Greetings, welcome to the Prologis Q2 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Jill Sawyer, Vice President of Investor Relations. Thank you. You may begin. Thanks, Diego. Good morning, everyone. Welcome to our Q2 2023 Earnings Conference Call. 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. 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 Q2 results, press release, and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP. In accordance with Reg G, we have provided a reconciliation to those measures. I'd like to welcome Tim Arndt, our CFO, who will cover results, real-time market conditions, and guidance. Hamid Moghadam, our CEO, and our entire executive team are also with us today. With that, I'll hand the call over to Tim. Thanks, Jill. Good morning, everybody, and welcome to our Q2 earnings call. We had a very good quarter with outstanding results across our uniquely diversified business. It was highlighted by record rent change, a ramp-up in development starts, roughly half of which were build-to-suit, and the acquisition of over $3 billion of real estate at accretive returns, deepening our scale in key markets. We also earned record strategic capital income and raised $1.2 billion in new equity across the vehicles. We are watching markets closely, and we've been clear that we expect vacancies to rise over the course of the year from a normalization of demand and elevated development deliveries. We've indeed seen vacancy build and expect it to reach the mid-40s in the U.S. by year-end. Continue to believe that fundamentals will regain momentum in 2024, with the outlook for new supply declining as development starts continue to fall this year. In short, our outlook is completely unchanged. We feel great about our business. Turning to our results, core FFO, excluding promotes, was $1.25 per share. Including promotes, was $1.83 per share, both ahead of our forecast. Our promote income was generated from both USLF and FIBRA Prologis. Meaningfully exceeded our guidance. USLF generated promote revenue at Prologis' share of over $635 million. In its three-year performance period, assets grew by over $10 billion. The fund delivered an IRR of over 20%, net of all fees and with very low leverage. In terms of our operating results, average occupancy for the quarter was 97.5%, down 50 basis points from the Q1 and in line with our expectations. Rent change on starts was a record on both a net effective and cash basis, 79% and 48%, respectively. Net effective rent change on signings of more forward-looking view was an impressive 87%, with notable rent change from Phoenix at 137%, Northern New Jersey at 150%, and Southern California at 181%. Global markets also contributed to strong signings, with Mexico at 34%, the U.K. at 36%, Central Europe at 51%, and Canada at 150%. Bottom line, rent change has been both robust and broad-based. Market rents continue to grow, albeit at a slower pace, increasing a little over 1.5% in the quarter. In-place rents grew by approximately 2.5% over the quarter, the net of which translates to a lease mark-to-market of 66%, down from 68%. We explained last quarter that our lease mark-to-market would generate $2.85 per share of incremental earnings as leases roll over time without any additional market rent growth. Interestingly, that future upside is virtually unchanged at June 30th, even though we crystallized rental increases over the quarter. This is because a lower lease mark-to-market is now being applied to a larger base of in-place NLI. Ultimately, same-store growth is our most important operating metric, and this quarter it remained exceptional at 8.9% on a net effective basis and 10.7% on cash. I'd like to highlight that even with $4 billion of investment during the quarter, the balance sheet remains in impeccable shape, with liquidity of approximately $6.4 billion and debt to EBITDA of 4.2 times. We raised approximately $7 billion in debt financing across four currencies at an interest rate of 4.9% and an average term of eight years. Turning to our markets, the trend to normalization, which we've been speaking to for some time, continues. Proposal activity, gestation, and pre-leasing of vacancy are all within a few percent of their pre-COVID levels, a period which we've highlighted many times was itself historically strong. Our IBI sentiment index ticked up in the quarter to over 58, indicating a continued strong backdrop for demand as described by our customers, further supported by utilization increasing to 85.5%. Unsurprisingly, customers have been more deliberate in their decision-making amidst the uptick in vacancy. We continue to believe that this will be a short-lived reprieve as construction starts have indeed declined significantly per our expectations. Starts in the Q2 were down approximately 40% across our US markets and 50% in Europe. We see deliveries in 2024 falling short of demand, reducing vacancy over the course of next year. Significant attention has been given to Southern California in recent months. While our portfolio is over 97% leased and we are achieving record rent change, vacancy has grown, partially due to port operations that have not yet returned to normal. Additionally, some customers are reevaluating expansion in the Inland Empire, diversifying operations to other Southwest markets. With all this in mind, we've reduced our rent growth forecast for Southern California in 2023. Given what is still low vacancy, together with structural headwinds to new supply and a huge consumption base, we believe strongly in this market. The global nature of our portfolio means that we'll see markets contribute to growth in different periods, evening out peaks and troughs. We see this playing out in a number of markets across the globe, where our rent growth forecast is increasing this quarter, such as Las Vegas, Texas, Europe, and Mexico, to name a few. All this together with the more than 5% rent growth to date, has us reforecasting the full year to a range of 7%-9% on a global basis. What matters more than what will transpire in the next six months is what we see over the medium term, which is growth that will be fueled by escalating replacement costs, growing barriers to new supply, and ongoing secular drivers of demand. Late in the Q2, we announced and closed on the acquisition of over 14 million sq ft portfolio in many of our best US markets. We estimate an 8% unlevered IRR simply at the property level, exclusive of additional return driven by property management synergies, essentials, opportunities including solar, and the upside we expect through revenue management. While this was the largest transaction in the quarter, overall activity increased slightly, bringing additional price discovery to the market. In Europe, values have been relatively stable, experiencing a 1% decline over the Q2. Latin America saw an increase in values with write-ups in Brazil and Mexico of 2% and 5%, respectively, and write-downs in the U.S. were in line with expectations, approximately 5%, driving the cumulative decline over the last year to 12%. With this move, we view the values as fair and are proceeding on redemptions in USLF for the Q3. New redemption requests in the quarter totaled approximately $800 million and was concentrated in USLF and our China venture, where values have held up better. Together with other activity, the net redemption queue stands at approximately $1.6 billion. Outside of the open-ended funds, the company raised an incremental $1.2 billion, comprised of $500 million in the FEFA and NPR, as well as a new $700 million commitment for a complementary vehicle in Japan, TJLF, which is detailed in our supplemental. Before turning to guidance, I'd like to mention a few updates across our Essentials business. We added 45 megawatts of new solar production and storage in the first half of the year, bringing our platform total to 450 megawatts, nearly 50% of the way to our 1 gigawatt goal for 2025. Additionally, Prologis Mobility, our EV business, has more than 65 fleet charging sites in the pipeline across the U.S. and Europe. In terms of our outlook for the balance of the year, we are guiding average occupancy to range between 97% and 97.5%. We are increasing our same-store guidance to 8.75%-9.25% on a net effective basis, and 9.5%-10% on a cash basis. Net effective rent change propelling same store should continue to accelerate in the next two quarters and average approximately 80% over the year. We are maintaining our G&A guidance to range between $380 million-$390 million, and are increasing our strategic capital revenue guidance, excluding promotes, to range between $520 million-$530 million. As a result of the outperformance in USLF's promote, we are increasing our forecast for net promote income to $475 million. Year to date, we are in excess of this amount, amortization expense will continue over the back half of the year. Development starts picked up during the quarter with commencements of 12 projects around the globe. While we remain very selective on new spec starts, we are maintaining our guidance of $2.5 billion-$3 billion for the year. We had over $550 million in contribution and disposition activity during the quarter, concentrated in Japan and Mexico, are maintaining guidance of $2 billion-$3 billion. Putting it all together, we are increasing guidance for GAAP earnings to range between $3.30 and $3.40 per share. We are increasing core FFO, including promotes guidance, to a range of $5.56-$5.60 per share, and increasing core FFO excluding promotes to range between $5.06 and $5.10 per share, with the midpoint representing over 10% annual growth, marking our fourth consecutive year of double-digit earnings growth. The quarter highlighted many ways that Prologis has diversified itself across geographies, business lines, and capital sources. Rents in some markets decelerate, others with different demand drivers are now accelerating. We're seeing the same balance with property values as demonstrated over the quarter. We generate incremental cash flows and value creation outside of the pure rent business in closely related and synergistic platforms, namely strategic capital development and now Essentials. Our fundraising efforts also demonstrate the value of having alternatives. Clearly, our wide access to debt capital has been a tremendous advantage, but we also benefit from access to varied equity sources for our ventures. By utilizing open-end vehicles, JVs, and public structures, we have the ability to be opportunistic and proactive in changing capital markets. As we close, I'd like to remind you of two upcoming events at Prologis later in the year. Our GROUNDBREAKERS Thought Leadership Forum on September 27th, right here in San Francisco, and our Investor Forum on December 13th in New York. Additional information for each is available on our website. With that, I will hand it back to the operator for your questions. Thank you. At this time, we'll be conducting a question-and-answer session. Press star one on your telephone each time you would like to ask a question. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from Thomas Catherwood with BTIG. Please state your question. Thank you, and good morning, all. Tim, appreciate your commentary around guidance on projected rent growth. Kind of a two-part question on that. First, have you adjusted your projection for U.S. rent growth? I think it was previously 10%, and you mentioned it globally now. Then, you know, can you provide some more detail around those markets or regions where, as you said, you've seen, you know, rent growth and values, kind of exceed expectations? Then conversely, are there others, like Southern California, that have somewhat lagged your expectations? Hey, Tom, I'll start and probably pitch it to Chris here for some help on the market detail. The U.S. at this point, I would put in a similar range, really, given the weight of the U.S. and the notion that we're going to put these things in ranges, probably from here. It's going to be very similar to the globe, so I would just think of them as essentially the same. Then in terms of markets, you know, clearly, I mentioned in my remarks that Southern California is the market that we've downgraded. That's broadly the base of our change and pretty much the only market. It is met by various markets, as I also detailed, many in Southeast U.S., but it's pretty broad around the U.S. as well as globally, that are picking up the slack and holding, you know, the average pretty close when you put it in a range. Our next question comes from Blaine Heck with Wells Fargo. Please state your question. Great, thanks. Good morning. We noticed lease proposals trended downward throughout the quarter and gestation increased towards the end of the quarter. Can you just talk about what factors might be driving those trends and whether you think we'll continue to see lease proposals trend down, or should we expect an inflection in the second half? Hey, it's Chris Caton. Really, when we look at that data, the right way to look at that is against our open availabilities. When you put those proposals against our open availabilities, they're actually in line or above the historical average. 48% is that number. It's something we've used in the past on these calls. How do we make the proposal numbers you're talking about tie with that view? Well, there are two or three drivers. The first is that the availabilities, just the role that we have in the next 12 months, are low relative to history. The second is, those proposal volumes do include sometimes multiple proposals on a single unit, and that has declined over the last year, as we've discussed previously. Third, there's some seasonality, where June would be a soft month. Our next question comes from Craig Mailman with Citi. Please state your question. Yeah, thank you very much. Maybe just flipping two questions here. I guess maybe Tim Arndt and Chris Caton, to follow up on Tom Catherwood's question around the market rent growth. It looks like the U.S. dropped about 200 basis points. I mean, could you give us some more numbers around what the biggest moving parts of that were from a market perspective? Separately, on occupancy here, you know, you guys came down 80 basis points sequentially on, you know, ending quarter, obviously know you're 50 basis points on average, but, you know, SoCal, New Jersey, Central Valley, Atlanta, all kind of came down here. Just curious if there's, you know, if that's where you're seeing the most supply, or if you had any incremental impact from the Blackstone acquisition, that was weighing on some of those numbers. Yeah, on the rents piece, you know, we're not going to go through market rent growth at a market level for a variety of reasons. I think the takeaway we want you and everyone to be left with is just how it can all come into a balance, and we're very pleased to see that we're able to hold the forecast, at least in a pretty tight range to where we were previously. On the occupancy side, you're right about where the ending piece is. I would just comment that that's in line with our forecast. If you look at our average occupancy guidance that we had previously and that we have this quarter, it's unchanged. The decline that we have expected over the year remains, and everything that you've seen this quarter is in line with those expectations. Yeah, the one thing I would add to that is that I think we mentioned to you last quarter that we would be continuing to push rents pretty hard and would like to see occupancies a bit lower than 98%. What you're seeing is consistent with what we're planning to do, and actually, we accomplished what we wanted to do in that we tracked the number of leases that we lose because of price and how hard we're pushing, and we modulate around that to figure out the trade-off between rents and occupancy. We did see, as a result of our efforts, an uptick in basically the percentage of deals lost due to price. It went up from about 10% to about 20%, which is kind of where we would like to have it. It's intentional. Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please state your question. Hi, good morning, everyone. Maybe like you mentioned, there's been a lot of discussion about Southern California, so I'll ask another one there. I guess just thinking about the idea that it might be lagging now, can you give more details on what could be causing the change in that market? Kind of how long it could last and which market could potentially face similar issues? Sure. Let me take a stab at that, because I've seen this now a couple of times over the last 30, 40 years. Southern California is really being adversely affected by two things. One, port volumes. I think this labor strike has gone on longer than most people anticipated, and the timing of it was such that people had to make decisions about the Christmas season, and they've shifted volumes to other ports, and that affects Southern California. Honestly, the longer this goes on, I believe the worse it will be for Southern California in terms of doing permanent damage. From everything we hear, and we're not an expert on this, things are apparently heading in a positive direction with respect to a resolution, but you read the same things we do, so I don't have any unique perspectives on that. The other, the other difference with Southern California is just pricing. I mean, you know, you had between 20 and 22, about a 130% increase in rents in Southern California. That compares to less than half of that for the overall markets that we operate in. There is more price sensitivity now because it's a very, very expensive market. To the extent possible, people will shift to adjacent markets and, combine. It's not just price, but up until a quarter ago, occupancy in the Inland Empire was 99. something%, so people couldn't even get the space that they wanted. I think with a more normalized vacancy level, and we're still not at normal. I mean, normalized, in my experience, is 95% occupancy, and that would have been great for the last 15 or 20 years. I think with more normalized occupancy, you'll see, and a resolution of the labor strike, I think you see a more normal pattern from which you can draw some conclusions. Thank you. Our next question comes from Steve Sakwa with Evercore. Please state your question. Yeah, thanks. Good morning. I guess really kind of a two-parter. Just, Hamid, if you could just maybe talk about demand by size of tenant and whether you're seeing any real disparities in sort of the under 250 or under 100 and anything kind of on the bigger side. Then, you know, just, I guess, your confidence level around the level of development starts. It's obviously a very back-end weighted, you know, sort of hockey stick figure for the second half of the year. How much of those projects are currently teed up? What do you think that split of starts looks like between the third and the Q4s? Let me start on the development volume, and then I'll pitch it over to Dan for the other commentary. We do not care about development starts. We do not care about acquisition guidance. We make all these decisions one by one and only when it makes sense to pull the trigger on these. They're by and large already, more or less, and we could, on a discretionary basis, start all of them today. That would not be a wise thing to do, and we're not going to do it just to meet some artificial guidance. I think the main driver of earnings in this company, which is what we all care about, is rental growth and same-store growth. All I can tell you is that with mid-60s, mark-to-market, you can model whatever scenario you want, including zero rent growth from here on out. For the next four years, five years, you're going to get same-store NOI increase of 7.5% with no rental growth from this point forward. You put in our normalized forecast for rental growth, our best guess, and that same-store growth will be at 8.5%. Both of those numbers are consistent with low double-digit earnings growth while maintaining our leverage, which is so low. We don't need development starts to drive anything, and we're not going to get in a position of or jeopardizing our pricing power by virtue of wanting to meet an artificial development goal. Having said all that, we will start the ones that we think we can lease efficiently and economically and quickly. The land is there, the approvals are there, and our ability to put buildings up is there. There's no benefit in front-end loading that stuff and pushing it ahead of where it needs to be. Dan, do you want to address the size question? Yeah, sure. We're seeing continued broad-based demand in, across all size ranges. Now, there certainly are pockets of- in certain markets that there's some risk in maybe the bulk. Those are markets we've talked about historically. South Dallas, North Fort Worth, Indianapolis is getting a fair amount of bulk built out. Then I would say West Phoenix as well. What I would say with our portfolio overall, we're really isolated from any of this bulk risk, and we're really confident in the demand across all sectors. Thank you. Your next question comes from Ki Bin Kim with Truist. Please state your question. Thanks. Turning to your capital deployment, a $3 billion Blackstone deal at a 5.75 stabilized cap rate, can you just discuss how you view the attractiveness of this deal versus some other opportunities that you might have had, such as stock buybacks or development? Or do you simply think the value per sq ft probably shouldn't decrease much further from here on out? Yeah. I mean, certainly, portfolios that we would acquire would be at a discount to replacement costs, and replacement cost has moved up tremendously in the last couple of years by virtue of. Forget about the land piece, because that's a squishy piece that's related to rents and all that, but the construction piece has really, really escalated. To buy standing inventory in our best markets is always a really great thing that we look at. The quality of the portfolio was quite high, I would say very close to our own portfolio. The percentage that we would dispose of is zero, so it was hand selected to meet our requirements. I wouldn't call it a steal. We didn't steal anything. I think it's a market rate transaction, and with the upside built into the rents, you know, 8% IRR in a world that I think is gonna be a sub 3% inflation rate, and then all the added things we can put on top of it with Essentials and all that, I'd develop capital at those rates all day long. Your next question comes from Michael Goldsmith with UBS. Please state your question. Good morning. Thanks a lot for taking my question. The lease percentage of the development pipeline has been dropping, pretty materially, kind of, back to 2019 levels. What are the factors there? You know, does this impact your ability to hit your yields expected on these developments? Yeah, I think maybe the best way of summarizing this call would be we're back to 2019, okay? We're getting at it in, you know, 25 different ways, but the easiest way to think about it is demand, supply, rental growth, all of those things are trending back to 2019 pre-COVID. If you take 2020 to 2022 out of the picture and imagine that in 2019, somebody would tell you that in 2023, you're still talking about the dynamics of 2019 market, I would be jumping up and down happy about that. That's where we are. Almost any question. I'm not trying to avoid your question, but it would be the same answer on 20 other parameters as well. We're back to 2019. Our next question comes from Nick Thillman with Baird. Please state your question. Hey, good morning. Hamid kind of touched on you guys competing on price, like, 20% of tenants not renewing because of that, but retention is dropping down to 70%. Of those tenants that aren't renewing, are they Where do they end up going? Do they go to a new supply or a new product that's being delivered, or is it more sort of a scenario where they're just completely priced out of the market? No, they go somewhere else. I mean, those are real needs, and at the end of the day, warehouse rent is, as a percentage of total logistic costs, relatively small, so they're not gonna go out of business because of that. I mean, frankly, the pressure on energy prices and fuel prices and labor prices and all that, if you're gonna worry about something, those are more significant than their ability to pay rent. 70% is not a unusually low retention rate. I mean, if you, again, forget about the last three years, where there was no space and people had no choice, that would be a very normal rate of retention for us, going back and looking at it over a 10, 20-year timeframe. We are trying to find out what the efficient point is for losing customers because of price. You know, we can make that number be zero, but that would not be wise, because that means we're not pushing rents as hard. 20% is definitely still below where I would start worrying about dialing it the other way. If it got to about 30%, we may want to moderate on that, but still, generally speaking, the bias is towards pushing rents and not occupancies. Now, in markets where that is not the case, we'll dial it back some. That's a decision we make day to day based on the data that we see. It's not a top-down type of decision. Our next question comes from Ronald Kamdem with Morgan Stanley. Please state your question. Hey, just a couple quick ones. Just going back to the market rent growth forecast and also Southern California, can you give us some context in terms of what was the first half growth on the market rent growth? Number one. Number two, when you talk about sort of Southern California decelerating. Is there a way to get some context on, is this just a deceleration, or should we be bracing for things to potentially turn negative in that market? A couple of things. First of all, the most important thing about Southern California is the gas in the tank, not rental growth going forward. I mean, the gas in the tank in Southern California is, I don't know the exact number, but it's probably over 100% on your average lease. Whether you think rents are gonna grow 3% or -3% or 10% or whatever, it's not gonna affect that number one iota. Are there markets in Southern California and elsewhere where you could see rental growth sliding? Sure, of course, there are. When something has escalated by 150%, I wouldn't be surprised if it backslid some. Do I worry about Southern California becoming a difficult market? No. I would like to have more Southern California, because that means we have more cars with more gas in the tank. There are some markets that may continue to escalate, but they're still not gonna be as good as a market that has embedded growth of well over 100%. I'm not trying to duck your question, but we're a global company. It's a 1.2 billion sq ft portfolio, I think it would not be a productive use of my time or anybody else's, your time, to drill down into submarket or individual rents. Frankly, we don't spend a lot of time ourselves looking at that. We look at it bottoms up, a deal by deal, we make our long-term investment decisions based on some macro bets. What I'm telling you is that we like Southern California because of its embedded mark-to-market. Our next question comes from Michael Carroll with RBC Capital Markets. Please state your question. Yeah, thanks. I guess, just directed to Tim. I believe last quarter that you indicated that 2024 lease expirations had an 85+% mark-to-market. I mean, can you touch on what is included in that estimate? Does that reflect, expected market rent growth in 2023? If so, does that 85% target and stat still hold today? We would be in the 1980s, let me put it that way right now. That would contemplate market rent growth from here. We feel good about still hitting that kind of number. We'd give full guidance on it, you know, later in the year. Yeah, I don't think we know anything that suggests a different number than what we told you before. It's essentially the same number. Your next question comes from Camille Bonnell with Bank of America. Please state your question. Good morning. To clarify on Hamid's comments around the portfolio's embedded NOI growth, if rents grew another 5% as you're projecting in the back half of this year, are you expecting core NOI growth to be tracking above that 7% mentioned or more closely to the growth you're projecting this year? Tim, from your opening remarks, it sounds like market rents have grown in line with expectations to date, but moderated into 2Q. Can you just comment on how the pace of growth looks like for the remainder of the year based on your team's projections? Well, I'll take the first one. I think I want to be sure we're not conflating a couple things on same store. Hamid's illustration earlier was about a 4-year horizon, what we think will unfold in terms of market rent growth. That would be that roughly 8.5% average. I'll go ahead- That average same store NOI growth, not rent growth, same store NOI growth. Sorry. I don't even have the number for rent growth because frankly, I don't really spend a lot. That's a very volatile number. Yeah. So- That number, by the way, incidentally, incorporates what will happen in Duke in terms of its fair value lease adjustments and what we think will happen in occupancy. That's kind of fully baked, and that's a four-year discussion. In terms of this year, there's gonna be very little that could change in any direction on market rents that would affect this year's same-store growth. Just too much of the lease mark-to-market and the year, frankly, are now baked that we're gonna land pretty tightly in the range that I lay out. Or next year's. Yeah, true. As it relates to the rent growth detail, Tim's script included a way for you to kind of reconcile that. I think within the numbers, the main thing to know is many markets, both in the U.S. and globally, continue to have really healthy pricing power and meaningful move in market rents, but the aggregate number is adjusted downward, based on the views on Southern California that we've discussed here. Our next question comes from John Kim with BMO Capital Markets. Please go ahead. Thank you. Just to follow up on the $3 billion acquisition you made, how much of that did it contribute to your full year guidance raise, if at all? Can you comment on the pricing, just given, you know, 4% going cap rate, not many buyers have Prologis's cost of capital. I was wondering how you came to that level and how many competing bids or buyers there were at that level. Yeah, I'll pick up on the earnings side. It's about a half a cent, roughly, of our raise would be attributable to that. The remainder would be the same store component. On the number of competing buyers and all that, we don't know, but we actually worked collaboratively with the seller to pick a portfolio that made sense for them and made sense for us. It wasn't like there was a package and a competitive environment. Look, I would argue that two of the largest players in this space kind of know what's going on in the market, and they don't need to know a lot of third-party validation of where pricing is. We came to an agreement reasonably quickly on that. We're really pleased about it because we don't have to go through the brain damage of cleaning up the portfolio. We bought what we wanted to buy at the price that we wanted to buy, and presumably they got the price that they wanted, and everybody was very happy about that, and we'd love to do more of that. Your next question comes from Nicholas Yulico with Scotiabank. Please state your question. Thanks. Just a question in terms of, you know, what you're seeing with activity in the 3PL space. I mean, some commentary we heard specifically about, you know, L.A. and 3PL was that, you know, it was a market, it was very tight, so tenants took as much space as they could get, in many cases, took some excess space, you know, in recent years. You know, now that those same tenants, in some cases, are putting sublease space on the market, and then you also have less demand from the user group. Maybe it's a, you know, a port issue in the near term. I guess I'm just wondering, you know, broadly on 3PL, you know, what the activity of that tenant base looks like, you know, across your portfolio. Yeah, I'm gonna make a general comment, and it applies, maybe a bit more to 3PLs, but it applies to everybody. Southern California is a market where embedded mark-to-market is well over 100%. The 3PL business is a very low-margin business, very thin-margin business. If you've taken 10% more space than you needed, and now with the changed out-outlook, you think you need 10% less than you needed before, that's a 20% swing in how much space you're gonna need over the longer term. If you can make 3x or 4x what you would make in a year, moving boxes around by subleasing that space, you would do that. The propensity to adjust your space to your needs is much greater in this cycle because of the significant mark-to-market that's embedded in some of these leases. If you're in a market, where, you know. I can't think of a market like that, but let's say you were in a market where you're essentially at market or 10% below. By the time you pay a leasing commission and incur the downtime and maybe put some TIs in the space, you're not gonna make money on that space. It's more of a cost avoidance, and therefore, not much of that happens. Southern California is actually viewed as a source of profit for these guys to sublease their real estate, so they're gonna do it much quicker than before, and that's in fact, what we've seen. It all goes back to having less than 1% vacancy in this market not too long ago. Look, Southern California has been a crazy rent growth market for as long as I remember, whether you look at 30 years or five years or three years, but the last three years have just been ridiculous. For anybody to think that that would continue forever, I, we certainly don't make our investment decisions based on that, and we don't operate our portfolio like that. We're not surprised about what's going on in Southern California. Our next question comes from Vikram Malhotra with Mizuho. Please state your question. Thanks for taking the question. There's two questions. One, just looking at the lease proposal chart, correct me if I'm wrong, I think this is all in sq ft. I'm just wondering how this would compare, you know, whether you look at it as a% of expirations or the portfolio, just because you're a much bigger portfolio today with Duke in there and other acquisitions. As a% of the portfolio, is there something unique in terms of, you know, the trend downward? It would seem as a percentage, it's probably much lower. If you clarify that, number one, and then just number two, bigger picture, Hamid, if you're talking about normalization in trends, so still healthy levels, but let's just say normalizing to 2019, where do you think the risk premium should be for, you know, public-private warehouse space? And should it be higher or is it fair as it is today? Thanks. Yeah, let me start with that. In 2009, there was a big difference between then and 2019. 2019, I don't remember the exact number, but I think vacancy rates were north of 5%, maybe even north of 6%. Today, the outlook in 2019 was that we had a long run of improving market conditions, and I think in calls like this, we are all worrying about for the sixth year in a row, whether supply would exceed demand. Okay? Today, it's the same market, except the vacancy rates are substantially lower than they were at that time, and we have less of a concern about supply, beyond this year, that is, than we had in 2019. It's a slightly different market, but the dynamics are not that unusual. With respect to public to private, I don't know about the sector, but I continue to believe that we trade at a modest discount to NAV and private values. I think that once capital flows start up again, once the denominator effect starts going the other way because of improvements in public markets, I think that will be validated. I do think private values, in general, are slightly higher than public values, where these companies are priced. Vikram, on the proposal volumes, yes, that's sq ft age. As to reconciling it, I'd point you to the answer given earlier, to the same question, and happy to go through it, offline, if that's not sufficient for you. Thank you. Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please state your question. Hi, thanks. Just another one on market rent growth. You've previously talked about a 300-500 basis point spread in market rent growth between coastal and non-coastal markets. In light of your comments around Southern California, can you just talk about how you expect that spread to trend as you look ahead to 2024? Are there other coastal markets that you would include in the discussion with Southern California as you think about, you know, the labor strikes and the impact that's having at the ports? Yeah, I want to be clear about what we said. If you look at all the markets that we operate in, Southern California is going to have the highest rent growth of all, not market rent growth. Maybe the market rent growth will modulate, but because of the mark-to-market, Southern California, for the foreseeable future, and by that I mean five years plus, is going to have the highest growth rate of any market that I can think of. Chris. Correct. 100%. Yeah. That can go on literally for five to 10 years. Because the mark-to-market is so huge. Now, in terms of the market rent growth, I don't know. We'll find out, but it's. Our view has moderated, but that really doesn't matter. It's kind of like adding 2% to 3% in one direction or the other to a number that's north of 100%. I think we're focusing on the wrong issues. I don't really know the answer to your question. If I did, I'd tell you. Our next question comes from Anthony Powell with Barclays. Please state your question. Hi, good morning. Just a question on contributions. Looks like you restarted them this quarter with Japan and Mexico. Is it still the plan to restart contributions in the U.S. and Europe later this year? How is that progressing overall? I'll start and pitch it over to Karsten. Look, the reason we stopped contribution is not because we didn't have the capacity to buy these assets in our funds. We did, because they're very low leverage. The reason we did is that we couldn't really look our investors in the eyes and say that we all have clarity around the values for the fund or for the properties that are being contributed. We're not in a rush to do that. You know, there are some companies that force these decisions back in the last cycle that and we didn't and we fared much better than those companies that forced the contributions. As long as there is clarity on valuations, we will contribute assets. At least we would be willing to contribute assets. I remind all of you, at the end of the day, the independent advisory board for each fund makes the decisions of whether they want to accept those contributions or not. It's not a must put, must take kind of a situation at all. We couldn't very much look him in the eyes and say that, you know, this is the value because there was uncertainty around it. In the markets that you mentioned, there is clarity around the values. Europe, we felt that it reached a point of clarity at the end of last quarter, and we believe the US is now becoming very clear, too. The whole process took about three quarters from the downturn, which is what we expected this to take based on experience. You should expect contributions to continue at a sort of a normal or maybe somewhat modulated pace. Our next question comes from Mike Mueller with- Karsten? Oh, go ahead. Karsten, did you have anything to add to that? No, I think that's right. I mean, we will probably look at contributions in Q4. No rush, as you said, going through the ordinary course of business and spread it between both in Europe and the U.S. Thank you. Our next question from Mike Mueller with J.P. Morgan. Please go ahead. Thanks. I guess following up on that contribution question, are you seeing any traction yet in the Q3 with dispositions? We are not trying to dispose of a whole lot because remember, we're almost through all the Liberty ones, and Duke had very little dispositions associated with it. We sold a couple of them of late, and the latest Blackstone portfolio has zero dispositions in it. I mean, other than the normal sort of bluebird dispositions, we're kind of reaching the end of cleaning up the portfolio. There are a few deals here and there, but Dan, what would you add to that? I would say the transaction market is opening up, and we're very confident we're going to be able to dispose of what we want, when we want. It's not a material amount. No. It's not going to move the needle on our company. Next question comes from Craig Mailman with Citi. Please state your question. Thanks. It's actually Nick Joseph with Craig. Just going back to the comment you made earlier, you know, on the Blackstone portfolio deal, you said you worked with the seller, kind of on what would work for both sides. Obviously, they own a lot, so there was a lot to choose from. Kind of what were you focused on, either from a portfolio or strategic perspective in terms of the assets you acquired? Well, the markets that we like in the long term, and I can tell you that during the course of those, that analysis and that thinking, what the market rent is going to do in the next six months to the last decimal point was not a consideration. I mean, you know, it's, those are markets that we really believe, based on daily interactions with customers, as to where, you know, demand is going to be, where we see their trends. In supply, which are, by the way, let's, you know, we haven't talked about that in a couple of quarters, but supply is becoming extremely difficult to bring online in places like California. In fact, I'm kind of worried about it, because some of these places are shutting down. I mean, we spent a lot of time with the legislature trying to defeat AB 1000, which was a proposal to basically stop all warehouse development in Southern California. In selecting those assets, we focused on the markets that we liked a lot, and we were prepared to accept a lower yield for those markets because they have more embedded growth. Our next question comes from Jamie Feldman with Wells Fargo. Please state your question. Thank you, and thanks for taking my question. You know, I want to get your thoughts on just the different regions, you know, coming out of what should be a recession, if we get a recession. You know, there's a lot of talk about, you know, European wages really lagging the U.S. Obviously, that's a big driver of retail spending in your business. Can you just talk about what might be different as you think about putting capital to work across, you know, Europe, Asia, and the U.S. or North America, given what, you know, might, you know, some of these macro trends we're seeing? U.S. has got the highest rent growth over time of any of these markets because it's a more dynamic economy, bigger GDP growth, I think, than Europe, certainly. Europe has always been a sort of more muted market in terms of supply. Vacancy rates are always lower in Europe, and land is metered out by usually government authorities. It's not so much of a free market. You go buy from the farmer land, it's a more muted growth pattern than the U.S. one. We mitigate that because we employ more of a fund structure in Europe. The combination of the earnings on the fund management business, plus the growth in the underlying real estate business, makes up for that difference. Asia, China used to be a powerhouse in terms of economic growth. It frankly has surprised everybody coming out of it with respect to how slow it's been to turn around. I'm not smart enough to know whether that's a long-term trend or a short-term trend, but that market has gone from basically 10% per year type of GDP growth to more like a 5% rate of growth. Japan, probably the best long-term market for us from a development point of view, has always had low rent growth. 1%-2% rent growth would be great, but boy, there's no CapEx, there's no turnover, there is, you know. Yields have maintained themselves in Japan better than anywhere else. There's been no cap rate expansion in Japan at all. Remember, there's hardly any mark-to-market, so there's no cap rate expansion. In fact, I would say there's probably 10, 15 basis points of compression in the last in the last 12 months. It's a good development market. From an operating point of view, we talk cap rates, but at the end of the day, the cash flows in Japan are very strong because very little of it leaks out to CapEx and other things. Each market is different, and each market, when you look at it as a portfolio, plays its role within our overall business. Thank you. Our final question for today comes from Camille Bonnell with Bank of America. Please state your question. Hi. Thanks for taking my question. Does the valuation of your U.S. Logistics Fund take into account the recent portfolio acquisition you announced, or is that more of a comp for next quarter? Good question, Camille. I don't know. We bought that portfolio on balance sheet, so it's not a fund investment, but I honestly don't know how long it's going to take the appraisers to reflect that. We bought it at a very consistent level of valuation to what we thought valuations would be this quarter, and I think we're right about that. I think the market has adjusted in terms of understanding where values are going. I think we're at the tail end of those adjustments. You were the last question, Camille, thank you all for your interest in the company. We certainly feel very good about our business going forward and hope that we will have the opportunity to speak to you more over the summer. Thank you, everyone. Thank you. That concludes today's conference. All parties may disconnect. Have a good day.