Welcome to the Prologis Q1 2021 earnings conference call. My name is Julianne, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question- and- answer session. To ask a question during the session, you'll need to press star followed by the number one on your telephone keypad. Also note that this conference is being recorded. I'd now like to turn the call over to Tracy Ward. Tracy, you may begin. Thanks, Julianne. Good morning, everyone. Welcome to our first quarter 2021 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 guarantees of performance, and actual operating results may be affected by a variety of factors. For a list of those factors, please refer to the forward-looking statement notice in our 10-K or SEC filings. Additionally, our first quarter results press release and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP measures. In accordance with Reg G, we have provided a reconciliation to those measures. This morning, we'll hear from Tom Olinger, our CFO, who will cover results, real-time market conditions, and guidance. Hamid Moghadam, Gary Anderson, Tim Arndt, Chris Caton, Mike Curless, Dan Letter, Ed Nekritz, Gene Reilly, and Colleen McKeown are also here with us today. With that, I'll turn the call over to Tom, and Tom, will you please begin? Thanks, Tracy. Good morning, everyone. Thank you for joining our call today. Positive momentum from the fourth quarter has carried into 2021, as evidenced by our operating results, profitable deployment activities, and strong outlook. Demand driven by the powerful economic recovery, retail revolution, and higher inventory levels is unfolding more strongly than we expected. Headlines in the past 90 days have been a testament to the value of resilient supply chains. Those who were prepared are now growing and taking market share. There is great momentum moving through the supply chains as signaled by retail sales, import volume, and rising inventory levels. This will continue as inventory to sales ratios have just begun to rise as companies race to keep pace with demand. Starting with our proprietary metrics and our view of the market. Space utilization is 84.5%, up 100 basis points in the last 90 days. Our customers tell us their activity levels are rising at the fastest pace since 2019. Lease proposals reached 93 million square feet in the first quarter, a new high watermark, and are up 13% from 2020, adjusted for the size of our portfolio. Lease signings were 60 million square feet, our second highest quarter on record. Much of this activity is in new leasing, as a result, retention was 69% for the quarter as we're optimizing credit and rents. Given our high volume of lease signings, our operating portfolio was 96.4% leased at quarter- end. Our leasing mix continues to broaden, with strong demand continuing from space sizes above 100,000 sq ft and small spaces demand is improving. E-commerce demand remains elevated, representing 25% of new lease signings in the first quarter. The balance of leasing is diverse, with outsized growth among companies that provide food and consumer products, as well as renewed momentum in the construction segment as housing expands. In the U.S., we now expect net absorption of 300 million square feet in 2021, which would be the highest in history. This strong demand is being matched by supply. We expect 300 million square feet of deliveries this year. However, supply remains broadly disciplined. Years of historic low vacancy rates have constrained demand due to a lack of available properties, particularly in the most desirable markets. Many of our markets face shortages of land for logistics uses. In addition, obsolescence and conversions to higher and better use have added to this broad-based scarcity. Vacancies are below 2% in many of our top markets, such as Southern California, Toronto, Germany's main markets, and Tokyo. Our supply watchlist continues to include just four markets, Houston, Madrid, Poland, and West China, which taken together, account for just over 5% of our NOI. More recently, we've begun to see a rapid acceleration in replacement costs. In the U.S., we expect replacement costs to increase 20%-25% over the two-year period through 2021, the fastest rate ever. Our procurement team is proactively mitigating these increases by securing favorable pricing and delivery schedules. For example, the team has procured steel for 5.2 million square feet of starts at pricing roughly 5% below market and providing us with a 10-20-week schedule advantage. Strengthening demand and ultra-low vacancies are leading customers to increasingly compete for space, which is translating into pricing power. Rent growth for the quarter, which was up 2.4% in the U.S., outperformed our expectations. We are raising our 2021 rent forecast to 6.5% in the U.S. and 6% globally. Our in-place to market rent spread now stands at 13.6%, up 80 basis points sequentially. This represents future annual incremental organic NOI growth potential of more than $600 million. Turning to valuations, logistics assets values are up a record 7.5% over the last two quarters. A wave of capital has emerged coming both from rising real estate allocations and investors strategically reassessing their property focus type. Applying the valuation uplift to our $148 billion owned and managed portfolio, we estimate that the value of our real estate rose by more than $10 billion over the past two quarters. Moving to results, the work we've done to position the portfolio and optimize the balance sheet is continuing to deliver excellent financial results. For the quarter, core FFO was $0.97 per share, which includes net promote expense of $0.01. Net effective rent change on rollover was 27%, led by the U.S. at 32%. We are prioritizing rent over occupancy in substantially all of our markets. Occupancy at quarter- end was 95.6%, down 60 basis points sequentially, in line with normal first quarter seasonality. Rent collections remained very strong. We effectively had no bad debt expense in the quarter. Our share of cash same store NOI growth was 4.5%, driven by the U.S. at 4.8%. For strategic capital, our team raised $1.4 billion in the first quarter, as investor demand remains robust. Equity queues for our open-ended vehicles are at an all time high at more than $3 billion at quarter end. This level of interest is another indicator that valuations for high quality logistics assets should continue to increase. Looking at the balance sheet, we continue to maintain excellent financial strength with liquidity and combined leverage capacity between Prologis and our open-ended vehicles now totaling $14 billion. We were able to get in front of the recent increase in interest rates and issued $3.5 billion of debt with a weighted average rate of 96 basis points and a term of 11 years. This activity included the issuance of a 10-year U.S. dollar bond with a spread of 55 basis points, the lowest 10-year refi bond spread ever, and the completion of our 15th green bond offering. The assets backing these bonds are the product of two decades of sustainable development. Our debt maturity stack is in excellent shape with minimal maturities until 2026. Subsequent to quarter end, we closed on a green revolving credit facility, adding $500 million more capacity to our already exceptionally strong liquidity position. Moving to guidance for 2021, our outlook is more positive across the board. Here are the updates on a cash basis. We are increasing our cash same store NOI growth midpoint by 75 basis points and narrowing the range to 4.5%-5%. We now expect bad debt expense to be in line with our historical average at approximately 20 basis points of gross revenues, down from our prior guidance midpoint of 30 basis points. We're increasing our average occupancy midpoint for our operating portfolio by 50 basis points to 96.5%. Strategic capital revenue excluding promotes will now range between $450 million-$460 million, up $12.5 million at the midpoint. The increase is primarily due to higher asset management fees resulting from increased property values. Whether you look at public comps or recent transactions, both would indicate that our strategic capital business is significantly undervalued. We are increasing development starts by $400 million and now expect a midpoint of $2.9 billion. build-to-suits will comprise more than 40% of the volume. Our land portfolio today, comprised of land options and covered land plays, supports approximately $17 billion of future development. We're increasing the midpoint for dispositions and contributions by $800 million in total. Consistent with the rise in asset values and higher contributions, we're increasing realized development gains by $200 million with a new midpoint of $750 million. Debt deployment uses are now expected to be $50 million with leverage remaining effectively flat in 2021. Putting this all together, we're increasing our core FFO midpoint by $0.06 and narrowing the range to $3.96-$4.02 per share. Core FFO excluding promotes will range between $3.98 and $4.04 per share, representing year-over-year growth at the midpoint of 12%. Our efforts over the past 10 years to reposition the portfolio and balance sheet have set us up to outperform in 2021 and beyond. You're probably tired of us saying this, but it continues to be true, we believe the best years for the company are still ahead of us. With that, I'll turn it back to the operator for your questions. Thank you. As a reminder, to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press the pound key. Your first question will come from Vikram Malhotra from Morgan Stanley. Please go ahead. Your line is open. Thanks so much. Good morning, everyone. Maybe just building off of some of the comments I heard where strategic capital is undervalued and you're just much more bullish about the growth prospects. I guess from sitting on the other side, investors and the Street generally understand that things look really good. Fundamentals have improved. NOI is trending up. I guess I'm just looking forward, what would you say are some of the areas of organic growth that could surprise us positively? Second, what does this mean for Prologis' ability to do external growth, be it development or even larger scale M&A? Thanks. Let me take a crack at that. I think organic growth is the prospects are actually better than they've been in as far as I remember. Replacement costs are moving very quickly. Interest rates are moving up, or generally up in the last six or seven months. Both of those things argue for the need for higher rents to pencil out a development. Now, lower cap rates mitigate that a bit. We can't really count on that. A prudent developer with more higher input costs and higher yield requirements would have to get higher rents to make that work. That just puts a pricing umbrella over our in-place rents and widens that in-place to market spread, which gives us more pricing power going forward. Given our concentration and focus on the most desirable markets where the supply picture is the tightest, I think organic growth is always the engine that we count on for propelling our growth. All the other stuff is episodic, it's basically a cap rate conversion between the private markets or the public markets or the public market valuation of two different companies, in the case of M&A. Those are not things we control. Where we invest, how we invest, how we push rents, how we use our scale to drive value for our customers, and how we extract that value in the form of higher rents and other fees for services, is really where we add value. The external growth can come and go. Having said that, we have great external growth prospects, too, without having to do deals. We have a great land bank. They're well-positioned. We have an even greater shadow land bank and covered land plays. You add it all up together. We can probably grow the portfolio organically by the size of one of the top three companies in the sector, just with the land that we already own. I feel really good about both organic and external sources of growth for the company. Your next question comes from Elvis Rodriguez from Bank of America. Please go ahead, your line is open. Good morning. This is either for Hamid or Tom. On the call, you mentioned the procurement team that you have and the ability to secure lower steel prices versus the market. Can you talk a little bit about sort of the team and what the team is doing there, and how that helps you versus your competitors near- term and longer term? Thanks. Let me start it and then I'll turn it over to Gary. Actually, he oversees that function. Look, scale gives us the advantage in two ways. One, we can make bulk deals, and two, we don't have to guess right about where we're going to use the steel because we can spread it over a bigger base, and if we guess wrong in one project, we're going to use it up in another project. Those are really good dials to have to be able to play with. Gary, why don't you add to that? Yeah. Hey, Elvis. We set this function almost three years ago now and really focused on our controllable spend, primarily on the construction side and on TI and operating expense side. We set a goal at that time of delivering about $150 million per year in savings, and we have exceeded that. This is the first time, in my view, in the company's history, that we've actually taken advantage of our scale in a way that I think is really meaningful. You're starting to see it show up in development margins and operating margins. Both Tom and Hamid mentioned steel. It's not just about procuring a 5%-10% cost savings on steel, it's about procuring those critical raw materials. Tom mentioned 10-20 weeks of schedule advantage, and when you're talking development, and particularly build-to-suits, that is a game changer. I think that the procurement organization has created a real competitive advantage for us, not only on the construction and cost side, but also on the Essentials side, where we're now starting to deliver a different type of value proposition beyond the four walls and a roof. Your next question comes from Emmanuel Korchman from Citi. Please go ahead, your line is open. Hey, good morning. Tom, you talked about the drivers of the retention being, I think, an upgrade, you said, to credit quality and maybe tenancy. Maybe I was a little bit surprised at the occupancy dip, and I realize the 1Q is usually seasonally lower, but given just the amount of demand, thought that maybe that would've been a little bit less. Could you address both of those topics, sort of the seasonal occupancy dip as well as the retention and what we should look at for retention going through the rest of the year here? Yeah, I think, as we said, we had more churn in the portfolios. We're pushing, in certain indications, credit and pushing rents. We have excellent credit quality by looking at our stats and our low bad debts. I think retention's going to improve over the year, but it's something we really don't look at and I wouldn't focus too much on. I would focus on our leasing momentum and our rent growth and rent change growth. I think if you look at both, they're accelerating. The other thing I would point you to is look at our lease percentage at the end of the quarter. We were 96.4%, so we are leasing up that vacancy. Again, I point to the record level of proposals and increasing rents. I think we're making the right decision for the real estate by pushing the rents and getting the right tenants into those spaces. Hey, Manny, I would add two things there. First of all, we can make the occupancy be whatever we want and retention be whatever we want if we were more dovish on rents and what we can get. I do think that we're actually leading the market in that direction. The other thing is, you may remember from last year around this time, maybe it was the second quarter call, I don't remember. We talked about we're taking very careful notes on who's behaving and who's not behaving when the markets really softened, and there were people who were requesting deferrals and were really trying to take advantage of the situation where the businesses were not distressed. Those are the people that, given a fight between two tenants on a given space, are going to be on the losing end of that fight. People's behavior does affect how we make these leasing decisions. If it hurts a retention stat, so be it. We'll make more money, and we'll have a better portfolio of customers. Your next question comes from Derek Johnston from Deutsche Bank. Please go ahead. Your line is open. Hi, everyone. Just sticking on the development side. You have yields compressing across most or all of the markets through 2022 and beyond, but not as much as we would have thought. Given steel prices up around 100%, I don't think a 5% or 10% discount gets us to that yield stickiness. Is this due to the cost basis on your land bank, or is it more demand and growth in rents are enough to offset expenses in the underwriting process at this point? Thanks, guys. First of all, you should be clear. In reported margins, we don't use book value. We use the market value at the time that we start construction. Land markets have been moving. These increases, if you figure it takes 9- 12 months to build a building, a lot of this steep price escalation has been during the period in the last 9- 12 months. We don't adjust the land basis in the middle of the project because land is going up. We do it at the beginning of the project. We've had good surprise margin expansion, if you will, from rents being higher. Remember, a lot of these things are also pre-leased. If the space were available, again, we could lease it at a higher rate. That's why I focused on in-place-to-market rents because that's what really is the additional fuel in the tank for extending the rental growth time period. Your next question comes from Craig Mailman from KeyBanc. Please go ahead. Your line is open. Hey, guys. Just want to touch on same store here. We kind of figured maybe the initial cut was a little bit conservative, but the 75 basis points increase was pretty strong here for a first quarter upper revision. I know that occupancy guidance is moving higher. Just could you walk through maybe bridge us into what really drove that upside here and gave you guys confidence to bump it that high this early in the year and hopefully give yourself continued room to the upside in the next couple quarters? Sure, Craig. The main driver, the substantial driver of our same-store growth is the in-place-to-market role. The increase that we saw quarter-over-quarter in our guidance, it would be occupancy 50 basis points, bad debts lower by 10- 12 basis points. We are seeing higher rent growth. Most of the higher rent growth we're going to get in the out years, but we're getting a little bit of benefit of that this year. Those would be the main drivers of the increase. Again, I would point you to the proposal levels, the record level proposals. Demand is excellent, and we are leasing up space at higher rents. Your next question comes from Ki Bin Kim from Truist. Please go ahead. Your line is open. Thanks. Good morning. Hamid, your team has made 24 very interesting venture capital investments, there's some pretty clear themes I've come across, which is mainly seeking to reduce customer pain points, reducing truck detention times or route optimization, improving the workforce efficiency or energy efficiency. Let's just say all these ideas work out perfectly. My couple questions are, what could it mean for the PLD platform? What does success look like to you in this arena? Lastly, where do you think we are in terms of converting these novel ideas to broad industry adoption? Well, the last part of your question is that we're very early because we're in the leading tip of that spear, and we are early in implementing it. Very early. Was this Ki Bin? Because my earphones fell out. You know more about that venture capital portfolio based on the report that you wrote last week that I read, that you can answer this question actually better than I can. We've made roughly, as you pointed out, about 30 investments totaling about $100 million. I said this five years, six years ago when we started this activity. If those investments were 5x multiple, which is a good venture capital outcome, okay, it's great. We made $500 million. Across a company which has got an enterprise value of $100 billion, it's interesting, but it's not huge. It's not a game changer. If we can change the effectiveness of our business, the value of our business to our customers by 5%. Now you're talking some serious dough. That's $5 billion. Really, the reason we're doing all this stuff is not because we're great venture capitalists, but because we can actually assess the quality of an idea in this sector. We're not in other sectors, and we can actually affect the outcome probability by letting those companies get traction quickly, improve their product offering, et cetera. By the way, not all of them are going to be successful, for sure. We've had one that has failed so far, but that's actually a pretty good track record for a portfolio of this size. If 20% of them work out, we'll be very happy, but primarily happy because of its impact on our customers and our portfolio. Your next question comes from John Kim from BMO Capital Markets. Please go ahead, your line is open. Thank you. A question on retail conversions. Amazon has been more actively pursuing the retail, the last mile distribution conversions, although primarily in secondary markets. Last fall, you estimated this would amount to approximately 5% of last mile stock over a 10-year period. Has your view on the amount or the timing changed at all since your report last fall? No, it's probably even we were on the high side, I think. We're working on lots of these deals, probably more than everybody combined, and they're really tough. The 10,000 sq ft, 20,000 sq ft conversions you can do. If you think about it in the context of our business, I continue to believe that they're going to be very attractive, but they're going to be few and far between, and you got to go through the five stages of grief to get to them. They're tough. Your next question comes from Blaine Heck from Wells Fargo. Please go ahead, your line is open. Great, thanks. We noticed you guys bought a good amount of land. I think it was $225 million in the quarter. Given where your land holdings and land bank stands now, do you think you'll need to keep buying similar amounts quarterly? Or was this maybe outsized and maybe in anticipation of continued increases in land values? Just given the increase in land prices that we've seen this cycle, where do you think that fair value of your land bank stands relative to the book value? Let me start. I'll turn it over to Gene for some specifics and Tom for his guess on the land value. We are not that precise with respect to land purchases. We're opportunistic. A lot of these land deals have long gestation periods, and we certainly can't time what quarter they fall in. We work on these things for years and years, and sometimes they never happen. Sometimes they happen in a quarter different than what we thought would happen. It will happen. Don't spend so much time on the quarter because we don't control that. The overall quality of the land bank and size of land bank is one factor. Where it is also another factor. Our overall number may look in line with what our goals are, but there are definitely markets that we're short on land and some markets that we may be long on land. We're constantly in the process of adjusting that. Based on our in-house underwriting, our land bank book value is about 40% of their value, and that number is moving up fairly quickly based on what you heard earlier. Gene, Tom, do you guys have anything to add to that? Yeah, I guess this is Gene. I'll just add in terms of the magnitude, you're going to see this number move up. It's going to move up in tandem with how our development activity moves up. Frankly, land as a percentage of overall cost is also increasing with these escalations. I'd also add our development volumes, if you look at the midpoint of our guidance for this year, the updated guidance, it's less than 1.5% of AUM. We have room to go on, and that's spec development activity. I don't really have anything else to add except to punctuate the quarterly, almost even annual numbers aren't that important because we see our opportunity with land is to buy big, complex, difficult pieces, so we're not paying retail. Tom, I don't know if you have anything else to add. The only thing I would add is it's not just the land bank, but it's covered land plays where you're going to see really important strategic acquisitions that allow us to further develop in these very infill sites. Your next question comes from Michael Carroll from RBC Capital Markets. Please go ahead, your line is open. Yes, thanks. Tom, I think earlier in the call you mentioned that you estimate supply will be around 300 million square feet in 2021. Houston is the only market where there's current issues or that you're tracking. Are there any other markets that you think could become an issue over the next 12+ months? Is demand just so broadly strong that it'll take down all that excess space? I'll start it out and then Gene can potentially weigh in. I call that four markets, and Houston was the one in the U.S. Across the board, where we're trying to develop and where our tenants want to be, it's largely very infill. We're going to watch the bulk markets like we always do, like a Phoenix, that type of a market. We'll watch it, those markets are working effectively now. I'll turn it over to Gene with any other color. Yeah. Houston has a couple of issues. It's got a 9%+ vacancy rate and oversupply and some demand issues. It's going to take some time for that market to stabilize. Phoenix is on our watch list, but frankly, isn't that bad. Tom really hit it. The sub-markets we like to operate in are very healthy right now. Most of them are quite constrained, and these entitlement processes are just getting more difficult and longer. I see equilibrium out there for a while. If we're really honest, we've been in equilibrium, in the U.S. at least, for about four years. Obviously we're calling for that with 300 each of demand and supply this year. I think you're going to see that for a while. Your next question comes from Steve Sakwa from Evercore ISI. Yeah, thanks. Just two quick questions. Tom, on the weighted average terminal leases, it kind of dropped down here in the first quarter. I know it was also lower in the first quarter last year. Just anything there. Then secondly, Hamid, as it relates to sort of things like the Suez Canal blockage and dislocation in transportation systems and low inventories, what is your expectation for, I guess, structurally higher inventory and better demand going forward? Hey, Steve. This is Tom. I'll take the first one. The shorter term on the operating leasing was all mixed. It was higher Southern Europe, particularly France, where you've got three-year leases. China, for example. Lower in the U.K., where we have our long leases. It's all mixed. The length of leases, when you look across markets, are stable. It's not increasing. Yeah. Steve, in terms of structural inventory levels, there are three things that are driving it up. For sure they're going to be up, in my estimation, for the foreseeable future. The first structural thing is that people are just carrying more safety stock because with all the fluctuations, COVID induced and Suez Canal induced and everything else induced, you just need to carry more inventory to buffer yourself from these risks because the cost of lost sales is much greater than the additional cost of carrying inventory. Across the board, we've quantified that as 5%-10% more inventory in a steady state environment. I think you've seen Chris's paper on that. If I were going to pick a number, it would be on the higher end of that range, more closer to the 10%. That's a big driver. Secondly, inventory to sale ratios have been a really stretched thing. The starting point of where inventories are is very stretched. It just has to normalize to its regular level. The third thing is that the transition to e-commerce, as that percentage goes up, will drive that number up. I think, yeah, we're going to have more inventories across the system. By the way, there's a fourth thing I hadn't thought about first, but you have utilization rates that are 85%, 86%. It's not like there's a lot of slack in the system. The mechanism for having more inventory will translate to demand for more space pretty quickly because those are very high utilization rates. Your next question comes from Vince Tibone from Green Street. Please go ahead. Your line is open. Hi. Good morning. Could you provide some additional color on your U.S. market rent growth forecast, particularly how coastal market rent growth compares to non-coastal markets? Vince, it's Chris Caton, thanks for the question. Indeed, it's actually widening out, as I think you might be suggesting. In the U.S., 6.5% at the top five markets, with 7% or better growth. New Jersey, Baltimore, Toronto, obviously that's Canada, Southern California, and Seattle. I think you can see the pattern there. That's for sure your broader coastal markets. By contrast, if we exclude Houston, the low end of the range are markets that are running in kind of a 2%-3% range. That brackets it for you. Your next question comes from Tom Catherwood from BTIG. Please go ahead. Your line is open. Excellent. Thank you very much. Actually, following up on that previous question and Chris's comments. Want to focus on development starts in the central U.S. If we look back at 2019, you guys started roughly 2.6 million square feet of developments. In the first three quarters of 2021, you started less than 600,000 sq ft. Just in the last two quarters, it's accelerated to 3.1 million square feet. Can you provide some detail on kind of what you're seeing that's driving this investment acceleration? Especially given Chris's comments on the bifurcation in rent growth, does your investment In these kind of central markets, in any way reflect an expectation that coastal markets could be weaker over the long- term? Boy, you guys really think we're smart. We're not that smart. Let's just start with that. Our business doesn't lend itself to quarter-by-quarter analysis. You put those two facts together, we have no clue what exactly development starts are going to be by quarter in a region going forward. We can give you a pretty good sense of roughly overall development in the U.S., roughly percentages of where it's going to be, rough percentages of how much of it is build-to-suits. When you're talking about numbers in the 2.5 Million square foot range per quarter, one build-to-suit at a million feet can really move that number around. Depending on where that lands, it could really affect the numbers. I hate to be in the position of some of these smaller companies answering those questions because, I mean, for them, it must be a really tough question to answer given that they don't have the benefit of the large numbers. Honestly, there is nothing systemic in the central region other than the fact that obviously we're not going to do a lot of development in Houston. I would say Dallas, by and large, has stayed stronger than we would've expected. Those are the two things I would tell you in terms of our strategy, but quarter-by-quarter numbers, I have no clue. Your next question comes from David Rodgers from Baird. Please go ahead, your line is open. Yeah, maybe for a question, Tom, I wanted to ask you about the turnover costs and the concessions on the leases in the last couple of quarters. Obviously, lease proposals have been up. Is that a function of maybe smaller leases or the lease term you addressed earlier? And then I was hoping maybe Gene could talk a little bit more about small leases and maybe the percentage that that's making up of your lease proposals going out the door and what the trend is there. Thanks. Sure, Dave. On turnover costs and concessions aren't really increasing at all. What you're seeing on turnover costs is really a mixed issue driven by more new leasing relative to renewal leasing, and concessions are typically a bit higher on renewal leasing. Again, you're seeing that mix. Also with turnover costs, we're certainly seeing higher rents. With turnover costs and including leasing commissions, that will be a driver as well. When you think about short-term leasing or, I'm sorry leasing for smaller spaces, it is certainly improving this quarter, particularly when we look at proposal levels. Proposal levels by segment where I believe we're the highest. Good growth was the highest in the quarter amongst all the segments. Proposal activity is good and rent change is accelerating. I think we're going to see the smaller spaces improve pretty well over the next balance of the year. Your next question comes from Brent Dilts from UBS. Please go ahead, your line is open. Hey, thanks. Could you just talk about your Community Workforce Initiative and how it's doing given the labor shortages you read in the press? How you think warehouse automation may advance over the next couple of years to help alleviate that. Thanks. There's a paper on warehouse automation that Chris wrote about three or four months ago that I think lays out our thesis around that. There are aspects of the activities in the warehouse that lend themselves more easily to automation, and those aspects are going to take place sooner than full automation. Companies are being pushed into more automation than they would otherwise use because of the labor shortage. If the labor shortage didn't exist, they wouldn't automate so much because it's expensive and the ROIs are pretty unproven in many cases, but they simply have to do them to meet the service levels that their customers demand of them. On the Community Workforce Initiative, let me turn it over to Ed Nekritz, who oversees that activity for us, Ed, why don't you make some comments. Great. Thanks for the question. At the end of 2020, we had trained in excess of 5,000 individuals, and we are well on our way to our goal of 25,000 trained throughout the globe. We have nine programs underway in the U.S., and we just announced expansion of the CWI program in the U.K. We fully expect to hit our goals, number one. Number two, the connectivity that we have with our customers is very significant as they're looking for us to help them train and enhance their initiatives with their employees, not just from acquiring employees, but also retaining employees. I will mention it's also a significant development for us to be in front of our local municipalities in terms of showing and demonstrating to them that we are focused on delivering labor in order to keep those communities vibrant. The last thing I'll say is that we are in the final throes of negotiating certifications for our programs. They will be industry-known certifications that we're also very excited about. Your next question comes from Mike Mueller from JPMorgan. Please go ahead, your line is open. Yeah, hi. Development starts increased to about $3 billion for 2021. Are we likely to see that number increase meaningfully over the next few years? Mike, it's Gene. I'll take that one. It is. Hard to say what we're going to do next year and the year after, Mike, because obviously the market environment is going to guide us. As I said earlier, at this point, our speculative development starts. We'll do as much build-to-suit as we can do, and that business is obviously going very well right now. Our speculative activity at less than 1.5% of AUM is relatively low. The market environment looks really good right now. The years to come, we'll cross that bridge when we come to it. Hey, Mike, you would actually remember this because when we were coming out of the downturn of 2008, I think it was in our 2011-2012. It was in our 2010 analyst meeting before the merger with Prologis, that we actually said for the next decade, development guidance is going to be between $2 billion-$3 billion. That's a reasonable amount of development to expect. At that time, remember, everybody was scared of Prologis kind of numbers around $5 billion and that whole debacle. Our number from literally 11 years ago was $2 billion-$3 billion, and that was with AMB, which at the time was about 250 million square feet. Today, the new Prologis is 1 billion square feet. That's 4x as big. To normalize that number for today, given the size of the base, that number would have to be $8 billion-$12 billion. The fact that we're doing $3 billion-$3.5 billion or whatever it ends up being is in the historical context and the size of the company is much, much smaller than the numbers you used to see in the mid-to-late 1980s. The reason for that is that development is that much tougher to do, particularly in the markets that people have figured out they want to be. At that time, people didn't have quite the same appreciation of the quality differences between markets that they do now. In a historical context, those are really small numbers. To get to their equivalent, you would have to take old Prologis' guidance, the old AMB guidance, the old Liberty guidance, the old DCT guidance, and a couple of private things in between and add them all up together. I think there is a potential upside opportunity if we could get our hand on good land, and that is where the dilemma lies. That's why I think there's so much pressure on rents going forward. Your next question comes from Caitlin Burrows from Goldman Sachs. Please go ahead. Your line is open. Hi. I was just wondering maybe if you could talk about leasing volumes. Obviously, they're really strong. Could you go through who you're seeing the most demand from, what type of tenants, how broad it is, and any recent shifts that you've noticed, either stronger or possibly weaker? Yeah, I think the healthy companies really stepped up in pretty much every sector during COVID and used that opportunity, particularly in the early days, to jump in and do more activity. Obviously, CPG companies, food and beverage companies, e-com of any form, those are the growth sectors. I think housing is going to accelerate because housing has been operating at a pretty low level. Healthcare is accelerating for all the reasons that you can imagine. Chris, or Mike, do you want to add to that? Yeah, I could add just to give it a little more flavor. Obviously, e-commerce is a big component of it, but it's certainly not all about Amazon. Certainly, they're the most active customer, but we're seeing a lot of activity from the Targets, the Walmarts, Home Depots, and lots of evidence of the Chinese players making their way to the U.S. and Europe as well. Don't forget about just some of the conventional players that are really active right now. Food and beverage, very active. Transportation. In fact, we just did two build-to-suits this quarter in addition to Amazon with Kellogg's and FedEx. That represent kind of the continued strength of the durability of this broad customer demand that we're seeing. Your next question comes from Bill Crow from Raymond James. Please go ahead. Your line is open. Yeah, good morning. Thanks. I just wanted to follow up on the discussion on replacement cost inflation or construction cost inflation. How should we think about that growth translating to AFFO and maintenance CapEx? I think longer- term, that will add to the growth rate in terms of same store NOI. Long-term meaning three, four, five years compared to what it would have been without that cost increase in replacement costs. It's a hard thing to prove because you never are going to know what it would have been to compare it to. I think it's a longer kind of burn. That compounded with the challenge of getting more land. I just think that those are going to be all tailwinds for rent growth into the foreseeable future. Going back to something that I think we shared extensively with you guys a couple of years ago. At the end of the day, rent is anywhere between 2% and 4% of supply chain costs. People are just getting smarter about how to use well-located real estate to actually save costs on the other aspects of supply chain costs as they are pulling together their space buyers and their logisticians and the people who set up inventory and the people who do the demographic analysis of where they want to locate things. I think all of that is going to translate into longer runway for rental growth compared to would've been. Of course, turnover costs are going to go up as well, because you use steel and all that in building out the space. I think as a percentage of rents, which is the way we like to look at them, I don't think they're going to change that much because rents are going to be affected by the same factors too. Your next question comes from Elvis Rodriguez from Bank of America. Please go ahead, your line is open. Hi. Just one more question. Maybe this one's for Gene or Hamid, if you want to comment. Amazon in particular. On our JLL call last week, they noted that there's an increased interest in medium-sized boxes from that tenant. Can you talk about sort of their demand in the quarter, your expectation for them for the year, and just generically what you're seeing in their shift and their supply chain needs? Thanks. Well, Mike is actually probably the best person to answer that. They've gone out and built out by far the base infrastructure of the big buildings. Now it's a trench warfare of getting the more last touch point locations and filling in behind it. In terms of square footage, it won't add up to the same impressive numbers. Those are much higher dollar per foot investments, and that's where their focus is going to be. I would say they are pretty much ahead of everybody else in terms of the backbone infrastructure, and now it's a race for the last touch. Mike, anything? Yeah, just a further add-on. Last year was a historic year in terms of Amazon's square footage leasing. I think you'll see the same kind of velocity, if not more, going forward in terms of the transaction count. To Hamid's point, they're going to be smaller facilities and more focus incrementally spent in places like Mexico and in Europe. We've seen evidence of that already, and we're certainly well-positioned to take advantage of those opportunities there as well. Yeah. Thank you, Mike. That was the last question. We really appreciate your interest in the company and look forward to our continuing dialogue. Take care. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Goodbye.