PROLOGIS, INC. BofA NY Global Real Estate Conference 2026

Sarah Cooper, Global Head of Real Estate Equity Sales, and for various reasons, you have me moderating. I would welcome all of your questions as we proceed, particularly around the things that I'm not allowed to mention.

Thank you to management. We have Tim Arndt, CFO, Justin Meng, head of IR. That's all from your team, right? We don't have Abhishek. Abhishek as well, here with us. To jump right in, maybe you can give us the latest updates on leasing and tenant demand into September. Hit on what's changed since earnings and the pipeline as well, if that's okay.

Sure. Well, good morning, everybody. It's great to be here, be back in N.Y. Maybe I'll even widen out a little bit further and touch on the quarter overall and how the business is performing. In a nutshell, things are going very well. If we just begin around the operational part of the business, all of the trends that we have been talking about for really, in my view, about the last eight quarters now, but I think the market has taken more notice in the last two or three. All those positive trends around our leasing volumes, the pace of decision making, lifting of occupancies. We've seen a couple quarters of positive market rent growth. All those things have been continuing here into the third quarter. That's been great to see. It's something that is facilitating continued growth in our value creation business.

Namely, development of logistics facilities for one part. That's an area of our deployment that had been more muted going back to, say, 2024, when conditions didn't really warrant. But with all the improved conditions and tightening that I'm describing here, that's picked up meaningfully, together with a lot of the data center opportunity, which I'm sure we'll spend a little bit of time on. That's all being fueled by two things, really. Our strategic capital business. We have nearly $70 billion of AUM, third party AUM that is, supporting all of that ownership and growth. But also our balance sheet in and of itself, where we just had an equity raise in advance of the SEGRO transaction, which is the cherry on top of all this.

A very important transaction that is still underway for us in Europe, but a highly complementary portfolio and team that we are working through its closing. That is something that is going through various regulatory processes, including a shareholder vote at the end of this month, and something we expect to close in the first half of next year. So across the board, things are going great. Sarah, I think specifically on some more of the numbers, I think here in the third quarter, we will probably see lease signings. We have had a number of records on overall lease signings for Prologis in the last several quarters, and that has been 60, 65 million square feet. That has been the hallmark of what is a record for us in terms of signings within a quarter. I suspect we are going to see a number in that ZIP code again this third quarter.

We are not fully done, but the first few months have been great. As we really more finely parse the pipeline, we are noticing that deals in our agreement stage are accelerating. Things are moving through the system a little more quickly. But the thing that we are always appending to this indication of activity beyond the signings is just whether the pipeline itself is getting replenished with new demand after we have a record quarter of new lease signings. And that trend is continuing. We are seeing our lease pipeline stay well over 100 million square feet in new inquiries, which has been great to see.

Can I I think there is a few things to dig in on there, but one of the things Ken Caplan said this morning I think was that 15% of their logistics leasing was related to the data build-out, and I know we spoke about that at Nareit. Are you seeing about the same or more or less?

We would call it about 10% of our new leasing has been dedicated to some form of support for the data center build-out. So yeah, we think that that is a new segment of demand that is probably longer standing than some people may think. There is going to be a couple phases of it. One that will be fulfilling this new build-out. There is an ecosystem to build out. But the replenishment of these systems, the chips themselves, the hardware, the MEP, all of that is going to need repair, maintenance, replacement over time. And so there is going to be a longstanding demand addition from this segment for sure.

Okay. Did anyone else want to ask any questions relating to those opening remarks before we move on? Okay. Maybe now we can just touch on the market, U.S. net absorption deliveries, vacancy, and market rent growth as we look out to the next few quarters.

Yeah. Many of you probably know we had a meaningful tick-up in net absorption, in the second quarter, 66 million square feet, I think. We hadn't seen a number that high in quite a while. I would say, for me, the net absorption numbers we had been seeing for the prior six, seven, eight quarters had been almost inexplicably low. We would expect that a good, productive market net absorption in the U.S. should be around 225 million square feet annually, let's say. So that 66 million figure in the second quarter was in keeping with that, a little bit ahead of that. But all the quarters we had seen where we were registering some 30s, 35, low 40 number had been quite low for the level of activity we had seen from our customers.

The explanation of all that was very clearly, it was just working through the overabsorption of space that we saw early in COVID. That we saw occupancies lift very high. Customers take a little bit more space than they needed. So across 2024, parts of 2025, that had slowed down. We had been saying for a while, we thought that was running out. That customers were getting their portfolios right-sized, and we were going to see new incremental demand. I do think Prologis saw that. Empirically, I would say you can see that in our numbers ahead of the market because we had these very strong leasing volumes since the end of 2024, really, building occupancy over the majority of the course of that time, while market occupancies were actually still declining for a spell. Now they've bottomed and they are growing.

It just looks like we're a few quarters ahead of that due to where our portfolio is and its quality. These are conditions that are contributing to positive market rent growth. We're a global portfolio. We've seen positive rent growth outside the U.S. for a longer period of time, probably backing up about a year now, places like Europe and certainly LATAM. So we've benefited from that for a while. The U.S. had been slower to get to that point, but in the first two quarters now of this year, the U.S. has been a contributor to that. I'll add on, the outlook on market rent growth, we describe our business as rationally, we would say, an inflation plus on market rent growth expectations for logistics.

The plus, I would just put in a pile all the secular drivers of logistics, which e-commerce is at the top of that list, but now it's becoming other things, like advanced manufacturing, like the data center build-out. There's a number of things that add incremental demand beyond just inflation. The other component there that's lurking, that's kind of stayed wide due to the level of vacancies in the market, is replacement cost rents. I'll back up for just a moment, giving a long answer here, but we have our lease mark-to-market, which is just a measure of how much higher are market rents than the leases that we have in place, and we size that at 17%.

It's worth about $700 million, on memory, that if we do nothing else, just uplift the portfolio up to market rents as leases come due, we'll bring in that $700 million. But then there's another measure. What is the gap up to replacement cost rents? How much higher are replacement cost rents than market? That's another roughly 20%. Sorry, another on top of the 17, or just- Another on top of the 17.