Prologis, Inc.

Welcome to the Prologis Q1 earnings conference call. My name is Chris, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you'd like to withdraw your question, press the pound key. Also note, this conference is being recorded. I'd now like to turn the call over to Tracy Ward. Tracy, you may begin.

Thanks, Chris, and good morning, everyone. Welcome to our first quarter 2019 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 on our 10-K or SEC filings. Additionally, our first quarter results press release and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP measures, and in accordance with Reg G, we have provided a reconciliation to those measures. This morning, we'll hear from Tom Wollinger, our CFO, who will cover results and guidance, and then Hamid Moghadam, our chairman and CEO, who will comment on the company's outlook. Gary Anderson, Chris Caton, Mike Curliss, Ed Neffert, Gene Riley, and Colleen McEwen are also here with us today. With that, we'll turn the call over to Tom.

Thanks, Tracy. Good morning, and thanks for joining our call. Let me start with a few high-level observations. Supply generally remains disciplined across our markets. User demand is exceptionally strong in the small and medium-sized segments, as our customers are prioritizing access to the end consumer and labor. Our proprietary leasing data continues to reflect healthy demand, showing average cessation period and conversion rates have improved from the fourth quarter. This is notable as the first quarter is typically the softest leasing period of the year. Europe remains strong despite negative economic headlines, including the UK, where our bill-to-suit pipeline remains very active. Now for our results. We had a great first quarter with very strong operating performance and core FFO of 73 cents per share. We leased almost 43 million square feet, bringing occupancy at quarter end to 96.8%. This was down 70 basis points sequentially, consistent with our strategy to push rate and term. Rent change on roll continued to be excellent, with our share at over 25%, led by the U.S. at over 30%, and Europe over 13%. Globally, our spread between in-place and market rents remains elevated at more than 15%. Our share of cash seems to run a lot of growth was also strong at 5.5%. This included a benefit of about 75 basis points from positive recovery and expense timing. G&A was about $5 million higher than expected due to stock-based compensation expense resulting from the increase in our share price. For capital deployment, we completed $157 million of dispositions and contributions. This excludes $500 million from the formation of our joint venture with Ivanhoe Cambridge in Brazil that closed in January. Starts were seasonally low at $239 million. However, we expect starts to accelerate meaningfully in the second quarter. Stabilizations were a record $691 million with an estimated margin of 30%. We continue to access capital globally in very attractive terms. In addition to our $3.5 billion global line of credit recast announced earlier in the quarter, we refinanced $1.1 billion of yen debt at a weighted average interest rate of 45 basis points in a term of more than eight years. During the quarter, we reduced our ownership in our open-ended European fund from 28% to 24%, generating proceeds of $313 million. This was to accommodate our partners and to bring our ownership in line with the venture's long-term target of 15%. Investor interest in the logistics sector continues to be very high. We have significant investment capacity with over $4.1 billion of liquidity and more than $6.5 billion from potential fund sell-downs, positioning us to self-fund our run rate deployment needs well into the foreseeable future. Now for 2019 guidance highlights. which are on an R-share basis. As we mentioned last quarter, we tempered our initial 2019 guidance by $0.05 per share to account for market and political turbulence at that time. We feel better today about our outlook, and our updated guidance removes $0.03 of that conservatism. As a result, we are raising and narrowing our cash same-store NOI guidance and now expect a range of 4.25% to 5%, up almost 40 basis points at the midpoint. We're bringing up the bottom end of our year-end occupancy forecast at 50 basis points to a range of 96.5% to 97.5%. We're raising our guidance for both development starts and acquisitions by $200 million to revised midpoints of $2 billion and $600 million, respectively. We're increasing the midpoint for stabilization by $100 million to more than $2.1 billion. We're also raising our realized development gains by $125 million to a midpoint of $350 million. We generated net sources of $550 million in the first quarter, and as a result, there'll be an earnings drag given the timing to redeploy this capital. For the full year, we expect $400 million in net deployment uses, which we plan to fund with modest leverage and free cash flow. As a result of valuation gains in Europe, we now expect our net promote income for the full year to be $0.14 a share of $0.04. As a reminder, the vast majority of the promote revenue will be earned in the third quarter. Taking these changes into account, we're increasing our 2019 core FFO guidance midpoint by $0.07 to $3.23 a share and narrowing the range to between $3.20 and $3.26 per share. This includes $0.14 of net promote income. At the midpoint, core FFO excluding promotes is now approximately 8.5% higher than last year. I want to point out that the value we create from our development business adds to this growth. This business is often underappreciated in valuation, as we do not include realized gains in our core FFO, but it obviously adds to our cash flow growth. Our development business has a long and successful track record of significant profitability. We've completed over $12 billion of developments since the merger in 2000. margin of approximately 30% has created more than $3.5 billion of value, roughly $450 million annually. To sum up, we had a great quarter. We feel good about our position, are excited about our prospects for the rest of the year. And with that, I'll turn it over to Hamid.