Good evening, and welcome to the Prologis Q1 2023 earnings conference call. At this time, all participants are in 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce to you Jill Sawyer, Vice President of Investor Relations. Thank you, Jill. You may begin. Thanks, John. Good morning, everyone. Welcome to our Q1 2023 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 other SEC filings. Additionally, our Q1 results, press release, and supplemental 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. 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'll hand the call over to Tim. Thanks, Jill. Good morning, everybody, and welcome to our Q1 earnings call. We begin the year with results and conditions that remain strong. Market rents have continued to grow, demand has been consistent, and we're seeing sharp declines in new construction, limiting future supply. While logistics real estate is very healthy, the macroeconomic picture continues to be a concern, and we anticipate it could weigh on customer sentiment over the balance of the year, translating to some demand that could be delayed into 2024. However, this will overlap with the slowdown of new deliveries, creating a sustained dynamic for high occupancy and continued rent growth into next year. Beginning with our results, our Core FFO, excluding promotes, was $1.23 per share and including promotes was $1.22 per share. Our results benefited from higher NOI in the quarter, offset by approximately $0.02 of higher insurance expense from an unusually active storm season, experiencing a year's worth of claims activity in just Q1. In terms of our operating results, both ending and average occupancy for the quarter were 98%, holding average occupancy flat to Q4. Rent change was 69% on a net effective basis and 42% on a cash basis, each a record. The unusually wide spread between the two is reflective of lower free rents and higher escalations in our new leasing. Despite the step up of in-place rents, our lease mark-to-market expanded to 68% during the quarter as market rent growth remained strong and slightly ahead of expectations. With the remaining lease term of roughly four years, this lease mark-to-market represents over $2.85 per share of incremental earnings as our leases roll to market, providing visibility to future income and dividend growth. These results drove record same-store growth, 9.9% on a net effective basis, and 11.4% on a cash basis. During the quarter, our efforts on the balance sheet were focused on liquidity, raising over $3.6 billion in new financings for Prologis and our ventures at an interest rate of 4.6% and a term of nearly 14 years. This fundraising total does not include $1 billion of additional capacity from a recast of our global line of credit, which closed in April and brings our total borrowing potential under our lines to six and a half billion dollars. As mentioned, fundamentals in our markets remain strong, but we expect that a more cautious outlook will weigh on the pace of demand. This is not a new perspective as our forecast 90 days ago prepared for a weakening sentiment and held a top-down view for some occupancy loss over the year. We haven't changed that outlook, but we also haven't upgraded it despite the quarter's outperformance. As an update on proprietary metrics, our proposal activity ticked up in absolute terms and is in line with strong market conditions as a percent of available space. Approximately 99% of the units across our 1.2 billion sq ft are either leased or in negotiation. Utilization ticked down to 85%, which is normalizing to a level that our customers view as optimal. E-commerce leasing increased during the quarter to 19% of all new leasing. We avoid drawing conclusions from a single quarter of activity on most metrics, but it's notable here that e-commerce leasing picked up meaningfully back towards its 5-year average. As we've said before, we ultimately look at retention, pre-leasing, and rent achievement as the best real-time metrics of portfolio health. On that basis, our results are certainly very strong. We expect that the current 3.5% vacancy rate in our U.S. markets will build to the low 4s toward the end of the year before turning back to the mid 3s by late 2024 due to the lack of incoming supply and accounting for moderating demand. We anticipate a similar path in our European markets. Of course, even a 5% vacancy rate is historically excellent and supportive of strong rental growth. We expect this pattern to play out in our True Months of Supply metric, which was a very healthy 30 months in the U.S. and should decline into the 20s next year. We're watching markets that have large development pipelines, such as a few in the Sun Belt in the U.S., so far, that supply also seems manageable. In Europe, most of our focus is on the U.K., where development starts have continued even as demand has moderated, which will lift market vacancies and may pressure rents. Japan is also a market which is expected to see larger increases in vacancy over the year, but similarly expects a slowdown in new supply due to surges in land and construction costs. Taking all of these movements into account, we are holding our market rent growth forecast for the year at 10% in the US and 9% globally. In capital markets, transactions continue to be few and far between, but a pickup in activity suggests we will see a busier Q2. Appraised values in our funds declined 1% in the US and 2% in Europe during the quarter, and 8% and 18% respectively from the peak. It's worth noting that our view of public market prices and NAVs, that they have adjusted much more than is warranted for these levels of write-down. Redemption requests in our open-ended funds have slowed significantly, with the redemption queue nearly unchanged around 5% of net asset value. This is reflective of both a slower pace of new redemptions as well as rescissions of prior requests. Combined with over $150 million of new commitments made, our net queue is essentially unchanged from last year. Last quarter, we described our approach to fulfilling redemption requests, which is based on an overarching objective to be consistent and fair to all investors, requiring a few quarters for valuers to catch up. In that regard, as appraisals seem to be nearing fair value, we plan to redeem units in PELF this quarter, given the swifter response to value changes in Europe and expect to do the same in USLF next quarter. In turn, we view this as an excellent time to invest more of our capital into the vehicles, which we'll be doing over the coming quarters in some meaningful numbers. Turning to guidance, we are tightening and increasing average occupancy to range 97.25% and 97.75%, a 25 basis point increase at the midpoint. Our same-store will benefit from this increase, driving our net effective guidance to a range 8.5% to 9.25%, and cash same-store of 9% to 9.75%. We are forecasting our lease mark-to-market to end the year close to 70%. Extracting the 2024 component of this suggests rent change should exceed 85% next year, even without continued market rent growth, which is a clear illustration of how our exceptional rent change will not only endure, but continue to grow. We expect G&A to range between $380 million and $390 million, and strategic capital revenues, excluding promotes, to range between $515 million and $530 million. We are maintaining our forecast for net promote income of $380 million. Given the size of USLF and the potential for small changes in value to have a meaningful impact, there is potential for upside here, and we believe we have the downside covered. We had few development starts in the quarter, a reflection of our discipline, our pipeline is deep, and we are maintaining our guidance of $2.5 billion-$3 billion for the year. We expect the pace to remain slow in the Q2, putting the bulk of the activity into the second half. It's noteworthy that following the belief that construction costs may decline in the coming quarters, we now see them as likely to increase mostly in line with inflation. As new fundraising has become visible, we forecast contributions to be concentrated in the second half, totaling $2 billion-$3 billion when combined with forecasted dispositions. In total, we expect GAAP earnings to range between $3.10 and $3.25 per share. We are increasing our Core FFO, including promotes guidance, to a range of $5.42 to $5.50 per share. Further, we are guiding Core FFO excluding promotes to range between $5.02 and $5.10 per share, with the midpoint representing 10% growth over 2022. I'd like to close with a few observations that we've made about our standing in the equity markets, which we found interesting and wanted to share. Today, we sit as the 68th largest company in the S&P 500, ahead of names like GE, American Express, Cigna, Citigroup, as well as Ford and GM combined. Of notice that with our planned $3.3 billion of dividends this year, we rank 42nd in terms of total cash returned to investors. Of these top 42 dividend payers, Prologis has outgrown the group by 500 basis points per year over the last three years. In fact, since our IPO, we have paid over $15 billion in dividends at a 15% CAGR, ranking 13th on growth in the entire S&P 100. While getting bigger has never been our objective, we thought the context would be eye-opening. In closing, we feel great about the health of our business, even in the face of a slowing economy. Most importantly, nothing we have seen alters the path of its underlying secular drivers or the long-term potential of our platform. We're excited to tell you much more about that outlook and our platform later in the year. Last week, we announced our upcoming Investor Day to be held at the New York Stock Exchange this December. We hope to see many of you there in person and tuned into the live webcast, where we will showcase our defensive talent and the strong differentiators that define our company. More details on that to come. With that, I will hand it back to the operator for your questions. 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 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Our first question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question. Hi, good morning, everyone. Maybe on development, Tim, you touched on it briefly, but the earnings release mentions how the build-out of your land bank is a driver of growth. This quarter, like you mentioned, starts were only like $50 million versus recent quarters over $1 billion, and it sounds like that is expected to ramp up significantly to over $1 billion again in the second half. Just wondering, what metrics or other things are you looking at to drive the starts activity? What makes you confident that increasing starts so significantly later this year is kind of possible and the right thing to do? Hi, Caitlin, this is Dan. I'll take a stab at that. Maybe Tim can pile on. First of all, let me just say, our teams are very much on the offense out there. Every day, our teams around the globe looking at new opportunities. We have over $38 billion of potential TI embedded in our land bank, and we could flip the switch tomorrow and start $10 billion if we wanted to. We're going to continue to look at these deals on a case-by-case basis. When you see the overall volatility in the market, you see the 10-year move 50, 60 basis points on a weekly basis like we have, we're maintaining the discipline. We're disciplined because we can be. We're ramping up our starts towards the end of the year, while we expect to see the overall marketplace ramp down. Our next question comes from the line of Ki Bin Kim with Truist. Please proceed with your question. Thank you. Good morning. Net absorption across the U.S. in the Q1 was a little bit lighter than what we've seen in recent memory. I was just curious, what kind of risk do you see to occupancy or rent growth as the sector tries to, in the near term, absorb the new supply coming through? Hi, Ki Bin. This is Hamid. There's always a risk in this environment. T here's so many unknowables. W e've gotten spoiled to 350 million sq ft of demand in the last couple of years. Let's just put this into context. I n the past, we would have been very happy with even these lower levels of absorption, particularly when you consider that starts are way down and deliveries are gonna really slow down as we go into 2024. It's normalizing. That's the best way I can describe it. I wouldn't even be surprised if it falls further, given all the stuff that we read in the papers, the CEOs that are making big CapEx decisions, basically push their people to see if they can start it a quarter later or 2 quarters later. That's all borrowed demand, but if you will, that is future demand that is getting deferred. We're not that excited by it one way or another. Just to finish the previous question that Dan started, our view, we don't have a forecast for development starts. We only have one because you guys asked us for one. We don't internally have one. We have land. We have entitlements on much of that land, about 80% of that land. We can start it at any time. We don't just look at our data at the end of the quarter. We see it every day as we lease 1 million sq ft a day. We can meter that development into the marketplace as we see fit and make those adjustments. Well, we're ready to go if we need to do more or less, either way. At the end of the day, our company's story is about organic growth, and that's the high-value form of growth, and that's the one that we pay the most attention to. Actually, that's easier to figure out in this environment, given the very big mark-to-market, which I've never seen in this business before. In a way, our job is actually easier in terms of predictability of earnings and growth. Our next question comes from the line of Steve Sakwa with Evercore. Please proceed with your question. Yeah, thanks. Good morning. I just wanted to focus a little bit on the acquisitions, which is not a very large number in there, Hamid, but I'm just wondering what you're seeing from a distressed opportunity set and then maybe tie into the comments Tim made about the funds. Y ou sound like you'd be putting more money into the funds as you redeem some of the partners. Just trying to tie those two, kind of, I guess, capital uses together. Sure. I think there's very little distress in the marketplace. I ndustrial real estate has done really well. I assume other people have significant mark-to-markets, although I doubt if it's quite the same level as ours. There's protection in terms of that mark-to-market in other portfolios, and they're no forced sellers because leverage in the industry is pretty low. We're not looking for distressed opportunities, but we are looking for opportunities that reflect the increasing cost of capital compared to call it a year and a half ago. You should know, we look at every deal that anybody does and read through the papers. Not hard to figure out that if you want to sell something, you call Prologis. O ur feeling is people are still stuck on the old values, and buyers are expecting a substantial discount for those values. I suspect that both of those numbers will move closer together in the next couple of quarters, and the market will start transacting. The funds have always been a place where we either take capital out or put capital in, depending on the cycle of the marketplace. Back even in the global financial crisis, when AMB was much smaller and the balance sheet was weaker, we stepped in and put $200 million in our funds when I thought, when we thought that the time was right. We continue to do the same thing. I don't think it's a big deal one way or another, but it's a great place to buy high-quality real estate, that we know and we like. That's the way we think about it. Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question. Great. Thanks. good morning out there. Can you talk about demand related to nearshoring or onshoring, which markets are seeing an outsized impact related to that trend, and maybe how Prologis is positioned to benefit from it? Sure. Let me start then I'll pitch it over to Chris. The biggest impact is on northern Mexico. Those markets along the border are literally on fire. There is no vacancy, and we're seeing a lot of nearshoring happening there, as a diversification move. We're also seeing some of the China manufacturing bleed out to the rest of Southeast Asia, but we're not really active in those smaller markets, but we do see that. It's moving west in China, and it's moving to other areas in Southeast Asia. Mexico is the big story here. The onshoring part, h onestly, other than what I read in the papers and the chip business, which is real, the rest of it is wishful thinking, mostly. They're very isolated examples, but you look at the numbers, and they're not that significant. Chris, do you want to add to that? Sure. I think that's really well described. Blaine, I'd say there isn't great data on this, but that which we see is that it is a building trend in northern Mexico. It takes time for those supply chains to relocate, set up the ecosystems they need to really function properly and resiliently. That is happening and will continue to happen. I'd expect it to grow in the coming years as well. Thank you. The next question is from the line of Craig Mailman with Citi. Please proceed with your question. Thank you. Maybe just a clarification and a follow question. Tim, I think in your prepared remarks, you said that the mark-to-market could end this year by 70% and be 85% by the end of next year in the absence of rent growth. Maybe clarify that if I misheard it. Then second question, just, as you guys are seeing conditions on the ground, clearly we saw some of the numbers and you guys discussed it normalize here in the Q1. Could you just talk about maybe how we should think about the cadence or anything incremental of what tenants are saying so that, we don't get surprised the next quarter or two with some of the fundamental numbers here coming through as supply does deliver in some of the markets that, have had more in the pipeline, like in L.A. and Inland Empire, Dallas, market to then, just also you guys maintained your 10% market rent growth. Has that shifted dramatically within markets where some may have weakened significantly, while others have grown, or is it pretty consistent across the board? I apologize. I know that was a lot at once. Yeah, Craig. Nice try on packing all that in one question. I guess we'll address all three of those. I'll start, Craig. I'm glad you asked if there was confusion on the point. You're right that we said we will, we believe we'll see a 70% lease mark-to-market of the entire portfolio at the end of this year, after we roll leases over the course of the year, and we have some continued market rent growth build. What I was trying to highlight there was that if you just take out the component of that that is rolling in 2024, just so you have a sense of how this rent change is gonna endure. That slice of the 70% on its own is 85% without any more market rent growth in the next nine months. That just gives you very clear visibility on how the rent change is gonna stay high, how it's gonna translate to same-store growth. That was the intention there. Yeah, let me take the second part. I'll pitch it to Chris for the third part of the question. Look, you'll be surprised if we're surprised. We really work hard at not being surprised. The best indicator of what's happening is the ongoing leasing and proposals and all that stuff that we're involved in and, you guys don't really see directly other than at the end of the quarter. I would say, I would describe market conditions as very good to excellent. They're not exceptional like they were a year and a half or two years ago, but they're very good to excellent. The markets you mentioned, L.A. and Inland Empire, not worried about those at all. T hose markets are in the 1%, 1%-2% vacancy rate. When you get to Dallas and particularly South Dallas and some other markets like Atlanta, way down in the south, et cetera, those markets, through all the cycles, have been prone to overdevelopment and softening of demand when a business slows down. We're watching those very carefully, but I wouldn't characterize any of them as watchlist markets now. Otherwise, we would have classified them as such. The 10% rental growth is an overall number, but there is a very wide dispersion around that 10%. Chris, you wanna elaborate on that? Yeah, indeed, there is a wide dispersion. We've been accustomed over the years talking about outperformance on the coast and lower growth and lower barrier markets. Historically, that outperformance has averaged 250 to 500 basis points in any given year. This year, that 10% sees more at the lower end of that range, more like 200, 250 basis point outperformance on the coast versus the lower barrier markets. That is where we saw the resilience. I would also point to other global markets outside the United States. We talked about Mexico on an earlier call. It's probably one of the hotter parts of the world from a logistics real estate perspective. We're also seeing resiliency in Toronto and Northern Europe, Germany and the Netherlands. Our next question comes from the line of Derek Johnston with Deutsche Bank. Please proceed with your question. Hi, everybody. Good morning. The dislocation between public and private market logistics asset values, obviously is weighing on possible M&A. A s Fed policy nears peak rates and currently projects a pause, do you see valuations converging between public and private assets? Secondly, thus a pickup in capital recycling? Yeah, I definitely do see a convergence over time. Private markets are always slow to adjust on the way up and on the way down, because it's all backward-looking appraisals and people look for comps. We don't really view the market that way, and we view that disconnect as an opportunity. Look, we have a very clear view of what the capital markets tell us in terms of the new cost of capital. We're interested in deploying capital at above that new higher number. The private values are not yet there. That's why we see some continued erosion on private values in the next quarter, particularly in the United States. On the other hand, I think the public values are over-discounted, we see those actually picking up as there is more evidence in the private market that, the world is not falling off the cliff. I think you'll get a conversion from both sides. This is not at all unusual compared to past cycles. I would say every cycle gets a little better, there's still a pretty significant disconnect. Of course, private values can be whatever you want them to be if you are trying to, prove a point or are trying to make a statement. Our mode with the appraisers that we work with is to continue to point them to the cost of capital as opposed to comps that don't exist. We are on the other side of that argument. We're trying to get this market to get unlocked and to transact and trying to get these appraisers to be realistic about their valuations. I can tell you, based on conversations with them, they're getting a lot of pressure the other way from a lot of other people. They find it somewhat unusual that we want them to see a more aligned set of values that will unlock markets and liquidity. The next question comes from the line of Vikram Malhotra with Mizuho. Please proceed with your question. Thanks for taking the question. Just maybe going back to your comments about more unevenness or maybe just some upward pressure on vacancy across the U.S. Can you just give us your latest view? You said not worried about SoCal, but, how would you rank SoCal across your other coastal markets today? If there is a, additional or some softening that you may see, does the Duke acquisition change the overall prospect for the PLD U.S. portfolio? Well, I don't know for sure how to predict the direction of markets, but I can tell you I don't lose any sleep over SoCal at all. I think that market is extremely tight, and some of the shift in demand or softening of demand is to adjacent markets because the space just doesn't exist in Southern California. If we had more space, I think we would have more absorption in Southern California as well. The Duke acquisition, as we've described many times, it's very aligned with our portfolio. It fundamentally doesn't change in any way our view of markets, or desired allocation of our capital to those markets. It's very much aligned with the pre-merger Prologis portfolio. The only thing I would tell you about Duke is that generally speaking, based on the leases that we've done since we acquired the portfolio, we're on the order of 4%-5% higher than we thought we would be in terms of the performance of that portfolio. The next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question. Good morning. Tim, you mentioned the fund redemption requests were unchanged at 5% of NAV. Do you still expect the redemptions to go basically down to 0 in the back half of the year in light of the mentioned weakening demand on tenant demand? Hey, John, we didn't hear any of that. Are you on a cell phone? If you are, can you get closer to it or something? 'Cause you were cutting in and out. Is that better? It's better, yeah. Okay. Sorry. Sorry Sorry about that. Can you start all over? Sure. You mentioned the fund redemption requests were unchanged. I was wondering if you expect those redemptions to go down to zero in the back half of the year, as previously stated, in light of weakening demand that you're seeing on the tenant side? I don't know. I can't really predict the portfolio decisions of well over 200 different investors making those decisions differently. I would say to the extent that there are redemptions, they're generally not because of the performance of their real estate assets that are invested with us. They either have to do with denominator issues on their other asset classes, private equity, stocks, bonds, et cetera, because everything's gotten hit with increased interest rates. B onds have not been a safe place to be either. It's because of them getting over-allocated to real estate because of the decline in the value of the other asset classes more than real estate. Among real estate, if you want liquidity, where are you gonna go? You're gonna go to industrial, you're gonna go to apartments. et cetera, et cetera. You're not gonna go to office buildings because you're not gonna be able to get any liquidity out of those. That's what's driving all this. I wouldn't look there for learning anything about what's going on with the industrial market, because that's a reaction to a lot of different things that have nothing to do with industrial demand and supply. The next question comes from the line of Vince Tibone with Green Street. Please proceed with your question. Hi, good morning. Have you seen any material changes in tenant demand or industry-wide development starts activity since the banking crisis? On the latter point, has the availability of construction loans changed significantly in the last few months? I'm sorry, the last part was availability of loans? Construction loans. Construction loans. Uh. The answer to that one- construction loans. Yeah. The answer to that one is absolutely yes. I think there's been a significant pullback in the availability of construction loans. On the rest one, what do you think? Yeah. You were talking about customer demand. We're seeing broad-based customer demand really, even looking at our e-commerce. We had 40 unique e-commerce users last quarter alone, with Amazon actually being a very small slice of that, very small. Overall broad-based demand, no particular pockets of softness. I would say housing is probably the only, the only aspect that's a little below normal. Again, if you look at the overall numbers, these. If you forget about 2021 and early 2022 and you saw these numbers that we're seeing now, you would feel really good about them. It's just that in the context of those exceptional years, they're a little bit softer, but they're still considered to be really good markets. Chris. Hey, Vince. I think I heard in the middle of your question, what is the trend in development starts, in the wake of SVB? It's worth knowing the numbers, which is in the Q1 in the United States, development starts were off 40% from their peak across our markets and 45% in Europe. Based on the comment Hamid had earlier around construction debt availability, these numbers are gonna continue to see starts curtail in the marketplace. I've never seen such a fast slowdown. A fast slowdown. Such a sudden slowdown in construction volume in our business. It's just been... I'm not sure it's only it was related to Silicon Valley Bank. It was already happening before that, SVB just made it worse. Our next question comes from the line of Nicholas Yulico in Scotiabank. Please proceed with your question. Thanks. I just want to go back to, some of the commentary about demand maybe spilling into 2024 as companies take longer time to make financial decisions. I guess what I'm wondering is, how much is that an outlook or just, broader corporations taking longer times to make financial decisions versus, some of the larger categories of leasing like 3PL, general retail, that it may be expecting, consumer slowdown and, perhaps not fully utilizing their space, and so that's creating, some delay in taking space, this year? T he utilization rate peaked all time at 87%, and today is at 85%. There is a couple of points of margin or error on those numbers anyway. I would say utilization is really high. If utilization were in the high 70s, I would tell you there's a lot of shadow space, and people are gonna wait to grow into that space or put it on the market for subleasing, but we're not seeing that. I don't think there's a lot of excess slack in the system. And even if you look at the well over-publicized Amazon stories that a lot of people waste a lot of time on, they basically haven't given any space back, maybe 7 or 8 million sq ft. It's taken half the air time on all these calls for the last year. It just has not been material. W e're looking for something that just doesn't exist. Will it exist? I don't know. I'm not clairvoyant, but so far, it doesn't appear that customers are giving back material amounts of space or anything like that. It's totally within the normal band of how our business works across the cycle. The next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question. Good afternoon. Thanks a lot for taking my question. My question's on your view for the balance of the year and what has changed, if anything, on a qualitative and quantitative basis. You provided some commentary on your cautious outlook on demand, and that wasn't new. At the same time, you took up the same-store NOI guidance, maintained your rent forecast. Just trying to understand, if there's been an evolution you're thinking on how the rest of the year plays out. Thanks. Hey, Michael, it's Tim. Now look, I think you heard our comments correctly, and I like that you pointed out they're relatively unchanged. The same-store move is largely a function of an occupancy move. W e just retained a decent amount of occupancy in the Q1. We think that's gonna extend throughout the year. That's two-thirds of our increase in our same-store guide. The remainder of it is frankly some outperformance in the Q1 that's more one-time in nature, deals with seasonal expenses. We had very low bad debt in the quarter out of interest, but we don't forecast that to continue. That's some of the one-time items. That combination is what is impacting same-store from here. The next question comes from the line of Nick Thillman with Robert W. Baird. Please proceed with your question. Hey, good morning. Retention remains pretty elevated here, but at 80%. Maybe on the tenants that don't re-sign, what's like their primary reason for not re-signing? Is it them outgrowing their current footprint or a case of them just getting priced out of the market? Trying to tie that really to your occupancy in the sub 100,000 sq ft areas being a little bit lighter than the rest of the leasing categories. The reasons for non-renewal are either good reasons or bad reasons. The bad reason is that the company goes broke, or the neutral reasons are the company decides to go somewhere else, out of one market into another market. The bad reasons are, sorry. The good reasons are that we just don't have a space that fits the growing need of that customer to be accommodated, or the shrinking need of that customer to be accommodated, so they have to go somewhere else. We do track the reason for non-renewal of every single lease that doesn't renew. One of the things that we track very closely is that, did we lose the space to a competitor because of pricing? That statistic is, like, in the 2%, 3%, 4% range, and I think it's too low because it means that we're not pushing rents hard enough. We're not losing tenants because of rent. We're losing tenants because we just can't accommodate them, or they go broke, or they move somewhere else. Those have been the reasons for the last 40 years I've been doing this. The next question comes from the line of Camille Bonnel with Bank of America. Please proceed with your question. Hello. Following up on an earlier comment about the vacancy in Southern California region being below 2%. I think the growing concern is actually on the availability rate or how much sublease activity has picked up, which is something we really haven't seen in the past. I understand, at least within the Southern California region, the supply seems manageable given how difficult it is to build in this market. Could you share your thoughts on how you think this might evolve in upcoming months and whether or not this is a potential risk you're tracking closely? Two ways to approach that. First, This is Chris, by the way, Camille. First is the sublease data, and the second is our True Months of Supply data. Sublease nationally in the United States is on an availability rate basis, 60 basis points in the Q1. The 10-year average, 60 basis points. The recent low indeed was 40 basis points, so it's moved up 20 basis points. Now, the pre-COVID average or the pre-COVID low, excuse me, was 50 basis points, and the peak in the global financial crisis was 1.1%. If you just summarize all that, first off, I'd offer that it's not a lot of availability. The second is we're at the low end or at a normal level in sublease. I'd also point you to our views on True Months of Supply that Tim described in our earnings transcript, which said that at 30 months today, we have a very good market environment consistent with 10% market rent growth. As supply decelerates and slows, we think that will go back down into the 20s, improving the market landscape. The next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question. Hey, great. Just one quick one. On the expected vacancy rate, you talked about 3.5 currently rising throughout the year and then going back down by the end of 2024. Was just wondering if you could provide a little bit more color on the supply and the demand assumptions that are going into that. How much is demand normalizing? How much supply normalizing to get back to that 3.5? T he corollary to that would be, if you're expecting 10% market rent growth this year, historically, if you find yourself at that vacancy level at the end of 2024, what's the market rent growth experience that we should have? The other quick one, sorry, is on the 85% mark-to-market, GAAP mark-to-market for 2024, can you talk about what that number is for 2023? Thanks. Thanks for the question, Ronald. Thank you for the opportunity to clarify our market statistics. I wanna be very clear. Let's talk about net absorption in the 30 markets where Prologis operates in the United States. Last year, net absorption was 375 million square feet. We call that at 275 this year, and we expect a similar or perhaps higher number as the macro environment clarifies and some of the decisions that get delayed this year land into 2024. That'll be on the demand side. Completions, we have a bit of clearer view as we look out to 2024. Starting with 2022, 375 million square feet of supply as well. That's deliveries. We expect 445 million square feet of deliveries this year as our supply pipeline empties. That will fall sharply, perhaps by half or more, into 2024. When you put these numbers together, you'll see the vacancy rising from low 3s last year to 4 or a bit higher later this year and then back into the mid 3s. The way to think about it is that demand is normalized from exceptionally high levels, and the supply response has been in excess of that, normalization of demand. Because of banking crisis and macro concerns. I think the supply response has been much more dramatic than the effect on demand, and that's why the market's gonna tighten up again. Of course, absence of calamity or something like that. One important point to keep in mind is what is a normal vacancy rate, because we have been years away from a normal vacancy rate. The historical range for our business is 5%-10%, with pricing power occurring in the 6%-7% market vacancy rate. We're talking about 3.5%-4% market vacancies, half of what is, typically seen as a way to see pricing power. I would just pile on your third question there on the 2024 component of our lease mark-to-market. This year, the same metric is in the low 80s. I think I intimated that last quarter on the call, just as a measure of what we expected our rent change would be this year. Those are. I'm really talking about the same thing in that context. Roughly in the low 80s for 2023. Our next question comes from the line of Michael Mueller with JP Morgan. Please proceed with your question. Yeah. Hi. I dropped for a minute, I apologize if this was asked. Can you talk about what the full year development start yield expectation is compared to the high 7+% yield that you had in the Q1? Yeah. Hi, Mike. This is Dan. The yield that you saw in the Q1 was a couple build-to-suits, really small volume. What I would say is, I would just look to last year and doing better than last year's yield, on our starts this year. I think the vast majority of the starts are in the sixes. I would say the cap rates are up 75 basis points. margins have gone from 30%-40% to 20%-30%, something like that. T hose are some rough numbers. The next question comes from the line of Tom Catherwood with BTIG. Please proceed with your question. Thanks. Good morning, everyone. I wanna touch on tenant health for a bit. O bviously, we talk about higher costs of capital and less availability of debt when it comes to real estate, but it's also impacting operating industries across the board. With your expectation of slower economic activity this year, are there any industries where you would be concerned about increasing your exposure at this point in time? Let's talk about credit loss as a measure of customer stability, bad debt ratio and all that. It's historically in our business, has been in the tens of basis points. Even when you had the collapse in demand in the immediate aftermath of COVID, that number got to 60 basis points. And Chris, what would you guess our number is gonna get to in this cycle when it's all over in terms of bad debt? I'd say 20. I'm jumping in here. I think 20 will be an average. I mean, we don't see it in the numbers, and the number of bankruptcies, et cetera, et cetera, that we're monitoring and working on, are really not unusual. In fact, I would say they're somewhat unusual. I was expecting more of them, than we're seeing in this point in the cycle. Honestly, we would like to see more of them because frankly, there's so much mark-to-market in those leases that those kinds of tenant departures are actually an upside. If anybody has problems with their business or is looking to downsize, we look at that as an opportunity to do a buyout and actually be able to extract higher rents, in the marketplace. Really not a concern. That number, those numbers that I talked about are out there. You can go look at them, and plot the curve. They've been coming down substantially from very low levels, but they're still coming down. Yeah. I might add on to that one final thought, which is I think the 20 that I'm throwing out is a reflection of some mix shift on credit, I think. In the last 5 years with the markets this tight, we've not only been able to push rents, keep the portfolio occupied, but we've been greatly enhancing the credit profile of our rent roll, and we think we've got a really strong customer base. Yeah. One final statistic that you guys don't have visibility to, but I'm reading off my sheet of stats here. Historical average of credit watch tenants for us, long-term historical average has been 4.9%. We just watch them. By the way, the average actual default has been 0.15%. We worry about a lot more things than we should. That credit watch number today is at 3.35%, so it's down substantially, and so is the actual bad debt ratio. We worry about a lot of things, but most of them don't actually happen, and the numbers are actually quite healthy. Not even adjusting for the cycle and the fact that it's a softening cycle, but just even in the best of markets, these statistics would show up as very good. The next question comes from the line of Todd Thomas with KeyBanc. Please proceed. Hi. Thanks. I wanted to follow up on the demand environment and your comments about a more challenging macro in relation to development starts. I guess, how much visibility do you actually have on starts in the second half of the year as it pertains to the full year target of $2.5 billion-$3 billion? Like, how quickly can that ramp up? Then development yields for what's under construction, they were higher by 20 basis points versus last quarter on the '23 and '24 under construction pipeline. Is that due to, improved? Economics around rents or moderating, construction costs, which I think you mentioned, or really a combination of the two. Do you expect to see further improvements in development yields as you look out in the future? Yeah. Most of our land is entitled. Entitlement is a pretty broad definition. F ully entitled means that you pulled the building permit on the specific building that you can start, but you might have entitlements, and you haven't pulled a specific building permit because you don't exactly know how big a building you're gonna build or in what configuration. 80% of our land is entitled in terms of discretionary entitlements, and about 20%-30% of our land is really good to go with, building permits pulled. That is not a limiter on our ability to start development. We can start whatever development we want to as we monitor the marketplace. The reason for development yields going on, going up is that rent growth has been higher than we forecast. The costs are essentially the same because we've locked in some of those construction values on the buildings that are starting today. The comment about construction costs has nothing to do with what you're seeing on the starts today. It will affect yield on starts down the road. Our view has changed. That's one area where our view has changed materially. We thought there would be some softening of construction costs to the tune of 5%-10%. Because of IRA and all this new fiscal stimulus going into the construction industry, it uses the same labor, same materials and everything, contractors still have pretty good pricing power. What we thought was gonna be a 5% to 10% decline is gonna be inflationary increase. The swing is actually pretty material. Having said all that, the rental growth more than makes up for it, I think our yields are trending up. The next question comes from the line of Anthony Powell with Barclays. Please proceed. Hi, good morning. quicker from me. I guess, any change in the tenor of conversations with your lending partners or underwriters after the SIVB collapse, or are you seeing just increased confidence from your partners as you seek to do financing in the future? They're asking us a lot of money. No, not really. T hat balance sheet is bulletproof. F rankly, we have better balance sheet than most of our banks, so, no. We're not really a bank borrower per se. We tap into the capital markets all the time. The next question comes from the line of Michael Carroll with RBC. Please proceed. Yeah, thanks. I just wanna follow up on your plan or potential willingness to invest in CD property funds. Can you quantify how much you would like, or are you willing to invest in those funds? Are there any particular ones that you would wanna invest in, like USLF or PELF, or is that still TBD right now? We're gonna invest in PELF sooner than USLF because we think the value adjustments in Europe have been quicker than they have been in the U.S. I suspect we're only a quarter or so away from even the U.S. adjusting to a normalized value, at least we hope. Look, it's a $140 billion balance sheet, so even if we just wanted to allocate 1% of it, and I'm not saying we're gonna allocate 1%, I'm just trying to size the issue for you, that could be $1.5 billion. We're probably not gonna invest $1.5 billion, but it's gonna be, like, a small portion of our overall balance sheet. We love that stuff because we know it, we like it's exactly the property we wanna have. R edemptions give us a really good opportunity to do that without affecting the strategy of the fund. The next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed. Great, thank you. I thought your commentary on credit was pretty interesting in terms of how low it is. I guess, you have such a wide view of what's going on in the world. Can you just talk through maybe across your regions some of the data points you're seeing that either give you some confidence in where the economy is heading or give you some concern about where the economy is heading, and how that factors into where you wanna put capital to work? I'll just say two things. This is more a global comment than a U.S. comment. Japan is having more supply than it normally has, but demand is actually still pretty strong. I'm a little worried about vacancy rates in Japan going up into the mid-teens. That's one place we're seeing it. The U.K. has actually been pretty surprisingly good on the industrial side. If you look at the headlines for the U.K., you would expect more trouble than what we're seeing in the, in the industrial market. In the U.S., I can't think of a trend that is worth talking about there. The markets are generally pretty good. C an you guys think of anything? Hey, Jamie, it's Chris Caton. T here's been a lot of economic news over the last few weeks, and I think there are probably three takeaways. The first is consumers are stable, notwithstanding all the noise in that, and it seems to be trending towards perhaps GDP growth of 2%, if not a bit higher. Second, I think quite clearly, e-commerce is re-accelerating, with online shopping now back on trend and taking 100 basis points of share from in-store. The third is, indeed, inventories are rising, but they have not yet risen to pre-COVID levels, let alone a higher level for resilience. With Jamie's question, that's the last one in the queue. I wanted to thank all of you for participating in our call. We're excited over here because it's our fortieth anniversary that we'll be celebrating in June, and there are gonna be lots of opportunities between the investor meeting later on in the year and also Groundbreakers, where we will be speaking to you. Look forward to seeing all of you, and take care. That concludes today's teleconference. You may disconnect your lines at this time.