for the year as well as 30 basis points of annualized impact from the one time items in the first quarter mentioned earlier.

Timothy D. Arndt: Our revised range on a cash basis is now six in the quarter to 7.25%.

Timothy D. Arndt: We're maintaining our guidance for strategic capital revenue, excluding promotes to a range of $530 to $550 million and.

Timothy D. Arndt: And reducing our G&A guidance to a range of $415 million to $430 million.

Timothy D. Arndt: We're adjusting development start guidance for the year to a revised range of two and a half to $3 billion at our share reflecting our discipline in speculative starts and the timing impact. It has in the calendar year as we've always said, we don't consider our guidance to be a target internally and each deal ultimately needs to be rational and accretive on it.

Timothy D. Arndt: As always, we're actively looking at acquisition opportunities across all of our markets, but our focus remains on the development of our land bank, which provides an opportunity for over $38 billion of build-out with a return on incremental capital of approximately 8.5%. In terms of guidance, in light of our views on demand and leasing pace in the coming quarters, we are reducing our average occupancy guidance to range between 95.75% and 96.75% of the 75 basis point adjustment from the midpoint.

Timothy D. Arndt: <unk>.

In the end, we're forecasting GAAP earnings to range between $3 15, and $3 35 per share.

Timothy D. Arndt: <unk>, including that promote expense will range between $5 37, and $5 47 per share while core <unk>. Excluding promotes will range from 545 to $5 55 per share.

Timothy D. Arndt: Our updated guidance calls for core earnings growth of nearly 8% at the midpoint.

Timothy D. Arndt: As we close out I'd like to underscore the message of the call, which is that while we have only a modest change of view in the intermediate term our confidence in the long term is intact.

Timothy D. Arndt: And putting timing aside we're encouraged by the outlook for supply in the back half of this year and 25 had tremendous lease mark to market to harvest in the interim and are pleased to see valuations fundraising and transaction activity all picking up.

Speaker Change: With that I'll turn the call over to the operator for your questions.

Timothy D. Arndt: It's important to understand that approximately two-thirds of this change stems from our higher rent markets, meaning they will have a disproportionate impact on same-store sales in 2024. Same store growth on a net effective basis will range between 5.5% and 6.5%, a reduction of 150 basis points, which accounts for the average occupancy decline, a slightly lower rent change for the year, as well as 30 basis points of annualized impact from the one-time items in the first quarter mentioned earlier.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two to remove a question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please.

Speaker Change: For questions.

Speaker Change: And the first question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Caitlin Burrows: Hi, good morning, everyone.

Caitlin Burrows: It seems like I guess occupancy and maybe pricing are coming in lower than you had previously expected. So I was wondering could you go through how much or what pieces might be more macro driven and how much is certain markets weighing on the outlook. Tim you did mentioned how some of the high rent markets are having an outsized impact just wondering if you could just go through what might be more.

Timothy D. Arndt: Our revised range on a cash basis is now six and a quarter to seven and a quarter percent. We are maintaining our guidance for strategic capital revenue, excluding promotions, to a range of $530 to $550 million and reducing our GNA guidance to a range of $415 to $430 million. We're adjusting development start guidance for the year to a revised range of $2.5 to $3 billion at our share, reflecting our discipline in speculative starts and the timing impact this has on the calendar year.

Caitlin Burrows: Macro versus market specific.

Caitlin Burrows: Hey, Caitlin, it's Chris Cade, and I'll start by saying I think it's a combination of factors for sure as Tim described southern California in a handful of other high rent markets. The leasing velocity has been subdued and rent growth has been a little bit below expectations. So there is that softness.

But we also want to point to a couple of quarters of deferred decision, making leading aggregate.

Caitlin Burrows: Aggregate customer demand across the United States to be a little bit below what we previously expected.

Timothy D. Arndt: As we've always said, we don't consider our guidance to be a target internally, and each deal ultimately needs to be rational and accretive on its own. In the end, we're forecasting GAAP earnings to range between $3.15 and $3.35 per share. Core FFO, including net promote expense, will range between $5.37 and $5.47 per share, while Core FFO excluding promotes will range from $5.45 to $5.55 per share.

Chris Caton: The only thing I might add Caitlin it would be just nominally in incentive dollars and the impact on same store.

Chris Caton: About half of our adjustments as coming from Socal.

Chris Caton: And the next question comes from the line of Steve Sochua with Evercore ISI. Please proceed with your question.

Unknown Executive: Yeah. Thanks, good morning out there I guess for Chimera Hamid.

Unknown Executive: Can you maybe just help kind of flushed out sort of maybe the timing of when some of these things became a little bit more evident I guess I'm thinking back.

Unknown Executive: Some of the conferences and the like in March and my sense was the the tone and concern about the business maybe wasn't as.

Timothy D. Arndt: Our updated guidance calls for core earnings growth of nearly 8% at the midpoint. As we close out, I'd like to underscore the message of the call, which is that while we have only a modest change of view in the intermediate term, our confidence in the long term is intact. And putting timing aside, we're encouraged by the outlook for supply in the back half of this year and 25, have tremendously smart ways to market the harvest in the interim, and are pleased to see valuations, fundraising, and transaction activity all picking up. With that, I'll turn the call over to the operator for your questions.

Unknown Executive: Acute as it is right now and I know you have confidence in the long term, but it sort of feels like there's a sea change in your outlook and maybe the last 30 that maybe 45 days. So I guess, what is prompting that other than may be seeing hard data, but maybe just help flush out kind of the timing of this and <unk>.

Unknown Executive: And are there other.

Unknown Executive: Factors at work here.

Speaker Change: Steve Let me, let me take a stab at that if you are sensing any acute change in our outlook.

Not really our call correctly.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 to remove a question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Unknown Executive: We we have picked the three year window I think in our analyst day to give you.

Unknown Executive: Our expectations and the first year of that window has moved around so our outlook for the back periods of second and third year, essentially the same and could be even better given how much the FERC demand is building up.

Unknown Executive: Wired proposals weren't down.

Operator: One moment, please, while we poll for questions. And the first question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question. Hi, good morning.

Unknown Executive: Tours were down I would be more concerned.

Unknown Executive: Companies are out looking at the space and if you think nothing has changed in the last 45 or 90 days with respect to the fed outlook.

Chris Caton: Hey Caitlin, it's Chris Caton. I'll start by saying I think it's a combination of factors. For sure, as Tim described, in Southern California and a handful of other high-rent markets, leasing velocity has been subdued, and rent growth has been a little bit below expectations. So there is that softness. But we also want to point to a couple of quarters of deferred decision making leading aggregate customer demand across the United States to be a little bit below what we previously expected. The only thing I might add, Caitlin, would be just nominally and the sense of dollars and the impact and the same story. We do see about half of our adjustments as coming from Silk.

Speaker Change: You must be reading different newspapers that so.

Speaker Change: I would tell you that people are just scared of pulling the trigger until the fed gives the all clear sign with the first rate cut so yes.

Speaker Change: Yes.

Speaker Change: Instantaneous in our data transmission to us and to you, but I can assure you that you will always hear our views immediately as we form them and as we get them from the market place.

And the next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

Good morning, Thanks, a lot for taking my question. It sounds like demand has been pushed out are the rebounding into management pushed out of <unk>.

Steve Sakwa: And the next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.

Steve Sakwa: Yeah, thanks. Good morning out there.

Michael Goldsmith: A few quarters. So I was wondering if what evidence do you have that would support that and then how do we compare that to some of the proprietary metrics that you've put together, which seem to indicate that things are actually pretty positive or accelerating. Thank you.

Hamid R. Moghadam: I guess for Tim or Hamid, can you maybe just help kind of flush out sort of maybe the timing of when some of these things became a little bit more evident? I guess I'm thinking back to some of the conferences and the like in March, and my sense was the tone and concern about the business maybe wasn't as acute as it is right now. And I know you have confidence in the long term, but it sort of feels like there's been a sea change in your outlook in maybe the last 30 to maybe 45 days. So I guess what is prompting that, other than maybe saying hard data, but maybe just help flush out kind of the timing of this, and are there other factors at work here?

Speaker Change: Hi, Michael Chris Kate Thanks for the question.

Speaker Change: You've kind of covered in the script and I think worth pointing out here, whether it's consumer resilience is revealed by economic indicators like the labor metrics of retail sales, whether you look at our own customers and supply chain momentum as revealed by RBI volumes through the ports and our proposal volumes there.

Speaker Change: The broader economy is generating a normal amount of demand.

Speaker Change: A couple of things to consider though one is as you can see in utilization data and data and in sublease space. Some customers have spare capacity that they are utilizing to accommodate some of this growth.

Hamid R. Moghadam: Steve, let me take a stab at that. If you are sensing any acute change in our outlook, you're not reading our call correctly. We have picked a three-year window, I think, on analyst day to give you our expectations. And the first year of that window has moved around.

Speaker Change: We also have the leading indicators we needed is simply see customers convert spacer.

Speaker Change: Space requirements into signed leases. So just a simple conversion of investigation into signed leases.

Hamid R. Moghadam: So, our outlook for the back period of second and third year is essentially the same and could be even better, given how much deferred demand is building up. If our proposals were down, if our tours were down, I would be more concerned. But companies are out looking for this space, and if you think nothing has changed in the last 45 or 90 days with respect to the Fed's outlook, you must be reading different newspapers than I am.

Speaker Change: And indeed, we already are seeing a front edge of some leading global e-commerce companies and other retailers begin to make space, It's just not broadly get occurring across solar marketplace. Yes.

Speaker Change: Yes, the only thing I would add to that is that the effect is not uniform in all markets.

Speaker Change: I think what's going on in this theory. This is not a fact, it's a theory, but it's based on 40 years of looking at this stuff.

Speaker Change: Southern California has over 30% share for <unk> PFS and the rest of the U S market has a little under 20% share of <unk> PFS. Three Pls are served two purposes, one day provide outsourcing logistic activities.

Hamid R. Moghadam: So I would tell you that people are just scared of pulling the trigger until the Fed gives the all-clear sign with the first rate cut. So, yes, you know, we're not instantaneous in our data transmission to us and to you, but I can assure you that you will always hear our views immediately as we form them and as we get them from the market. And the next question comes from the line of Michael... Good morning. Thanks a lot for taking my question. It sounds like

Speaker Change: It also creates search space in other words companies.

Speaker Change: <unk> as a way of flexing up and down some markets that have a bigger exposure to three pls are likely to feel the impacts of shifts in sentiment similar than other markets on the way down and on the way up.

Michael Goldsmith: And the next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

Speaker Change: Also there are certain customers, who have instantaneous access to sales data and activity and I would say the E. Commerce players the big ones have the best data on that because they see the trends on the daily minute by minute basis. Those guys were early in terms of curtail.

Chris Caton: Hi Michael, this is Chris Caton. Thanks for the question. As we've kind of covered in the script, and I think we're pointing out here, whether it's consumer resilience as revealed by economic indicators like the labor metrics or retail sales, whether you look at our own customers and supply chain momentum, as revealed by our RBI volumes through the ports and our proposal volumes, the broader economy is generating a normal amount of demand. A couple things to consider, though.

Speaker Change: Their demand and I got to tell you theyre out there pretty aggressively and don't listen to what we say listen to what they say in their own.

Speaker Change: Annual reports in their own interviews with the press and I think you'll see that they feel pretty confident about their business and they are a bit ahead of the curve now.

Chris Caton: One is, as you can see in utilization data and in sublease space, some customers have spare capacity that they are utilizing to accommodate some of this growth. We also have these leading indicators. We need to simply see customers convert Space Requirements into Signed Leases, so just the simple conversion of the investigation into signed leasing. And indeed, we are already seeing the front edge of some leading global e-commerce companies and other retailers begin to make space, it's just not happening broadly yet across the whole marketplace.

Speaker Change: All of this is subject to missiles not flying in the middle East and Thats, not going Crazy and God knows what else can happen in this world so but as far as we see the indications are really good and this certainly does not feel like any of the other downturns that I've been part of us so.

Speaker Change: So again the war.

Speaker Change: Shoot sounds a little bit of an overreaction to me.

Speaker Change: And the next question comes from the line of Craig Mailman with Citi. Please proceed with your question.

Craig Mailman: Hey, guys.

Craig Mailman: Maybe coming at this from another way and I mean.

Chris Caton: Yeah, the only thing I would add is

Hamid R. Moghadam: Yeah, the only thing I would add to that is that the effect is not uniform in all markets, and I think what's going on, and this is a theory, this is not a fact, it's a theory, but it's based on 40 years of looking at this stuff. Southern California has over 30% of the market share for 3PL. And the rest of the U.S. market has a little under 20% share of 3PLs. 3PLs serve two purposes.

Craig Mailman: I know you don't like the word acute but maybe it seems a little bit more preemptive because if you guys are seeing.

Craig Mailman: A lot of the metrics in line with your budget retention was kind of in line with where you guys had been the last couple of quarters.

Craig Mailman: It feels like this is in anticipation of maybe slower take downs that you are seeing I mean or is there anything else.

Craig Mailman: On the exploration side of the equation that you guys have a couple of bigger known move outs now that there are going to skew numbers.

Hamid R. Moghadam: One, they provide outsourcing for logistic activities, but they also create surge space. In other words, companies use 3PLs as a way of flexing up and down. So markets that have a bigger exposure to 3PLs are likely to feel the impacts of shifts in sentiment sooner than other markets on the way down and on the way up. Also, there are certain customers who have instantaneous access to sales data and activity, and I would say the e-commerce players, the big ones, have the best data on that because they see the trends on a daily, minute-by-minute basis.

Craig Mailman: I'm just trying to get a sense of how much of this is actually what youre seeing real time versus just.

Craig Mailman: Giving yourself a little bit of cushion so that you'll have to kind of readjust later in the year.

Craig Mailman: And also just a question on development how much of this kind of occupancy decline is just <unk>.

Craig Mailman: Elements coming out a little bit less lease that maybe you had thought a couple of months ago. We noticed your development margins were.

Hamid R. Moghadam: Those guys were early in terms of curtailing their demand, and I gotta tell you, they're out there pretty aggressively. Don't listen to what we say; listen to what they say in their own annual reports, in their own interviews with the press, and I think you'll see that they feel pretty confident about their business, and they're a bit ahead of the curve. All of this is subject to, you know, missiles not flying in the Middle East, and the Fed not going crazy, and God knows what else can happen in this world.

Craig Mailman: Or single digit this quarter I don't remember the last time I've seen that and is that a reflection of this or is there something else going on as well.

Speaker Change: Okay. Lastly, let me start that and then I'll turn it over.

Speaker Change: And then to Dan to talk about development margin specifically.

Speaker Change: We like to be early and thoughtful in outlooks that we share with you.

Dan: And we've always prided ourselves in doing that and in some cases in the past as you know you've been following us for a long time, we've taken a pretty.

Hamid R. Moghadam: So, but as far as we can see, the indications are really good, and this certainly does not feel like any of the other downturns that I've been part of. So, again, I don't think the word cute sounds a little bit of an overreaction.

Dan: Bold statements on the way up and on the.

Dan: Weighed down.

Dan: Actually it's been improving pretty right about it.

Dan: So for us to be in late on this stuff is not something that we look forward to so we always try to be under lookout for trends that may be interesting to our investors and to you.

Craig Mailman: And the next question comes from the line of Craig Mailman with Citi. Please proceed with your question.

Craig Mailman: Hey guys, maybe coming at this from another way, and Hamid, I know you don't like the word acute, but maybe this seems a little bit more preemptive because if you guys are seeing, You know, a lot of the metrics in line with your budget, retention was kind of in line with where you guys have been the last couple quarters. It feels like this is an anticipation of maybe slower takedowns that you're seeing.

Dan: We're looking at our company on a real time basis, so I'm not smart enough to assign percentages of how much of this is <unk> how much of it is but I can tell you there is nothing going on in the portfolio.

Dan: Not some news embedded deep in our customer behavior or some market that we're not sharing with you. This is just looking at the tone in the marketplace and sharing with you what we see playing out in the next two to three quarters nothing beyond that and the outlook for the long term.

Craig Mailman: I mean, is there anything else on the expiration side of the equation that you guys have a couple bigger known move outs now that are going to skew numbers? I'm just trying to get a sense of how much of this is actually what you're seeing real time versus just giving yourself a little bit of cushion so that you don't have to kind of readjust later in the year. And also just a question on development, you know, how much of this kind of adequacy decline is just developments coming out a little bit less than maybe you had thought a couple months ago.

Dan: It's pretty much the same as it was before Dan do you want to talk about the margins, yes, the margins this quarter.

Dan: Actually an isolated event here, we have about 15 to 17 projects stabilize we had one project that just had a confluence of events take place whether it would be weather.

Dan: Some.

Dan: Infrastructure and municipal requirements and it just came in in a pretty negative margin weighing down the overall average margin for the quarter. If you pull that out our margin for the quarter would actually be more reasonable 15, 16%.

Craig Mailman: We noticed, you know, your development margins were pretty single-digit this quarter. I don't remember the last time I saw that. And is that a reflection of this, or is there something else going on as well?

Dan: And the next question comes from the line of Camille Bonnell with Bank of America. Please proceed with your question.

Unknown Executive: Hi, Tony you mentioned, how the company likes to be early on calling things.

Hamid R. Moghadam: Okay, let me start that, and then I'll turn it over to Chris and then to Dan to talk about development margins. We like to be early and thoughtful in the outlooks that we share with you, and we've always prided ourselves on doing that. And in some cases, in the past, as you know, you've been following us for a long time, we've taken pretty bold statements on the way up and on the way down and actually been proven pretty right about them.

Unknown Executive: But I noticed that you only updated your outlook on operations and guidance. So can you help us understand how conservative guidance levels are or could we see more downward revisions. For example, if you start to pull back on the capital deployment side.

Speaker Change: Thank you.

Speaker Change: On capital deployment specifically.

Speaker Change: You may remember that I'm always saying the only reason we provide guidance is because you asked us we actually don't have the budget or plan for deploying capital. We will look at every investment opportunity one at a time so all of our elements of our guidance and this doesn't go for just this period. It goes for any period I would take that one.

Hamid R. Moghadam: So for us to be late on this stuff is not something that we look forward to. So we always try to be on the lookout for trends that may be interesting to our investors and to you who are looking at our company in real time. So I'm not smart enough to assign percentages to how much of this is preemptive and how much of it isn't, but I can tell you there's nothing going on in the portfolio.

Speaker Change: So we're not afraid to deploy a lot more or a lot less capital if the market conditions warranted.

Hamid R. Moghadam: There's not some news embedded deep in our customer behavior or some market that we're not sharing with you. This is just looking at the tone of the marketplace and sharing with you what we see playing out in the next two to three quarters. Nothing beyond that, and the outlook for the long term is pretty much the same as it was before. Ben, do you want to talk about the margins? Yeah, the margins.

Speaker Change: With respect to conservatism I would say we call it as close to that and as we can get it.

Speaker Change: And that varies to light.

Speaker Change: A bit of conservatism not a lot.

Speaker Change: Just a bit so that.

Speaker Change: And the majority of the cases, we're pretty confident of what we're saying well, we're not 100% confident there is there could be downside beyond that but I would say, we try to call. It as we see it.

Dan Letter: Yeah, the margins this quarter are actually an isolated event here. We have about 15, 17 projects stabilized. We had one project that just had a confluence of events take place, whether it be weather, some infrastructure, and municipal requirements, and it just came in at a pretty negative margin, weighing down the overall average margin for the quarter. If you pull that out, our margin for the quarter would actually be a more reasonable 15, 16%. And the next question comes from the line of Camille Bonnell with Bank of America. Hi, Hamid, you mentioned how the company...

Speaker Change: Be careful that we don't regularly we don't want to disappoint, 60% of the time, which is really falling yet.

Speaker Change: Alright underpinned.

Speaker Change: To be a little more conservative than that no. We don't always get it right. So.

Speaker Change: Let's admit that.

Speaker Change: Camille it's Tim I might build on your the first part of your question as well, which is that at <unk>.

Timothy D. Arndt: Prevailing cap rates and the cost of debt and everything else. There's very little you can actually do in deployments in the year to affect earnings in year, one or two.

Unknown Executive: And the next question comes from the line of Camille Bonnell with Bank of America.

Timothy D. Arndt: I find that deployment changes tend to have kind of a push effect on earnings. So you should probably have that in your thinking as you watch our guidance.

Hamid R. Moghadam: Well, on capital deployment specifically, you may remember that I'm always saying the only reason we provide guidance is because you asked us. We actually don't have a budget or a plan for deploying capital. We look at every investment opportunity one at a time.

Timothy D. Arndt: And the next question comes from the line of Nikita <unk> with J P. Morgan. Please proceed with your question.

Nikita: Hey, good morning, guys.

Nikita: The 150 million of other real estate investments. So what exactly was that on the sales and maybe also if you could talk about the reduction in development starts like any color on that geographic focus or.

Timothy D. Arndt: So all our elements of our guidance, and this doesn't go for just this period; it goes for any period, I would take that one with a grain of salt. We're not afraid to deploy a lot more or a lot less capital if the market conditions warrant it. With respect to conservatism, I would say we call it as close to the pen as we can get it with a very slight bit of conservatism, not a lot, just a bit, so that, you know, in the majority of cases, we're pretty confident of what we're saying.

Nikita: Back or something else.

Nikita: That's basically the 150 of some non core assets and we could not hear the second part of your question could you repeat that.

Nikita: Reduction in development starts for for this year any additional information you could provide on what drove that whether it was geographic based or asset specific.

Nikita: Build to suit pullback.

Nikita: Yes. Thanks. This is Dan I'll I've got a couple of thoughts.

Timothy D. Arndt: But we're not 100% confident. There could be downsides beyond that. But I would say we try to call it as we see it and be careful that we don't regularly – we don't want to disappoint 50% of the time, which is really call and get right on the pen. We'd like to be a little more conservative than that. Now, we don't always get it right, so, you know, let's admit that. And Camille, it's Tim. I might build on the first part of your question as well, which is that, with prevailing cap rates and the cost of debt and everything else, there's very little you could actually do in deployments in the year to affect earnings in year one or two. You know, I find that deployment changes tend to have kind of a push effect on earnings, so you should probably have that in your thinking as you watch our guide.

On that point there on development starts.

Dan: We adjusted our guidance on development consistent with the adjustment in the occupancy.

Dan: The operating pool, so as we see demand shifting out.

Dan: We just expect that we're going to start fewer buildings.

Dan: We reduced it by about half a billion dollars.

Dan: That's about half build to suit has spec we're raising the bar on spec as Hamid said earlier, when we put that guidance out there because you asked for it we don't need to start these projects we own the land, we have $38 billion worth of opportunity embedded in that land bank. We have entitlements. We have the teams. They are all geared up ready to start.

Dan: We can literally pulled the trigger on $10 billion to $12 billion of that tomorrow. So we just look at that we're.

Dan: We're just trying to be consistent and tied to our overall outlook on demand and Theres, no particular location or otherwise.

Nikita Vyacheslav Bely: And the next question comes from the line of Nikita Bely with J.P. Morgan. Please proceed with your question.

Dan: <unk>.

Dan: That dragged that down.

Speaker Change: Yeah, and the only thing I would add to that is that even though we made the adjustment on both the built to suit and spec part.

Chris Caton: The $150 million in other real estate investments, Chris, what exactly was that on the sales, and maybe also if you could talk about the reduction in development starts, any color on that, geographic focus, or? [inaudible]

Speaker Change: The bias is greater on the spec part, we actually feel pretty good about our build to suit volume going forward. So it's really respect which is discretionary.

Speaker Change: And we can as Dan said anytime.

Nikita Vyacheslav Bely: That's basically, the 150 is some non-core assets, and we could not hear the second part of your question. Could you repeat that? Reduct...

Speaker Change: Okay.

Speaker Change: And the next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

Blaine Matthew Heck: Great. Thanks, So you've called out southern California as being soft again can you just talk about any specific segments of the market that are particularly weak whether that's by submarket or size and what makes you confident in the recovery even if it seems it might be delayed kind of relative to your original expectations and secondly, just curious if you can.

Dan Letter: Reduction in development starts for this year. Any additional information you could provide on what drove that, whether it was geographic-based or asset-specific or built-to-shoot pullback?

Dan Letter: Yeah, thanks. This is Dan.

Dan Letter: I got a couple of thoughts on that point there about development starts. We adjusted our guidance on development consistent with the adjustment in the occupancy and the operating pool. So as we see demand shifting out, we just expect that we're going to start fewer buildings. We have reduced it by about half a billion. That's about half Build-A-Suit, half spec. We're raising the bar on spec. As Hamid said earlier, we put that guidance out there because you asked for it. We don't need to start these projects.

Spanned on which other high rent markets might be weighing on the outlook. Thanks.

Blaine Matthew Heck: Hey, Brian It's Chris Cade and thanks for the question. So southern California is a market that continues to soften and vacancy rates are continuing to rise yes. After different submarkets. The softest area of Southern California is midsize and smaller units in the inland Empire.

Chris Caton: The strongest area is probably Orange County, and Los Angeles, well subdued has a 4% market vacancy rates. So as demand comes into that market pay marketplace bear in mind demand has been negative over the last year.

Dan Letter: We own the land. We have $38 billion worth of opportunity embedded in that land bank. We have entitlements. We have the teams. They're all geared up, ready to start.

Chris Caton: A very rare occurrence as demand comes back into that marketplace, you're likely to see the vacancy rate and make a difference in Los Angeles as well.

Dan Letter: We can literally pull the trigger on $10, $12 billion of that tomorrow. We just look at that. We're just trying to be consistent and tie it to our overall outlook on demand. There's no particular location or otherwise that would drag that down.

Chris Caton: In terms of other markets, where we're watchful.

Chris Caton: Soft markets in the U S include.

Chris Caton: New Jersey, Seattle, and and Savannah.

Speaker Change: Yes, the other thing I would say about southern California's that don't discount the effect of the port labor issues that was resolved that took longer a lot longer than most people thought.

Hamid R. Moghadam: Yeah, and the only thing I would add to that is that even though we made the adjustment on both the built-to-suit and the spec part, the bias is greater on the spec part. We actually feel pretty good about our built-to-suit volume going forward. So it's really the spec which is discretionary, and we can advance that part. And the next question comes from the line of Blaine Heck with Wells Fargo. Great, thanks. So, you've called out Southern California as being soft again.

Speaker Change: And that affects a lot of the people a lot of the users in the South Bay immediately adjacent to the ports and the like.

Speaker Change: So that market can get real quick if that port volume comes back.

Speaker Change: I think theyre small.

Speaker Change: Small to medium spaces in the inland Empire are kind of a mismatch there by and large the older buildings that were built there when the market was not really designed for the big 500000 million square foot buildings and those are somebody who wants a lot of space has a signal to the inland Empire.

Blaine Matthew Heck: And the next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

Speaker Change: Somebody who wants hundreds to 200000 feet has more choices, so that's where the softness in the environment.

Chris Caton: Hey Blaine, it's Chris Caton. Thanks for the question. So Southern California is a market that continues to soften; vacancy rates are continuing to rise. Yes, after different submarkets. The softest area of Southern California is midsize and smaller units in the Inland Empire. The strongest area is probably Orange County. And Los Angeles, while subdued, has a 4% market vacancy rate. So as demand comes into that marketplace, bear in mind demand has been negative over the last year, a very rare occurrence.

Speaker Change: Okay.

Vince James Tibone: And the next question comes from the line of Vince to Bone with Green Street. Please proceed with your question.

Vince James Tibone: Hi, Good morning could you discuss the markets of relative strength in your portfolio in terms of demand and market rents and also are you seeing any different level of demand by building size you know more broadly we noticed that occupancy fell the most on a sequential basis for building left in 100000 square feet, but actually grew for build.

Vince James Tibone: Yeah, $2 50 to 500, so just curious if those trends and occupancy are kind of a fair representation of the demand profile today.

Chris Caton: As demand comes back in that marketplace, you're likely to see the vacancy rate make a difference in Los Angeles as well. In terms of other markets where we're watching, soft markets in the U.S. include New Jersey, Seattle, and Savannah.

Vince James Tibone: Thanks, Chris Cade in here. So first in terms of strength there is a wide range and speaking of the benefits of diversity the strongest markets in the World include Mexico, Texas parts of the Southeast U S.

Hamid R. Moghadam: Yeah, the other thing I would say about Southern California is that don't discount the effect of the port labor issue that was resolved. That took longer, a lot longer than most people thought.

Vince James Tibone: Pennsylvania, but also getting out to the Netherlands, Germany, and Brazil, Toronto, Toronto, as well as a strong market.

Hamid R. Moghadam: And that affects a lot of people, a lot of the users in the South Bay immediately adjacent to the ports and the like. So that market can get tight real quick if that port volume comes back. I think that the small to medium spaces in the Inland Empire are kind of a mismatch. They're, by and large, older buildings that were built there when the market was not really designed for the big 500,000 million square foot buildings. And those are somebody who wants a lot of space has to go to the Inland Empire. Somebody who wants 100 to 200,000 feet has more choices. So that's where the South is in the Inland Empire.

Vince James Tibone: <unk>.

Vince James Tibone: You also have stable markets, Chicago, Southern Florida, Baltimore D. C. And then really it southern California alone is really the main weak market. So that would be the range in terms of size categories.

Vince James Tibone: What you see what you hear in the marketplace in terms of tours and in fact, some leases that are getting made.

Vince James Tibone: A bit more activity, particularly among self performing E com and retailers at the larger end of the spectrum that would be the main I would say new news in the last 90 days.

Vince James Tibone: And the next question comes from the line of Vince Tibone with Green Street. Please proceed with your question.

Ki Bin Kim: And the next question comes from the line of Keybanc Kim with <unk> Securities. Please proceed with your question.

Chris Caton: Hi, good morning. Could you discuss the markets of relative strength in your portfolio in terms of demand and market rents? And also, are you seeing any different levels of demand by building size? You know, more broadly, we noticed that occupancy fell the most on a sequential basis for buildings, you know, less than 100,000 square feet, but actually grew for buildings, you know, 250 to 500. So just curious if those trends in occupancy are kind of a fair representation of the demand profile today.

Ki Bin Kim: Thanks, and good morning.

Ki Bin Kim: So going back to your comments about the softer environment I'm curious if you've seen any changes in capex or concessions that might be.

Ki Bin Kim: And not be so apparent in the headline face rents.

Ki Bin Kim: And second question going back to your comments on strategic capital.

Ki Bin Kim: Where do you think cap rates are settling out at for good assets in good markets and does that change your view on the level of contribution that you might make going forward.

Speaker Change: Thank you.

Speaker Change: It came in it's Tim I'll take the front half of your question just on free rent, we have seen an increase in.

Timothy D. Arndt: And free rent I think what's important to remember there is we've had exceedingly low amounts of free rent granted in the last few years.

Chris Caton: I'm Chris Caton here. So first, in terms of strength, there is a wide range, and speaking of the benefits of diversity, the strongest markets in the world include Mexico, Texas, parts of the Southeast US, Pennsylvania, but also looking out to the Netherlands, Germany, and Brazil, Toronto, Toronto as well as a strong market. You also have stable markets, Chicago, Southern Florida, Baltimore, D.C., and then really Southern California alone is really the main weak market.

Timothy D. Arndt: Say the current rates that we've seen in this last quarter and what we're bracing for which this year would still not really be on par with long term averages I would say that that concession is not fully back to normal.

Timothy D. Arndt: But it is it is turning up logically in this environment.

Speaker Change: Yes in terms of.

Speaker Change: Deals are being priced out I would say.

Speaker Change: Nine months ago, a year ago, there was very little activity and we were pricing deals in good markets in the U S. In the low nine irr's, albeit not much was happening.

Chris Caton: So that would be the range. In terms of size categories, what you see and hear in the marketplace, in terms of tours and, in fact, some leases that are getting made, there's a bit more activity, particularly among self-performing e-com and retailers at the larger end of the spectrum. That would be the main, I'd say, new news in the last 90 days. The next question comes from the line of Keeban... Thanks, and good morning. So, going back to your comments about the software environment.

Speaker Change: Those types of return expectations.

Speaker Change: I would say those are a 100 basis points lower and Theres a lot more volume in that a lot of transactions happening in the marketplace in the in the low eights Europe that number those numbers would be in the mid seven IRR. The reason I'm entering an IRR in the non cap rate is that the mark to market in different locations.

Speaker Change: <unk> is significantly vary.

Ki Bin Kim: And the next question comes from the line of Ki-Bin Kim with Truist Securities. Please proceed with your question.

Speaker Change: Sample before the same IRR you would be a lot lower cap rate in southern California than you would be in a market that is leased at market rates.

Speaker Change: Yeah.

Speaker Change: And the next question comes from the line of Tom Catherwood with BTG. Please proceed with your question.

Timothy D. Arndt: Hey, Keith, and it's Tim. I'll take the front half of your question on free rent. We have seen an increase in free rent. But I think what's important to remember there is we've had exceedingly low amounts of free rent granted in the last few years, and I would say the current rates that we've seen in this last quarter and what we're bracing for this year would still not really be on par with long-term averages. I would say that concession is not fully back to normal, but it is turning up logically in the next environment. Yeah, in terms of where

William Thomas Catherwood: Thank you and good morning, everybody.

William Thomas Catherwood: And I appreciate your comments on rates and the fed's actions or Inactions, serving as the key governor of customer activity and leasing right now.

William Thomas Catherwood: But how are you seeing supply chain disruption like in Baltimore, and geopolitical risks impacting customer behavior if at all.

Speaker Change: I don't think Baltimore, and it's been a big deal.

Speaker Change: In terms of its impact on our business, it's obviously been a big deal to.

Chris Caton: Yeah, in terms of where deals are being priced out, I would say... Nine months ago, a year ago, there was very little activity, and we were pricing deals in good markets in the U.S. at the low nine IRRs, albeit not much was happening at those kinds of return expectations. Today, I would say those are 100 base points lower, and there's a lot more volume in that; there are a lot of transactions happening in the marketplace in the low eights.

Speaker Change: To the people, who died in the accident and the like and but.

Speaker Change: Two traffic patterns, but not to the customer the customers have enough optionality that we can deal with those kinds of.

Speaker Change: Distractions I do thing.

Speaker Change: The geopolitical stuff has had people a little wind out more definitely more than last quarter.

Speaker Change: And.

Speaker Change: Let's look at the interest rates I mean, we are up.

Chris Caton: In Europe, those numbers would be in the mid-seven IRRs. The reason I'm answering in IRR and not cap rate is that mark-to-market in different locations is significantly varied. For example, for the same IRR, you would have a much lower cap rate in Southern California than you would in a market that is leased part-to-part. And the next question comes from the line of Tom Catherwood with BTI. Thank you and good morning, everybody.

Speaker Change: 70, 80 basis points since the last time, we all met.

Speaker Change: And.

Speaker Change: I think that didnt happen evenly throughout the quarter I think in the last few months.

Speaker Change: Sentiment has changed pretty dramatically. So I think both of those things are weighing on decisions, particularly if the decisions are discretionary.

Speaker Change: And our.

Speaker Change: People when there are no choices like they were no choices in southern California, They always leased more space than they need because they don't want to be.

William Thomas Catherwood: And the next question comes from the line of Tom Catherwood with BTIG. Please proceed with your question. Thank you.

William Thomas Catherwood: I don't think Baltimore has been a big deal in terms of its impact on our business. It's obviously been a big deal to the people who died in the accident and the like, and to traffic patterns, but not to the customer. The customers have enough optionality that they can deal with those kinds of disruptions.

Speaker Change: It's short and when when the opposite is and they have some choices choices. They take their time, because they expect better deals just stay away and that difference even if it's minor even if it's 5% to the upside and 5% to the down side can be a 10% swing.

Speaker Change: Or sort of the kind of numbers, we're talking about here. So that's very much what happens in the short term in the long term demand estimate supply and they can keep doing that forever. So.

Hamid R. Moghadam: I do think the geopolitical stuff has people a little wigged out, definitely more than last quarter. And look at the interest rates. We're up a good 70, 80 basis points since the last time we all met. And I think that didn't happen evenly throughout the quarter. I think in the last month, that sentiment has changed pretty dramatically.

Speaker Change: Now if youre going to ask me exactly at that point is I can't really tell you, but we think it's a matter of quarters not years.

Speaker Change: And the next question comes from the line of Jon Petersen with Jefferies. Please proceed with your question.

John Peterson: Oh, great. Thank you maybe one more question on the part of Baltimore I know, it's not a big container traffic quarter, but have you seen any knock on demand show up in other east coast markets given the dislocation.

Hamid R. Moghadam: So I think both of those things are weighing on decisions, particularly if the decisions are discretionary. And people, when there are no choices, like there were no choices in Southern California, always lease more space than they need because they don't want to be held short. And when the opposite is true, and they have some choices, they take their time because they expect better deals if they wait. And that difference, even if it's minor, even if it's 5% to the upside and 5% to the downside, can be a 10% swing.

Speaker Change: Created and then also maybe just a part two but.

Speaker Change: So Cal has been weak over the past year, you talked about it a lot and the reset has already happened I guess I'm curious if you could help us contextualize from where we stand today, if you could compare the strength of like Socal versus the east coast markets, like New Jersey, and Pennsylvania like from where we stand today, which one looks the best over the next year.

Hamid R. Moghadam: Which are sort of the kind of numbers we're talking about here. So that's very much what happens in the short term. In the long term, demand has to match supply, and they can't keep doing that forever. So now, if you're going to ask me exactly what that point is, I can't really tell you. But we think it's a matter of quarters.

Speaker Change: Hey, John It's Chris cadence first on Baltimore Youre right container traffic. There is typically 50000 teus a months time horizon of necessary diversions is not thought to be more than a couple of months.

Chris: By comparison in New York, New Jersey is a 300 350000 Teu port.

John Peterson: And the next question comes from the line of John Peterson with Jeffries. Please proceed with your question.

Chris: A lot of these diversions have gone to Norfolk, So you've seen some leasing in Norfolk, it's not a market where we operate so no there are not knock on effects.

Chris Caton: container traffic port, but have you seen any knock-on demand show up in other East Coast markets given the dislocation that it's created? And then also, maybe just a part two, but you know, I know SoCal has been weak over the past year. We've talked about that a lot, and the resets have already happened. I guess I'm curious if you could help us contextualize from where we stand today, if you could compare the strengths of, like, SoCal versus the East Coast markets, like New Jersey and Pennsylvania, from where we stand today, which one looks the best over the next year?

As it relates to southern California versus the East coast.

Chris: The socal market remains fluid and I believe we believe it will underperform.

Chris: This is a six months 12 months view naturally new Jersey has a completely different set of factors as it relates to rent growth that it has experienced over the last several years in terms of the level of demand that we see in that marketplace.

Chris: Well as sublease trends.

Speaker Change: Now is not the moment to get bullish on New Jersey, let's see the Port agreements, Iowa Board agreement.

Speaker Change: Get made.

Speaker Change: But over time, both will be very strong performers. After this period of fluidity and uncertainty.

Chris Caton: Hey, John, it's Chris Caton. First on Baltimore, you're right. The container traffic there is typically 50,000 TEUs a month. The time horizon of necessary diversions is not thought to be more than a couple months. By comparison, New York, New Jersey is a 300-350,000 TEU port, and a lot of these diversions have gone to Norfolk. So you've seen some leasing in Norfolk. It's not a market where we operate. So no, there are no knock-on effects.

Speaker Change: The way I would answer that question is that if you limit it to the next 12 months I will sell P. A new Jersey Socal and if you ask me for the longer term I would go so count in New Jersey.

Speaker Change: And I would put all three of them in the upper third of markets across cycles.

Speaker Change: Maybe the upper 20% of markets across cycles.

Speaker Change: Yeah.

Speaker Change: And the next question comes from the line of Ronald Camden with Morgan Stanley. Please proceed with your question.

Ronald Kamdem: Hey, good morning, just hoping we could put some numbers on the soft demand.

Chris Caton: As it relates to Southern California versus the East Coast, the SoCal market remains fluid, and I believe, we believe, it will underperform. This is a six-month, 12-month view. Naturally, New Jersey has a completely different set of factors as it relates to rent growth that it's experienced over the last several years, in terms of the level of demand that we see in that marketplace, as well as sublease trends. Now is not the moment to get bullish on New Jersey. Let's see the port agreement, the IOA port agreement, get made. But over time, both will be very strong performers after this period of fluidity and uncertainty. Yeah, the way I would answer that question...

Ronald Kamdem: That <unk> seem to be messaging. So previously you were forecasting one 5% of stock of net absorption. This year I'm just wondering what that number is just too given what's happened over the past 30 to 45 days and if you could tie in where you see sort of availability rates.

Ronald Kamdem: And next 12 month market rent growth.

Ronald Kamdem: Yeah, Let me take we have taken demand down for this year internally from 250 million feet in the U S to $1 75.

Ronald Kamdem: And fundamentally have kept demand at the same level going forward. What we debated that we were going to do is whether we add the $75 million that we missed this year into the subsequent two years and that's where the bid and ask is in our shop and you know we're not.

Hamid R. Moghadam: Yeah, the way I would answer that question is that if you limit it to the next 12 months, I would go PA, New Jersey, SoCal. And if you ask me for the longer term, I would go SoCal, New Jersey, PA. And I would put all three of them in the upper third of markets across. Maybe the upper 20% of markets across. And the next question comes from the line of Ronald Kamdem. Please proceed with your qu- Hey, good morning. Just hoping we could put some numbers on the soft demand.

Ronald Kamdem: Not clairvoyant, so thats Im just giving you the range of how do we think about it now.

Speaker Change: You had a second part to your question as it relates to market vacancies. We look at vacancy is not availability availability is a range between 150 and 250 basis points above these figures depending on the cycle, we have vacancies, peaking in the mid sixes later this year.

Ronald Kamdem: And the next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question.

So that's up about 2030 basis points versus what we discussed last year I think what's important to understand in this cycle is the recovery potential in 2025 related to each of the constituent pieces Hamid walked you through the demand picture, but what's important to recognize is the supply picture that was.

Hamid R. Moghadam: Yeah, let me take you, we have taken demand down internally for this year internally from 250 million feet in the US to 175 and fundamentally have kept demand at the same level going forward. What we debated was whether or not to add the $75 million that we missed this year into the subsequent two years. And that's where the bid and ask is in our shop. And, you know, we're not clairvoyants.

Speaker Change: A big factor over the last year or 18 months and the meaningful falloff in supply as is Mark it's off 80% from peak, it's off about a third from pre COVID-19 levels. So we're talking about 35 million square feet. It starts in the first quarter that annualize to about 160 170 million square feet. So.

Hamid R. Moghadam: So that's I'm just giving you the range of how we think about it. Now, you had a second part to your question. As it relates to market vacancies, we look at vacancies, not availability. Availability is a range between 150 and 250 basis points above these figures, depending on the cycle. We have vacancies peaking in the mid sixes later this year.

Speaker Change: Youre going to actually see this snap later this year and into next year and those vacancy rates moving noticeably down unlikely to move noticeably down from mid sixes towards 5% over the course of the next year.

Speaker Change: Okay.

Speaker Change: One other thing.

Hamid R. Moghadam: So it's up about 20, 30 basis points versus what we discussed last year. I think what's important to understand in the cycle is the recovery potential in 2025 related to each of the constituent pieces. So we've walked you through the demand picture. But what's important to recognize is the supply picture. That was a big factor over the last year and 18 months.

Speaker Change: Your response is triggered this.

Speaker Change: Vacancy rates do not literally affect.

Speaker Change: Affect pricing power I think when Youre operating under 5% you've got a lot of pricing power now, whether that's 2% or 3% doesn't matter you have a lot of pricing power and even though you might have two customers that really need the space for are looking for the space because they just don't want to be caught short down the road.

Hamid R. Moghadam: And the meaningful fall off in supply is marked. It's off 80 percent from peak. It's off about a third from pre-COVID levels. So we're talking about 35 million square feet. It starts in the first quarter.

Speaker Change: So it just sort of feeds on itself when the market gets to sort of around 6%.

Speaker Change: Librium when it gets too much above that you get into a soft market and that's a macro analysis, obviously, you've got to apply that market to market in each situation.

Hamid R. Moghadam: That annualizes to about 160, 170 million square feet. So you're going to actually see this growth later this year and into next year. And those vacancy rates are moving noticeably down, likely to move noticeably down from the mid sixes towards 5 percent over the course of next year. One other thing: your response has triggered this. Vacancy rates do not linearly affect pricing power. I think when you're operating under 5%, you've got a lot of pricing power. Now, whether that's 2% or 3% doesn't matter.

Speaker Change: But that's the way we look at it we don't think we're getting into those levels of vacancy that we've seen in other cycles, even during the good times.

Speaker Change: First that we're projecting in this period.

Speaker Change: It is almost as good as the best we've seen in other cycles. So that's that's a key distinction.

Speaker Change: We've just been spoiled by end market in three years, where agencies have been lower than they've ever been and I think you've heard me say at times that.

Hamid R. Moghadam: You have a lot of pricing power, and even though you might have two customers that really need the space, four are looking for it because they just don't want to be caught short down the road. So it just sort of feeds on itself.

Speaker Change: If the normal range of a market is one to 10, we've been operating in a 12 13 and more recently have said wearing in eight of our nine and today I would say we're in probably 657.

Hamid R. Moghadam: When the market gets to sort of around 6%, you're at equilibrium. When it gets too much above that, you get into a soft market. And that's a macro analysis. Obviously, you've got to apply that market to market in each situation. But that's the way we look at it. We don't think we're getting into those levels of vacancy that we've seen in other cycles, even during the good times. The worst that we're projecting in this period is almost as good as the best we've seen at other sites.

Speaker Change: Okay.

Speaker Change: And the next question comes from the line of John Kim with BMO Capital markets. Please proceed with your question.

John P. Kim: Thank you I just wanted to get some additional color on the weaker net absorption due to tenants, becoming more cost conscious I'm wondering if this test the thesis that industrial rent is somewhat an elastic given it's a small portion of the overall transported and logistic costs.

John P. Kim: And also where our tenants going in your view are they simply not expanding or are they downsizing or going to less expensive markets or submarkets.

Hamid R. Moghadam: So that's the, that's a key distinction. And we've just been spoiled by a market for three years where vacancies have been lower than they've ever been. And I think you've heard me say at times that if the normal range of a market is 1 to 10, we've been operating in a 12, 13, and more recently I've said we're in an 8 or a 9, and today I would say we're probably in a probably 6 and a half, 7. Thank you. I just wanted to get some additional color on the

Speaker Change: So we've actually tried to test that theory.

Speaker Change: Looking at whether southern California's loss has translated into it.

Speaker Change: Equally gain in adjacent markets like Vegas and.

Speaker Change: <unk> and the answer is while absorption is increasing those markets. It doesn't fully account for the drop off in southern California. So some of that demand has just been deferred and the question is when will deferred demand convert to real demand and thats. The $64 million question is it one quarter is it two quarters.

John P. Kim: And the next question comes from the line of John Kim with BMO Capital Markets; please proceed with your question.

Hamid R. Moghadam: So we've actually tried to test that theory by looking at whether Southern California's loss has translated into an equal gain in adjacent markets like Vegas and Phoenix. And the answer is, while absorption has increased in those markets, it doesn't fully account for the drop-off in Southern California. So some of that demand has just been deferred, and the question is when will deferred demand convert to real demand? And that's the $64 million question.

Speaker Change: Three quarters don't know, we think it's a couple of quarters.

Speaker Change: But it will happen in particular with the port coming back.

Speaker Change: Part of the account for over 30% of imports in the U S and it's been basically down so we.

Speaker Change: We think it's going to that's going to have a dramatic event now we may have missed it R&D for this Christmas season, I don't know.

Speaker Change: But.

Speaker Change: But certainly next year as that market is going to come back absent a recession or some kind of geopolitical go up.

Hamid R. Moghadam: Is it one quarter? Is it two quarters? Is it three quarters? Don't know. We think it's a double court.

Speaker Change: And John I might just add I guess, the way youre, putting the equation together. It is what we see that yes. The rate environment causes this consternation, but as Chris has been highlighted a number of his answers as we look at where utilization sits in some of the capacity. That's available. It's just the first place that customers.

Hamid R. Moghadam: But it will happen. And particularly with the port coming back, you know. That port accounts for over 30% of imports in the U.S., and it's been basically down. So we think it's going to have a dramatic effect. Now, we may have missed it already for this Christmas season. I don't know, but certainly next year, that market is going to come back, absent a recession or some kind of geopolitical blowup.

Speaker Change: You can look in terms of finding a way to continue to operate in the short term.

Speaker Change: That would extensively and you know them.

Speaker Change: We will watch for that as utilization rises and Thats what.

John P. Kim: And, John, I might just...

Speaker Change: I would add to new demand.

Speaker Change: And the next question comes from the line of Vikram Malhotra with Mizuho. Please proceed with your question.

John P. Kim: And John, I might just add, I guess the way you're putting the equation together is what we see that, yes, the rate environment causes this consternation. But as Chris has been highlighting in a number of his answers, as we look at where utilization sits and some of the capacity that's available, it's just the first place that customers can look in terms of finding a way to continue to operate in the short term. That would ostensibly end, you know, and we'll watch for that as utilization rises, and that's what.

Vikram L. Malhotra: Thanks for taking the questions just two quick ones.

Vikram L. Malhotra: First of all just on the three year outlook. So it sounds like you're saying 24 is a bit lower than you.

Vikram L. Malhotra: <unk> 25, and 26 is similar or does that essentially mean that three year outlook is kind of adjusted down.

Speaker Change: Somewhat and then secondly, just to be just to give us some numbers.

Speaker Change: I think what you were saying is.

Speaker Change: The rest of the market rent growth is now I guess flattish, but socal is down do you mind, just putting some more numbers on that like just how much is still kind of down Q over Q or year over year versus what other markets in the U S are doing thanks.

Vikram L. Malhotra: And the next question comes from the line of Vikram Malhotra with Mizzouho. Please proceed with your question.

Vikram L. Malhotra: Thanks for taking the questions. There are just two quick ones.

Timothy D. Arndt: First of all, just on the three-year outlook, so it sounds like you're saying 24 is a bit lower than you predicted, 25 and 26 are similar. Does that essentially mean the three-year outlook has kind of adjusted down somewhat? And then secondly, just to give us some numbers, I think what you were saying is The rest of the market rent growth is now, I guess, flattish, but SoCal is, http://TheBusinessProfessor

Vikram, it's Tim.

Timothy D. Arndt: Calling anything on 25 and 26 in my prepared remarks.

Vikram L. Malhotra: Well, maybe I should say you know I think our view would be that our views are upheld and what I tried to highlight in the opening remarks is that.

Timothy D. Arndt: If we get to a little bit lower average occupancy this year recognizing that our three year forecast called for a more normalized level of occupancy in the end anyway, that's where this concept of well maybe the adjustment to same store from an occupancy changes coming a bit more this year than it than it would otherwise next year, but right now.

Hamid R. Moghadam: Vikram, it's Tim. You know, we're not calling in anything on 25 and 26. In my prepared remarks, or maybe I should say, you know, I think our view would be that our views are upheld. And what I tried to highlight in my opening remarks is that, you know, if we get to a little bit lower average occupancy this year, recognizing that our three-year forecast called for a more normalized level of occupancy in the end anyway, that's where this concept of, well, maybe the adjustment to same store from an occupancy change is coming a bit more this year than it would otherwise next year.

Timothy D. Arndt: We would hold out our view for 25 and 26 in terms of aggregate NOI and same store now rent change and this very immediate term I'm sorry market rent growth.

Timothy D. Arndt: As a little bit below expectations that'll have some effects, but that will be relatively muted through same store over the period, yes, one let's just put some numbers since you asked Simon I think in the analyst day, we talked about a three year forecast for 24, 25% and 26 rental growth of three two.

Timothy D. Arndt: I'm, sorry, 4% to 6% I would say we're at the lower end of that range and maybe a little bit lower than that when you look at it over a three year period My number and this is not the official Limburg My number would be north of three and around for probably just shy of four.

Hamid R. Moghadam: But right now, we would hold out our view for 25 and 26 in terms of aggregate NOI and same store. Now, rent change in this very immediate term, I'm sorry, market rent growth, is a little bit below expectations. That'll have some effect, but that'll be relatively muted through same store over the period.

Timothy D. Arndt: And then just on the detailed question on what's happening in market rent growth in the first quarter, Southern California down 6%.

Timothy D. Arndt: U S down about 112% so when you multiply it through you can see all the all other markets are flat.

Timothy D. Arndt: Let's just put some numbers on it since you asked. I think in the analyst's day, we talked about a three-year forecast for 2024, 2025, and 2026 rental growth of four to six percent. I would say we're at the lower end of that range and maybe a little bit lower than that when you look at it over a three-year period. My number, and this is not the official number, would be north of three and around four, probably just shy of four. And then just on the detail question.

Timothy D. Arndt: Yeah.

Timothy D. Arndt: Okay.

Timothy D. Arndt: Okay.

Timothy D. Arndt: And the next question comes from the line of Nicholas <unk> with Scotiabank. Please proceed with your question.

Nicholas: Yeah, Hi, I was just hoping to get a feel for again going back to the occupancy guidance. If there's a way to give us a feel for how much decline in new leasing commencement you had been.

Nicholas: As in the number this year because it sounds like the retention ratios and better so yeah leasing velocity on the new side team subdued you talked about that leasing demand forecast being down I think it was 30% on the numbers you gave the $2 50 to $1 75.

Timothy D. Arndt: And then just on the detail question on what's happening in market rent growth in the first quarter, Southern California down 6%, U.S. down about 1, 1.2%. So when you multiply it through, you can see all the other markets are flat.

In the U S. How much is like new leasing in the portfolio are going to be down this year for the guidance.

Nicholas: Well.

Nicholas: This is Tim I'll give it to you in this way and this might help some of the folks who have struggled looking at the supplemental and some of the stats there and in our messaging because what you don't see in the supplemental.

Nicholas Philip Yulico: And the next question comes from the line of Nicholas Yulico with Scotiabank. Please proceed with your question.

Timothy D. Arndt: Would be things like well how much lease signing occurred in the first quarter and that was down.

Nicholas Philip Yulico: Yeah, hi. I was just hoping to get a feel for, again, going back to the occupancy guidance, if there's a way that you can give us a feel for, you know, how much decline in new leasing commencements you have been embedding into the number this year because it sounds like the retention ratios have been better. So, you know, leasing velocity on the new side seems subdued. You talked about that leasing demand forecast being down. I think it was 30% on the numbers you gave, the 250 to 175 in the U.S. How much is new leasing in the portfolio going to be down this year for guidance?

Timothy D. Arndt: Even though you see strong occupancy that's on Commencements signings were off about 12% in the first quarter. So that's down you can see that when you look through our pages in our leasing versus occupied statistics, where there's only about a 10 basis point difference in those versus a more historical norm of 40 to 50 basis.

Timothy D. Arndt: Points. So those are the pieces a little bit underneath the surface that are guiding our view that.

Timothy D. Arndt: The pre leasing that were normally looking.

Timothy D. Arndt: Four at this point, which is ranging four to six months.

Kim: Well,

Kim: Well, I will, this is Kim. I'll give it to you in this way, and this might help some of the folks who have struggled looking at the supplemental and some of the stats there and our messaging, because what you don't see in the supplemental would be things like, well, how much lease signing occurred in the first quarter, and that was down, even though you see strong occupancy, that's on commencements. Signings were off So those are the pieces a little bit underneath the surface that are guiding our view that the pre-leasing that we're normally looking for at this point, which is ranging four to six months ahead of commencements, is slow, and why we think the average occupancy is ultimately going to be lower.

Timothy D. Arndt: Ahead of Commencements is shy and why we think the average occupancy is ultimately going to be lower.

Timothy D. Arndt: And the next question comes from the line of Todd Thomas with Keybanc Capital markets. Please proceed with your question.

Todd Michael Thomas: Hi, Thanks.

Todd Michael Thomas: Two questions I guess first can you discuss your.

Todd Michael Thomas: Rent change expectations for the full year and.

Todd Michael Thomas: And whether anything has changed there as it pertains to the revisions to your outlook.

Todd Michael Thomas: And it looked like rent change on signings was trending in the low 70% range through February which was higher than the rent change in the quarter I guess any thoughts about.

Rent change trends relative to this quarter and for the year, but and then and then my second question.

Todd Michael Thomas: In terms of the occupancy breakout by unit size and your comments about larger and smaller spaces earlier in the call.

Todd Michael Thomas: And the next question comes from the line of Todd Thomas with KeyBank Capital Markets. Please proceed with your question.

Todd Michael Thomas: Do you expect a recovery later in the year to be broad based from a spacer unit size or do you expect to see.

Todd Michael Thomas: Hi, thanks. I have two questions, I guess. First, can you discuss your rent change expectations for the full year and whether anything has changed there as it pertains to the revisions to your outlook? You know, and it looked like rent change on signings was trending in the low 70% range through February, which was higher than the rent change in the quarter. I guess, you know, any thoughts about, you know, rent change trends relative to this quarter and for the year?

Todd Michael Thomas: More strength or may be more persistent weakness at either the larger or smaller unit sizes conditions tighten up in a few quarters.

Speaker Change: Hey, Todd.

Todd Michael Thomas: Yeah on rent change so as mentioned we had 67% starts in the quarter. The signings were 70. So you do get a sense that it can move up and down each quarter. You may also recall, we had very strong rent change on signings in Q4, which may leave you wondering why doesn't that show up here in Q1.

Todd Michael Thomas: And then my second question, in terms of the occupancy breakout by unit size and your comments about larger and smaller spaces earlier in the call, do you expect a recovery later in the year to be broad-based on space or unit size? Or do you expect to see, you know, more strength or maybe more persistent weakness at either the larger or smaller unit size as conditions tighten up in a few quarters?

Todd Michael Thomas: On the Commencements and that's speaking to just how long this pre leasing period can be it can be.

Todd Michael Thomas: More than just three months and for that reason I expect we will probably see rent change right. Now my view would be it's gonna be above Q1, and Q2 and then also higher on the full year in the low to mid seventies over 'twenty 'twenty four is our current view.

Timothy D. Arndt: Hey, Todd, it's Tim. Yeah, on the rent change. So, as mentioned, we had 67% start in the quarter, and the signings were 70. So you do get a sense that, you know, it can move up and down each quarter. You may also recall we had a very strong rent change on signings in Q4, which may leave you wondering, you know, why didn't that show up here in Q1 at the commencement. And that's speaking to just how long this pre-leasing period can be; it can be more than just three months.

Todd Michael Thomas: As it relates to the contours I think I'd first point you to the market color that was given earlier as illustrating the.

The shape of the recovery going forward as it pertains to different size categories.

Todd Michael Thomas: There is more vacancy and more availability in the over 500000 category, but that's also where in the last 90 days, we've seen a little bit of a pickup so I think we'll see some.

Todd Michael Thomas: <unk> category is advancing at a similar pace over the course of the year and there'll be real differentiation across the different markets.

Timothy D. Arndt: And for that reason, I expect we'll probably see rent change right now; my view would be it's going to be above Q1, in Q2, and then also higher for the full year in the low to mid 70s over 2024. As it relates to the contours, I think I'd first point you to the market color that was given earlier as illustrating the shape of the recovery going forward. As it pertains to different size categories, there is more vacancy and more availability in the over 500,000 category, but that's also where, in the last 90 days, we've seen a little bit of a pickup. So I think we'll see size categories advancing at a similar pace over the course of the year, and there will be real differentiation across the different markets.

Todd Michael Thomas: Okay.

Todd Michael Thomas: And our final question comes from the line of Vince <unk> with Green Street. Please proceed with your question.

Vince James Tibone: Alright, thanks for the follow up I was just curious are you seeing any other landlords gain to offer more free rent or tenant allowances to try to attract tenants to their vacancies.

Vince James Tibone: A really interesting question. So this is what has really surprised me on this cycle.

Vince James Tibone: We are getting calls from merchant developers.

Vince James Tibone: Financing have completed projects.

Vince James Tibone: And aren't getting panicked.

Vince James Tibone: And and for us to look at those opportunities.

Vince James Tibone: Looking at those opportunities.

Vince James Tibone: That's where a good balance sheet, and thats, where them being on your front foot as all of that.

I think there were a lot of people in this business that fact.

Vince James Tibone: And our final question comes from the line of Vince Tibone with Green Street. Please proceed with your question.

Vince James Tibone: We're just get some financing of zero constant throughout some buildings and that will lease and I think that's what accounted for.

Vince James Tibone: Hi, thanks for the follow up. I was just curious, are you seeing any other landlords beginning to offer more free rent or tenant allowances to try to attract tenants to their vacancies?

Vince James Tibone: Some of that over.

Vince James Tibone: Over exuberance.

Vince James Tibone: On the development side, and I think we're going to end up taking beneficiaries of that and I'm seeing that real time. So yes, I think people who are merchant developers and did not have the financial wherewithal are acting.

Hamid R. Moghadam: A really interesting question. So this is what has really surprised me during this cycle. We are getting calls from merchant developers that have had financing, have completed projects, and are getting panicked. And for us to look at those opportunities, boy, are we looking at those opportunities. Because that's where a good balance sheet and that's where being on your front foot is all about. I think there were a lot of people in this business that thought, you know, we'll just get some financing at zero cost and throw up some buildings, and then we'll lease them.

Vince James Tibone: In a somewhat distressed way sooner than I would've guessed then.

Speaker Change: We're happy about that so that was the last question then so with that I want to thank you for your interest and this is part of a long story and we will be there next quarter to tell you about the following chapters.

Speaker Change: Take care Bye bye.

Speaker Change: Yeah.

Speaker Change: And ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

Speaker Change: Hum.

Speaker Change: Okay.

Hamid R. Moghadam: And I think that's what they counted for, some of that over-exuberance on the development side. And I think we're going to end up being beneficiaries of that, and I'm seeing that in real time. So yes, I think people who are merchant developers and do not have the financial wherewithal are acting in a somewhat distressed way sooner than I would have guessed.

Speaker Change: Okay.

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Hamid R. Moghadam: We're happy about that. So that was the last question, Vince. So, with that, I want to thank you for your interest. And this is part of a long story. And we'll be there next quarter to tell you about the following chapters of it. Take care. Bye-bye.

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Operator: And ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Okay.

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Operator: ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Thank you for watching!

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