Welcome to the Prologis second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. The 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. I would now like to turn the call over to Justin Meng, Senior Vice President, Head of Investor Relations. Thank you. You may begin. Thanks, Daryl. Good morning, everyone. Welcome to our second quarter 2024 earnings conference call. The supplemental document is available on our website at prologis.com under Investor Relations. I'd like to state that this conference call will contain forward-looking statements under federal securities laws. These statements are based on current expectations, estimates, and projections about the market and the industry in which Prologis operates, as well as management's beliefs and assumptions. Forward-looking statements are not 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 second quarter earnings 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 founder and CEO, Dan Letter, our President, and Chris Caton, Managing Director, are also with us today. With that, I'll hand the call over to Tim. Thank you, Justin, and thank you all for joining our call. We had solid execution against our second quarter plan, which showed improvement over the first quarter, underpinned by a pickup in overall market activity. In fact, we leased 52 million sq ft in our portfolio, a 27% increase over the first quarter and one of our highest quarters in the past few years. This helped in delivering occupancy, which outperformed our forecast, and more importantly, at rent change, well over 70%. This was achieved in an environment where decision-making has remained slow, as many customers optimize existing footprints before committing to new space. As a result, we expect many property owners to continue to prioritize occupancy in select markets with higher availability, keeping pressure on rents. That said, the bright spot continues to be the depletion of the supply pipeline and successive quarters of very low development starts. We believe we are near peak vacancy, and this dearth of new supply is setting the stage for more favorable conditions in 2025. As evidenced by very strong rent change this quarter, our lease mark-to-market is serving to sustain meaningful growth through this transition. In terms of results for the quarter, core FFO, excluding promotes, was $1.36 per share, and including net promote expense, was $1.34 per share. We earned promote revenue within our FIBRA vehicle in Mexico, marking the seventh year of such achievement since its IPO, and speaking to the high quality of our portfolio and team in that market. Global occupancy at our share ended the quarter at 96.5%. Our U.S. portfolio continues to outperform the market by over 320 basis points, a meaningful spread that has widened from our historic norm of roughly 175 basis points. As vacancy normalizes in our markets, we expect this flight to quality to continue. We crystallized $100 million of our Lease Mark-to-Market during the quarter. As of June, we estimate that the net effective market rents are 42% above in-place rents, representing $2 billion of potential NOI. Over 40% of the decline in our Lease Mark-to-Market ratio is due to this quarter's Mark-to-Market capture. Net effective rent change was nearly 74% based on commencement and is 64% based on new signings. This metric can be volatile between quarters due to mix, but we continue to expect full year net effective rent change to be above 70%, illustrating the outsized mark-to-market opportunity that will remain in the near and intermediate term. Our same-store growth was 7.2% on a cash basis, 5.5% on a net effective basis, each strong despite the impact of over 100 basis points of decline in average occupancy year-over-year, as well as the effect of fair value lease adjustments on net effective growth from the Duke acquisition. We deployed over $700 million into new development projects and acquisitions during the quarter and also closed on over $1 billion in dispositions and contributions at values exceeding our initial expectations. We continue to grow our solar energy business with the installed capacity of our operating portfolio now at 524 megawatts, with an additional 134 megawatts currently under construction, the total of which will generate approximately $55 million of NOI once stabilized in line with our forecast. Finally, we raised $1.2 billion of debt across our balance sheet and funds at a weighted average rate of 4.4% and a term of 11 years. Outside of this total, we also launched our $1 billion commercial paper program, which has thus far saved an average of 60 basis points on our short-term borrowing costs in the US. In terms of our markets, there are several encouraging signs for demand, including port volumes on both the East and West Coasts, as well as increased volume of proposal activity we've seen across our portfolio. While overall leasing has increased since the first quarter, the tone of our conversations with customers warrants continued caution in the near term. Even though space utilization sits at near a normal range, approximately 85%, we find that many customers simply lack urgency, still prioritizing cost containment in light of an uncertain economic and political environment, both of which will be clearer soon. In the meantime, development starts remain muted and below pre-COVID levels. Quarterly completions peaked last year at 140 million sq ft, and are projected to approach 50 million sq ft by the fourth quarter of this year. We estimate vacancies in our U.S. and European markets will peak over the next few quarters, likely creating a shift in tone as customers assess the requirements heading into 2025. Until then, rent growth will be anemic in most markets and down modestly in some. Southern California remains its own story, where demand remains sluggish and vacancy continues to drift higher. While we've observed some green shoots over the last 90 days, we expect soft conditions to persist over the next 12 months. Globally, we estimate that effective market rents declined 2% during the quarter, with 75% of the decline attributed to SoCal. Because there is so much conflicting data available to investors, it's worth mentioning that we measure market rent growth by evaluating effective rents achieved, not asking rents before concessions, a difference that can be as wide as 5%-10%. We'd summarize by highlighting that most of the puts and takes across our global portfolio have provided conditions that are largely stable, with reason for intermediate-term optimism due to several quarters of low starts and subdued but positive demand. Turning to capital markets, value saw modest increases in the second quarter for our U.S. and European funds. There's greater depth amongst buyers of logistics properties, and lenders are more active, together reducing yield requirements. In particular, buyer pools for well-located core product are growing, now with multiple bidders back in the mix. We saw this very clearly in a large portfolio sale we closed this quarter, which was originally brought to the market last fall. Interest was reasonable at the time, but we felt pricing was off, elected to wait, and achieved 28% higher value in the end. I'd like to provide a brief update on our data center business, where we are having very good momentum across our pipeline. As you know, access to power is the key to unlocking value, and our dedicated energy and sustainability teams are leveraging our expertise in net zero carbon solutions, solar generation, and battery storage to ensure that we're in the pole position with all of the major utilities. To date, we have secured 1.3 gigawatts of power. Of this, 450 megawatts is currently under construction in $1.2 billion of TEI. 300 megawatts is in active pre-development with an expected $700 million of TEI, leaving 550 megawatts as available and currently undergoing build-to-suit discussions. Beyond all of this, we are also in advanced stages of procurement for an additional 1.5 GW, which is key to delivering on our 5-year outlook for $7 billion-$8 billion of total data center investment. Overall, we've made significant progress growing this business and are optimistic about the targets we laid out at our Investor Day. Turning to guidance, we are making few changes as the year is playing out to our expectations. As such, we're maintaining our forecast for average occupancy, same store, G&A, development starts, and stabilizations. There are only a few small changes otherwise. We are lowering our guidance for strategic capital revenue by $10 million, only to account for the impact of FX rates, which are hedged elsewhere in our P&L and will not affect overall earnings. Due to the increased activity we're seeing in the capital markets and deals completed year to date, we are increasing our acquisitions guidance to a new range of $1 billion-$1.5 billion, and similarly, increasing our guidance for overall dispositions and contributions to a range of $2.75 billion-$3.65 billion. Ultimately, we are increasing our GAAP earnings to a range of $3.25-$3.45 per share. Core FFO, excluding net promote expense, will range between $5.46 and $5.54 per share, while core FFO, including promotes, will range from $5.39 to $5.47 per share, a slight increase at the midpoint from our prior guidance attributed to the fiber promote. Our core earnings guidance calls for nearly 8% growth at the midpoint, which ranks in the 87th percentile of the S&P 500 REITs. We've been unique in our ability to generate leading growth over a long period of time, not only through a superior business model and portfolio, but also from our commitment to leveraging all that comes from our scale, including adjacent verticals strategic to our core business. Our focus is simply to continue to deliver on this industry-leading and durable growth. As we close, I'd also like to highlight an upcoming event, our annual Groundbreakers Thought Leadership Forum on October 2 in London. The program is taking shape as our best yet, exploring the surprising intersection of logistics and health, energy, and even fashion. Additional information for the forum is available on our website, and we hope to see you there or online. With that, I'll hand the call 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 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. We ask that you please limit yourself to one question. One moment, please, while we poll for your questions. Our first question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question. Thanks. Good morning out there. It looks like your occupancy and rent spreads improved as the quarter progressed, just looking at results versus the NAREIT update. Can you just talk about whether that momentum has continued into the third quarter, and if there are any specific markets that might have driven that improvement? And related to that, on occupancy guidance, the maintained guidance implies some downside during the second half of the year. Can you just talk about what's driving that trajectory, please? Hey, Blaine, it's Tim. I'll start with the first part, and I may ask you to repeat the second. I'm not sure if I understood the question. But coming into, you know, the first few weeks of the third quarter, I think, you know, we are maintaining the momentum that I guess you're inferring was picked up between NAREIT and the end of the quarter, which is that proposal activity is strong, leasing activity is strong. We see it more in renewals and a little less so in new leasing. We're achieving our rents outside of, you know, the drag that we discussed, and SoCal just continues to be the market that we watch most. But I think when I put that all together, what we think is we're pleased to see the way the second quarter executed. I think it executed pretty much precisely as we expected from our discussion 90 days ago and feel good about the year. Thank you, Blaine. Operator, next question. Thank you. Our next question comes from the line of Craig Mailman with Citi. Please proceed with your question. Thanks. It's Nick Joseph here with Craig. Maybe just on the demand side, obviously, it sounds like you're seeing and feeling an improvement there, but I was hoping you could talk about some of the demand differences across different size ranges and geographies. Hi, thanks for the question. It's Chris. I'll start with the geographies. The healthiest part in the U.S. is the Southeastern U.S., but I'd also really point out Latin America, as well as Europe, as being areas that are a boost to the overall global picture. As it relates to size categories, the story remains the same relative to what we discussed on our last earnings call, which is to say, sizes above 100, maybe even certainly over 250 and 500, that's where demand momentum is the best, but there's also more availability there. Demand is stable below 100, but that's where vacancies are especially low. Thank you. Operator, next question. Thank you. Our next question comes from the line of Ronald Kamdem with Morgan Stanley. Please proceed with your question. Great. Just a quick question on sort of the rent growth conversation. I think you talked about down 2 in 2Q, after being down 1% in 1Q 2024. Maybe if you could just provide some commentary on what, what the expectations are for the back half of the year and the 4%-6% sort of rent growth targets long term. How, how, how should you guys think about that, going forward? Thanks. Hey, Ron, thanks for the question. It's Tim. Yeah, and let me start. I'll just reemphasize, we're talking about effective rents here, from all the distortion we see out there in quotation methods. So this is ultimately taking rents, incorporating all concessions. You know, starting with the next 12 months, I'll do it that way, as we described, we would. We talked about at NAREIT, we basically would divide our portfolio into SoCal as its own special case, and then everything else. Within everything else, there are strong, stable, and weak markets, and I would put all of those other non-SoCal markets around flat, maybe modestly negative on market rent growth over the next 12 months, which is a long way of saying it's really gonna be a function of what do we think SoCal does in the next 12 months. When we put that all together, inclusive of SoCal, we would probably put that in a range of something like 2%-5% down in the next 12 months before inflecting. This is a good place to just remind everybody that even in light of that, I mean, we've had three quarters now of some negative market rent growth, one down in the fourth quarter of last year, one down in the first quarter, two down this last second quarter. In the meantime, we're putting up very significant rent change and growth within our NLI, 74%, one of our highest quarters, just this last quarter. So it's very fortuitous, the position we're in, where we have this large lease mark-to-market to carry us through this transition period. Thank you, Ron. Operator, next question. Thank you. Our next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question. Yeah, thanks. Tim, I think you commented on the lease proposals, but I was just wondering if you could provide a little bit more detail. Obviously, that green line is kind of up strongly and to the right, and I'm just curious how much of that is kind of for new activity, for kind of vacant space or development, and how much of that might be for renewal activity? Just to kind of frame it out, because that number is up quite a bit, even from, you know, kind of the past couple of years. Thanks, Steve. The chart that you're looking at in the supplemental is new leasing, just to be clear. And you highlight something that I'm glad you did. We do see the very big uptick in nominal proposals, 112 million sq ft, meaningfully above where we've been. That's a function of a few things. There, one, is just more space to lease. We have some increased vacancy in the portfolio, and this is also a function of just how the next 12 months of roll looks, and there's a little bit more there as well. This is why we added, for those who've noticed, a new line just this quarter, which puts that proposal activity in the context of what is available to lease y ou see that measured 42% this last quarter, which we would characterize, and you can see when you look at the chart, as normal. Thank you, Steve. Operator, next question. Thank you. Our next question comes from the line of Camille Bonnel with Bank of America. Please proceed with your question. Good morning. The pace of development stabilization seemed to be tracking ahead at this halfway point of the year. So was wondering, how does this compare to what was budgeted in your guidance? And out in the West Coast, it looks like you've made some good progress stabilizing some of these developments. So can you talk to some general terms on rents versus underwriting and how much of that was new leases signed in the quarter? Thank you. Yeah, thanks for the question, Camille. This is Dan. I'll handle the question here. So, it was a big stabilization quarter for us. Certainly, development leasing has slowed a bit. I think the best way to look at our development portfolio is look at the whole book of business. Don't look at it necessarily on a quarter-by-quarter basis. So if you look at the whole $6 billion development portfolio, all 35 million sq ft, we're trending to our long-term margin of 24%-25%. So if you look at our 20-year average, it's in the high 20s. So feel really good about our development portfolio. Thank you, Camille. Operator, next question. Thank you. Our next question comes from the line of Jon Petersen with Jefferies. Please proceed with your question. Great. Thank you. So I was looking at your top tenant list. It looks like an increase in square feet leased to Amazon and Home Depot. You know, we're hearing from other people that Amazon is more active this year. Whether you want to talk about them specifically, or maybe we can frame it in the context of, you know, what impact do some of these larger players in the market being more active in leasing have on the overall market? Like, are people waiting for them to make decisions before we start to see an uptick in activity? Is that kind of what's happening right now? Yeah, John. Hi, this is Dan. Thanks for the question. So, what you're pointing to is our top 25 list, where you saw some big completions come into the operating portfolio. Those were decisions that were made a year ago. And sure, we've had some success with Amazon this year. I would actually talk about the e-commerce segment overall. E-commerce has been very strong. We talked about this happening multiple quarters ago, before it was a story, and it's played out as exactly as we expected. E-commerce continues to be strong. Amazon was a little quiet one for us this last quarter, but at any given time, they're our top customer. We've got a lot going on with them, and it's a very strong segment for us. Thank you, John. Operator, next question. Thank you. Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question. Hi, everyone. Maybe just on the transaction market, I think, Tim, earlier you mentioned how the depth of buyers is deeper and the disposition you did was at a materially higher valuation now versus 2023. So I guess, what are you guys seeing from an acquisition potential on your side, who is selling, and kind of your opportunity there in the near term? Hi, Caitlin. Thanks for the question. Yes, we have seen the transaction market open up. I would say normalize. We're hearing from the brokerage community that they're doing a lot of broker opinion of values, so we expect to see the transaction market continue. We've had a lot of success in the disposition. We've outperformed across the board in our disposition business, which is why you saw us move our guidance up. We definitely want to take advantage of the market as it's opened up. And we have also been turning over all sorts of interesting opportunities in many markets around the globe, and we're really excited about our acquisition volume for the year. Yeah, the other thing I would add to that, Caitlin, is that you have closed-end funds that are coming to the end of their lives, and those portfolios need to be liquidated. The investors, generally, because of what's going on in their portfolio, not just in real estate, but also in other private asset classes, need liquidity because they have outstanding commitments. There's pressure from those guys to realize these sales. Industrial real estate has been one of the places that their performance has been really great, and crystallization of those values is important. It's a natural course of things, and you have some deferred sales volume that was put on suspended animation for the last 24 months that's now coming through. But generally, I would say the transaction market is, is very good right now with multiple offers for good portfolios. And the sweet spot is a couple of hundred million dollars, I would say. Not mega deals and not tiny deals, but sort of in the $100-$200 million range. Thank you, Caitlin. Operator, next question. Thank you. Our next question comes from the line of Nicholas Thillman with Baird. Please proceed with your question. Hey, good morning out there. Tim, you kind of mentioned the uptick in new lease proposals. Maybe just wanted to dig in on, on retention for the next 12 months. Are you expecting that to be historical averages? And then also, continue to see kind of free rent uptick. As the elevated concessions, does that kind of spur demand a little bit? Just want a little more color on that. Thanks. Sure, Nick, thanks. On the retention front, you know, we typically forecast between 70% and 80%, think of it as 75%, and that's a good number, and I would characterize that as our expectations over the coming several quarters. And then free rent, I think we may have discussed this recently. I would view free rent as, you know, just reverting to mean levels. We had kind of... There's another area where we had some surge pricing, if you will, some much lower free rent over the last few years. And now the market as it normalizes at different pace in different places, it's coming back to a more normalized level as well. Thank you, Nick. Operator, next question. Our next question comes from the line of Vikram Malhotra with Mizuho. Please proceed with your question. Morning. Thanks so much for taking the question. So, I guess just two parts. One, Chris, could you just update us, sort of your view on the, you know, I think 175 million of net absorption, sort of what you anticipate for the second half? And then, I guess, you also mentioned sort of the role in rent growth projection. Could you expand upon that in context of your three-year view that you provided the Investor Day on occupancy and same-store NOI growth? Thanks. Hi, Vikram. Thanks for the question. It's Chris. So as it relates to demand, just for those following along, net absorption in the first quarter was 26-27 million sq ft. We have it at 43 in the second, and so we expect 40-50 million sq ft in net absorption. I think that's the tone that, that Tim had in his script and that we have here on the call for you. That'll, that'll leave us with a full year net absorption of 160-170 million sq ft. Tim's gonna take the rent. Yeah, Vikram, on, in terms of the three years, you know, the way we think about that, we clearly have an environment now where the window of time that we think about, the three years in has shifted. We've highlighted that we think rents are gonna continue to fall modestly in the coming 12 months, grow thereafter. But the time that is then left to measure up to the end of 2026 is, of course, been shortened. If we look at that same period, the end of 2023 to the end of 2026, our sense is that rents are gonna be flat then to modestly positive over that entire period, but we would couch that as rent that's really been deferred, that the window's moving and not ultimately lost. Yeah, one other perspective I might provide to you is that the big change since our 4%-6% three-year forecast has actually been in concessions. So those concessions have... I mean, in other words, if you had two forecasts, one for asking rents and one for effective rents, the effective rent one has been affected more since our investor day when we laid out that assumption. Not all of it, the face rents have come down in Southern California, certainly, but most of it has been expansion in the concessions, and we see those burning off over the next 12 months as markets come into even the weaker markets come into balance. Just to give you a sense of something that Chris mentioned before, Southern California accounts for about 23% of our rents over the next twelve months. What we categorize as sort of the weakish market are another 21% of our rental profile for the next twelve months, and fully 56% of the rents rolling over in the next twelve months are in stable or healthy markets. So, you know, this is really a Southern California problem, where it's both an expansion in concessions and a reduction in face rent. Fortunately, and this is really important, Southern California is the market with the largest mark to market in the next twelve months, even with the declines that we're projecting. So there is pretty good downside protection. In fact, upside protection, if there's such a word, on those expiring rents in Southern California. So ironically, the weakest markets have the most mark-to-market, certainly in the near term. Thank you, Vikram. Operator, next question. Thank you. Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question. Thank you. I wanted to ask about the occupancy trajectory for the remainder of this year. At NAREIT, there was some discussion of, that this would dip below 96% in the near term and then recover. Is that still on the table, or are you now past that risk given the end of the quarter at 96.4? Thanks, John, and I realize this was also Blaine's question that I missed earlier, so thanks for coming back to it. You know, the 96 comment was very specific about where we thought the second quarter was gonna land. I would say that the year-to-date average that we have so far, we're around 96.6 year to date. The midpoint of our guidance is 96.25. That just reflects some tougher roll and so a little bit longer lease-up time that we see in new leasing. I hope it's conservative. I suppose there's that possibility, but we feel good about the range that we've established. You know, one other way of, and I think this was in Tim's prepared remarks. I think the quality of the portfolio manifests itself in two ways. It manifests itself in terms of a premium in occupancy, which, if anything, has expanded in this market environment, because you know, when markets are really tight, people don't have a choice. They can't be picky about the quality of space. Pretty much everything leases. But as markets get more normalized, softer in some cases, you know, business goes towards the higher quality businesses. So it's hard to predict the absolute level of occupancy, certainly quarter by quarter, because one or two leases, even as large as our portfolio is, can really move around the numbers. But I can tell you our premium. I'm very confident of our premium in occupancy, compared to the rest of the market. I think it's gonna expand even further. Thank you, John. Operator, next question. Thank you. Our next question comes from the line of Vince Tibone with Green Street. Please proceed with your question. Hi, good morning. Capital allocation guidance and implies an acceleration of starts in the back half of the year. Are these all, you know, mostly planned logistics starts, or are there some data centers in there as well? And related to all this, kind of what markets would you be comfortable starting a spec project today in the current environment? Vince, hi, it's Dan. Thanks for the question. So, I think... well, first of all, your question around, what's in our start volume. That is entirely logistics that you see there. And, the better way to think about where we're gonna build is look at the sheer amount of opportunities we have. We have $40 billion worth of opportunities in dozens of markets around the world. We've raised the bar on spec. We take it through a rigorous process, pay attention to the market fundamentals, and, look at every deal on a deal-by-deal basis. So we have many markets around the world that we'll be building in this year, and, I think, decisions that we make on a deal-by-deal basis, may change between now and when we start, so it's hard to, to peg anything, certainly right now. But if you're asking for specific names of markets, I would say Mexico is super strong. Nashville, Houston, the Southeast, pretty strong in demand there. Northern Europe is very strong. So those are the places you're most likely to see spec development starts. Thank you, Vince. Operator, next question. Thank you. Our next question comes from the line of Ki Bin Kim with Truist Securities. Please proceed with your question. Thanks. Good morning. I wanted to talk about your data center business. Given the updates you provided, at least from the outside looking in, it seems like you're ahead of your 5-year plan for 3 gigawatts of deployment. I'm not sure if that's correct, but maybe you can just comment on incremental changes in demand you're seeing in that business. We are more optimistic about our data center business since the time of our investor day. I think where some of those numbers come from, Ki Bin, part of it is we've done some excellent recruiting in terms of specialists in the sector that have joined the team and are very excited. And secondly, the energy team that we have, the renewable energy team that we have, has excellent relationships with utilities, and that's something that oftentimes is missing in a lot of data center companies that are just got the real estate component. And obviously, we know the five hyperscalers really well. And in this environment, the ability to finance and deliver and execute becomes super important. These are mission-critical, you know, deployments for these companies, and it is increasingly difficult for private players that don't have a balance sheet, to compete in that market. So we think the competitive position, for Prologis, both because of talent and balance sheets, are just gonna get better and better going forward. Thank you, Ki Bin Kim. Operator, next question? Our next question comes from the line of Mike Mueller with J.P. Morgan. Please proceed with your question. Yeah, hi. Where do you think we are in terms of 3PLs resetting their footprints? Hi, Mike. Thanks for the question. So the 3PL market is really an interesting dynamic right now. What we're seeing is certainly slack in the system, more acute in Southern California, where there's simply just more 3PLs, almost double the average across the U.S., and that's where they took up a lot more space during COVID. Now, you can't deliver for a customer in a market that you don't have space, and a lot of the excess space that 3PLs have is scattered throughout their networks. By way of example, one of our top 25 customers came to us recently and said, "We have 6%-7% excess space in our network," yet a 750,000 sq ft need emerged in a major market, which led to a long-term, very large lease for us. Yeah, one way to think about the 3PL market is this: that 3PLs basically serve two purposes. Some 3PL business and volume comes from players that just wanna outsource that activity to somebody else because they want to focus on their own business. And what I consider that to be baseload business, it doesn't act any differently than leases that are directly entered into by those companies, those principals. Then there is sort of the surge component of 3PLs. That is the component that is likely to be more volatile. On the way down, when markets are becoming softer, you expect that component to actually suffer more. And when the markets are on the upswing, that's where you see the excess activity. The base part stays pretty consistent with the rest of the portfolio. Southern California, to be specific, has in the low 30% range in terms of 3PL share of the market business. Now, a lot of that is base load business, but some of it is surge business. Versus the average of the U.S., which is about 18% of the total portfolio, is leased by 3PL. So obviously, those markets with bigger exposure to 3PLs have more of this problem on the surge component. Thank you, Mike. Operator, next question. Thank you. Our 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. You continue to remain confident on the intermediate-term outlook, particularly on the demand side. So maybe just to sum everything up that we've heard already today, you know, what evidence do you see today that gets you excited? And then can you kind of walk us through how you see the timing of the recovery playing out? Thanks. Look, predicting market cycles, particularly when you've got a couple of wars going on, you've got a Fed that's at an inflection point with respect to interest rates, and you've got a presidential election coming up, which is, you know, obviously, with the events of this weekend that are highly volatile. You've got three major things going on. And, you know, to the extent that you're asking us for very specific forecasts, let me tell you, we're not, we're not that good. And, you know, you should, you should know that. But what gives us confidence, we can argue whether the full recovery of the market is 6 months or 12 months or 18 months. I frankly think the... This is just, just my sense, having done this for 40 years, that the Southern California markets that are the softest are gonna stabilize the latest in about 12 months out, and the other soft markets are a matter of between now and 12 months. And more than half the markets are actually, they don't need to recover because they've never unrecovered. They've been going straight up. So, so I think you're talking about the next 12 months as various markets, sort of turn the corner, if I were gonna pick a number. And I think if you kind of get your head into January of next year, the presidential uncertainty will be gone. I'm pretty sure, sure that the Fed uncertainty will be gone, so we'll be down to the political start. What we know for a fact, which is not a prediction, is that start volume is very low, and replacement costs have continued to go up. Construction costs have moderated, but exactions on land and approvals and entitlements, those continue to go up. So I'm super confident about the long-term, you know, strength of our business. And calling it over quarters or even couple of quarters is really difficult, but if you want an answer, you have it. Thank you, Michael. Operator, next question. Thank you. Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question. Hi, thanks. Hamid, you know, just following up on that a little bit, I'd be curious to get your thoughts on another maybe uncertain item, the potential impact tariffs might have on trade and industrial real estate in the U.S., and just, you know, whether conversations you're having today with tenants or prospective tenants might be impacted as a result. And really, does that change anything, potentially, how you think about allocating capital globally? Yeah, that's a really good question. So, first of all, I think there's a race between both parties on tariffs, so I'm not sure which outcome is gonna lead to more tariffs. Probably the Trump outcome, which is higher probability at this point, is gonna lead to more tariffs, specifically on China. But at the end of the day, I think what you need to remember is that we are in supporting the consumption side of the supply chain. We've never focused on the production end of the supply chain. So the same amount of goods, volume of goods, needs to get consumed in these markets. With respect to specific tariffs on China, all that business as part of China P lus One strategy of a lot of suppliers, has already moved to other markets. Most of them are in Asia, a lot of them are in Southeast Asia. Some of it has has shifted over to, Mexico, particularly on the northern border. So but at the end of the day, they're gonna get consumed where the people are in the U.S., so we don't see a radical demand shift between markets or in terms of overall need for our kind of product. So that's the main driver. The second order effect is, to the extent there are tariffs, you know, Economics 101, you're gonna have higher inflation, and that could cause the Fed to relax slower. And that will have, obviously, a headwind effect on the overall economy, which in turn, which in turn will affect demand for industrial real estate and everything else. So I'm not worried at all about the primary effect, the direct effect of China, the way people think about this China-L.A. connection, and the fact that that's somehow gonna be under pressure, because it... The containers are gonna land in L.A. They don't really-- we don't really care where they come from. But the second order effect, which most people don't think about, I think is kind of important. But, you know, that will be a problem in everybody's earnings calls, if it were to materialize. Thank you, Todd. Operator, next question. Thank you. Our last question will come from the line of Nicholas Yulico with Scotiabank. Please proceed with your question. Oh, yeah. Hey, thanks. You talked earlier about the transaction market pricing improving. Can you relate that to the strategic capital, you know, revenue? How should we think about kind of where the funds are valued right now, whether there could be, you know, upside potential revenue for that, versus on the fund flow side, you know, what you're seeing? On our fund valuation, I can confidently tell you that we have turned the corner in both U.S. and Europe. We were early adjusting our values, and I think we're now on the good side of the cycle. I think in a lot of other people's funds, they've been dragging their feet in adjusting the real values part of it, parts of, you know, some of it intentionally and some of it not intentionally, because the appraisers are always backward-looking, and until there's data and takes time for data to reflect itself in the comp set, you know, those values haven't adjusted. So I think the market will continue to experience the decline in values that really occurred 6, 9, 12 months ago, but are just now being acknowledged. I think we've already passed that and our funds will be going up in values because of a more direct link between our valuation process, which is, by the way, independent. That's really important to also understand. A lot of these funds don't do independent appraisals and others. So you may hear mixed messages on that, and that's just because we've been ahead of the curve. As to the second part of your question, which is fund flows into industrial real estate, there is a tremendous amount of money that has been raised and not spent in acquisitions and by investment managers, and my experience tells me that that money is gonna get spent. So I think that's gonna be the source of capital for a lot of transactions going forward. In terms of new allocations to industrial real estate and everything else, remember, these portfolios are under a lot of pressure because they've had office buildings that have declined in value 30, 40, 50, 60%, which has been the biggest component of their portfolios. So they're under pressure, and they're looking for more liquidity as opposed to being in a front-foot-forward investing mode. So I think the volume of new capital allocations to all kinds of real estate will, will be slow coming back, but it is on the upswing. It's just slower coming back than most other cycles. All right, so I think that was the last question. Thank you again for your interest in the company, and everybody enjoy the rest of the summer. We'll see you pretty soon, hopefully at Groundbreakers. Take care. Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.