Q4 2024 Earnings Summary
- Recent acceleration in leasing activity post-U.S. election, with pipeline up 17% year-over-year, indicating stronger momentum throughout the year and robust demand from various customer segments, including record leasing by 3PLs who leased nearly 50 million square feet in the back half of the year.
- Significant progress and growth potential in the data center business, with 10 gigawatts of development potential over the next 10 years, supported by a strong pipeline and internal capabilities, highlighting future earnings growth opportunities.
- Expected continued strong rent spreads of around 50% in 2025 due to substantial lease mark-to-market, supporting earnings growth despite market rent growth being slower in recent quarters.
- The company expects a dip in occupancy over the next 1 to 2 quarters, with average occupancy forecasted between 94.5% and 95.5%, lower than previous levels, which could negatively impact revenue growth.
- The company anticipates higher bad debt levels, increasing from the historical 20 basis points to between 20 and 30 basis points due to some known tenants under watch, indicating potential tenant credit issues and increased risk of defaults.
- The company is delaying new development starts, awaiting improvement in rents and returns, which may indicate weaker market conditions or reduced demand for new warehouse space.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +16.5% (from $1,889.28M in Q4 2023 to $2,200.65M in Q4 2024) | Total Revenue grew due to stronger rental income, increased acquisitions, and improved development activity; the previous period's lower rental revenue base was bolstered in Q4 2024 through higher occupancy and rent escalations, driving revenue from $1,889.28M to $2,200.65M. |
Real Estate Segment | +10.7% (from $1,759.33M in Q4 2023 to $1,947.26M in Q4 2024) | Growth in the Real Estate Segment was driven by continued rental rate improvements and enhanced capabilities from recent acquisitions and development completions; the segment built on previous gains, moving from $1,759.33M to $1,947.26M as market rents and portfolio contributions improved. |
Strategic Capital Segment | +95% (from $129.62M in Q4 2023 to $253.39M in Q4 2024) | Strategic Capital performance rebounded sharply due to a surge in deal‐driven promote and transactional revenue; after a period with lower promote revenue in Q4 2023, increased co-investment activity and higher fee revenues almost doubled the segment revenue, jumping from $129.62M to $253.39M. |
U.S. Geography | +237%+ (from $47.23M in Q4 2023 to $159.48M in Q4 2024) | The U.S. Geography segment saw a dramatic increase driven by robust market performance and significant operational improvements; building on a previously muted contribution, enhanced portfolio performance and possibly accelerated acquisition activity in the U.S. pushed revenues from $47.23M to $159.48M. |
Operating Income | +70% (from $834,851K in Q4 2023 to $1,421,256K in Q4 2024) | Operating Income surged as both core operational performance and gains on dispositions improved markedly; with higher gains on real estate dispositions and an improved operating baseline (increased rental revenues and cost efficiencies), operating income rose from $834,851K to $1,421,256K, building upon previous period challenges. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Average Occupancy | FY 2025 | no prior guidance | 94.5%-95.5% | no prior guidance |
Net Effective Same-Store Growth | FY 2025 | no prior guidance | 3.5%-4.5% | no prior guidance |
Cash Same-Store Growth | FY 2025 | no prior guidance | 4%-5% | no prior guidance |
G&A Expense | FY 2025 | no prior guidance | $440M-$460M | no prior guidance |
Strategic Capital Revenue | FY 2025 | no prior guidance | $560M-$580M | no prior guidance |
Development Starts | FY 2025 | no prior guidance | $2.25B-$2.75B | no prior guidance |
Data Center Projects | FY 2025 | no prior guidance | 200-400 megawatts | no prior guidance |
Acquisitions | FY 2025 | no prior guidance | $750M-$1.25B | no prior guidance |
Combined Contribution and Disposition | FY 2025 | no prior guidance | $2.5B-$3.5B | no prior guidance |
Development Portfolio Value Creation | FY 2025 | no prior guidance | $1.1B total, with $450M-$600M realized in 2025 | no prior guidance |
Energy Business | FY 2025 | no prior guidance | 1-gigawatt goal by year-end 2025 | no prior guidance |
GAAP EPS | FY 2025 | no prior guidance | $3.45-$3.70 per share | no prior guidance |
Core FFO (Including net promote) | FY 2025 | no prior guidance | $5.65-$5.81 per share | no prior guidance |
Core FFO (Excluding net promote) | FY 2025 | no prior guidance | $5.70-$5.86 per share | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
G&A Expenses | FY 2024 | $415 million to $425 million | $418.8 million | Met |
Strategic Capital Revenue | FY 2024 | $525 million to $535 million | $671.9 million | Beat |
GAAP EPS | FY 2024 | $3.35 to $3.45 per share | $4.01 per share (0.63+ 0.92+ 1.08+ 1.38) = 4.01 | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Occupancy fluctuations | Q3 2024: Ended at 96.2%, ~300 bps above market. Q2 2024: Occupancy ended at 96.5%, with premium vs. market. Q1 2024: Lowered guidance to 95.75%–96.75% citing slower leasing. | Prologis forecasted average occupancy of 94.5% to 95.5% for 2025, expecting a dip in early quarters with a rebound toward year-end. | Consistent focus on occupancy; sentiment more cautious for early 2025 but expects rebound later. |
Rent growth and lease mark-to-market | Q3 2024: Mark-to-market 34%, global rents down ~3%. Q2 2024: Rent growth negative for three quarters, 42% above in-place rents. Q1 2024: Mark-to-market 50%, net effective rent change ~68-70%. | Lease mark-to-market ~30%; positive growth expected later in 2025 despite uncertainty. | Recurring topic; near-term softness, but long-term upside remains significant. |
Southern California market conditions | Q3 2024: Largest rent declines globally, soft demand, but Class A outperformed. Q2 2024: ~75% of global rent decline attributed to SoCal. Q1 2024: Underperformance, rent down 6% with port labor issues. | Rents declined 25% on a net basis; pressures from wildfires and higher replacement costs. | Ongoing headwinds with significant declines, though SoCal remains a key market long-term. |
Data center business expansion | Q3 2024: Surpassed plan, 1.6 GW of power, 490 MW under construction. Q2 2024: 1.3 GW secured, with a 5-year $7B–$8B data center investment outlook. Q1 2024: No mention. | 1.4 GW of secured power; exploring long-term fund management approach; generated $112M in value from Chicago sale. | Increasing importance with a robust pipeline and monetization strategy. |
3PL demand trends | Q3 2024: Strong growth from Asian 3PLs, ~20% of net absorption. Q2 2024: 3PL market slack in SoCal, but new leases emerging. Q1 2024: 3PLs ~30% share in SoCal, serving surge space function. | 3PLs broke records in back half of year, nearly 50M sq ft leased, showing robust demand. | Consistently high demand from 3PLs, with record-breaking leases in Q4. |
Supply constraints and new logistics facilities | Q3 2024: U.S. completions down to 63M sq ft, from 135M sq ft a year ago. Q2 2024: Completions peaking at 140M sq ft, dropping to ~50M sq ft by Q4. Q1 2024: Limited new supply starts; $2.5B–$3B guidance for development. | Completions to decline 35% below 2024; starts down 70% from peak, waiting for returns to improve. | Consistent emphasis on constrained supply supporting future rent growth. |
Shifts in development starts | Q3 2024: Guidance reduced to $1.75B–$2.25B, slow build-to-suits, disciplined speculative approach. Q2 2024: Muted starts, potential pickup later in year. Q1 2024: Starts guidance lowered to $2.5B–$3B; land bank at $38B. | Maintained disciplined approach in 2024; starts down ~70% vs. peak. Looking to ramp up when returns improve. | Ongoing caution with an eye toward strategic timing of starts. |
Higher bad debt and tenant credit risk | Q3 2024: Elevated at about 35 bps, but re-leased space had ~60% rent upside. Q2 2024: No mention. Q1 2024: No mention. | Forecasted 20–30 bps bad debt for 2025, slightly above historical ~20 bps. | Recently heightened but offset by strong re-leasing potential. |
Short-term lease commencements | Q3 2024: ~50% of commencements under one year, driven by tenant uncertainty and strategic rent positioning. Q2 2024: No mention. Q1 2024: Signings down 12%, with lower pre-leasing impacting occupancy. | No mention in Q4 2024. | Not discussed this period. |
Macroeconomic and geopolitical uncertainties | Q3 2024: No specific mention. Q2 2024: Highlighted wars, elections, Fed interest rate volatility. Q1 2024: Cited 70-80 bps rise in rates and geopolitical tensions slowing decisions. | Slower leasing early in quarter due to election; optimistic about 2025 despite tariffs and wildfire impacts. | Continuing significant factor, with near-term caution and potential positive surprise later. |
-
2025 Guidance Details
Q: Can you elaborate on the 2025 guidance?
A: Rent spreads are expected to be in the 5% range this year, remaining elevated despite slower market rent growth. Bad debt allowance is anticipated between 20 and 30 basis points, accounting for a few tenants under watch. Occupancy is projected around 95%, similar across both the company and the same-store pool. -
Rent Trends and Outlook
Q: What were the actual rent growth figures, and what's the 2025 outlook?
A: Rents declined roughly 2% in the quarter, with coastal and non-coastal differentials narrowing. Most markets are stable, but we expect a modest further decline in a few submarkets in 2025. Southern California saw rents down 25% on a net basis, while U.S. ex SoCal was only down modestly. -
Leasing Acceleration Post-Election
Q: How did leasing activity change after the U.S. election?
A: Post-election, we experienced a leasing boom with 10 weeks of solid decision-making, unlocking previously stalled deals. The leasing pipeline is up 17% year-over-year in January. -
Impact of Tariffs and Trade Policies
Q: What is the potential impact of tariffs on your business?
A: While it's too early to predict policy outcomes, tariffs are inflationary and can affect consumers. Customers have adapted to changes in trade policy, with shifts from China to other countries. Some have pulled inventory into the U.S. ahead of potential tariffs. -
Development Starts and Capital Deployment
Q: What are expectations for development starts in 2025?
A: We expect development starts to pick up, especially in the U.S., as market conditions improve. We have a large land portfolio with $41.5 billion worth of opportunities. Build-to-suits are expected to improve year-over-year. -
Data Centers Expansion Plans
Q: Any updates on data center spend and plans?
A: We are looking at 10 gigawatts of data center opportunities over the next 10 years. Our pipeline is growing, with 1.4 gigawatts of secured power and 1.6 gigawatts in advanced procurement. We may consider fund management approaches for capitalizing our data center business. -
Occupancy Trends and Credit Loss
Q: How are occupancy and potential credit losses impacting you?
A: Occupancy is expected between 94.5% and 95.5%, influenced by seasonality and lease rollovers. Credit loss averages under 20 basis points across the cycle, with peaks at 100 basis points during crises. -
Earnings Guidance and FFO Growth
Q: What factors are impacting FFO growth this year?
A: Lower development stabilizations, higher interest rates, and lower development start volumes are affecting bottom-line earnings. We earned a promote income from a data center monetization, reflected in this quarter's results. -
Solar and Essentials Business Contribution
Q: What's the FFO contribution from your solar business?
A: In 2025, we expect $0.10 to $0.14 of FFO from the Essentials businesses, primarily from solar and operating essentials. This is up from $0.07 to $0.08 in 2024. -
Conservatism in Guidance
Q: Is there conservatism built into your guidance due to uncertainties?
A: Given recent uncertainties, there may be a degree of conservatism in our projections. We prepared our plan before the election and acknowledge various views within the company.