Tim Arndt: Thank you, Justin, and welcome to everybody joining our call. Before diving in, I'd like to share our concern for those affected by the recent hurricanes in the U.S. and Europe that impacted our employees, customers and communities. Thankfully, our teams are safe and their proactive customer outreach and assistance has been outstanding. Our property sustained limited damage for such strong storms. Overall, we are pleased with our operating and financial results as the third quarter played out to our expectations. While occupancy and rent softened against the backdrop of positive yet subdued demand, we continue to deliver impressive net effective rent change due to the still powerful lease mark-to-market embedded in our portfolio, which bridges us through this soft patch to the next cycle of rent growth. Turning to the quarter, core FFO, excluding net promote expense, was $1.45 per share and included in net promotes was $1.43 per share. These results were slightly ahead of our forecast and the quarter included approximately $0.03 of income from the Prologis Ventures' exit. Period-ending occupancy was 96.2% [at our share] (ph), nearly 300 basis points above the market as the flight to quality continues. Net effective rent change was 68% and cash rent change was 44%. We captured over $90 million of NOI by rolling leases up to market. The portfolio produced net effective and cash same store growth of 6.2% and 7.2%, respectively. Revenues were impacted by approximately 35 basis points of bad debt, which is elevated from our normal 15 to 20 basis points. While bankruptcy filings are on the rise broadly, the good news is that the space we've taken back as a result has had embedded rental upside of over 60%. Our overall portfolio lease mark-to-market finished the quarter at 34%, representing $1.6 billion of potential NOI. Finally, on the balance sheet, we raised $4.6 billion of new debt across Prologis and our funds at a weighted average rate of 4.6% and the maturity of approximately nine years. In terms of deployment, we had a very active quarter. We started over $0.5 billion in development projects, including incremental capital to an existing data center development now pre-leased to a hyperscale customer with a turnkey buildout. We expanded our land bank, driving our potential development opportunity over $40 billion, which now includes our first two projects in India that support over 5 million square feet of new development. We deployed over $1.4 billion in third-party acquisitions. Year-to-date, we have acquired over 14 million square feet of strategic assets at an estimated 20% discount to replacement cost. We started development on 54 megawatts of new energy systems. Our momentum here is building, and we continue to have and we expect to have generation capacity well over 600 megawatts at the end of this year, with good line of sight to our 1 gigawatt goal by the end of 2025. As mentioned, Prologis Ventures had a successful exit of an early round investment in the Japanese workforce solution, [indiscernible]. This produced a 9-times multiple on our investment, realizing a 65% IRR. Beyond the economics, our strategy and supply chain venture investing has delivered valuable insights for Prologis and our customers. Finally, FIBRA Prologis, our strategic capital vehicle in Mexico, successfully closed a tender for the shares of Terrafina, of which it now owns nearly 80%, enhancing its leadership position in one of our best-performing and highest-growth global markets. Turning to the operating environment, conditions remain soft in many of our markets, and as we've described over the last few quarters, this is despite healthy GDP and consumption growth. We ascribe the weaker relationship between economic output and industrial absorption to the availability built into the supply chain through COVID, originally earmarked for resiliency, but now available to operators as a source for cost containment. But ultimately, the ability to rely on this [excess] (ph) is diminishing as utilization reaches a level that will force decision making and expansion, the pace of which will vary by market. Many customers are making progress in reducing this capacity through growth, while others are gaining efficiencies through consolidation. In the end, it's all serving to hold net absorption below pre-COVID levels, impacting rents. Globally, we estimate that market rents decreased approximately 3% this quarter and roughly half this amount when excluding Southern California. As we noted before, Southern California will take the longest to reach equilibrium. While activity has improved, the remaining amounts of excess capacity will simply take time to work through. That said, it's important to keep this context, our SoCal portfolio generated 84% rent change on commencements this quarter even as it led the globe in market rent decline, a great example of the interplay between the spot reduction in rents against our lease mark-to-market. This has us well positioned to navigate the cyclical downturn and taking it a step further, we see the structural investment case for SoCal as strengthening with new supply barriers that come into effect from recently enacted legislation and continued focus on carbon emissions. As always, the rent picture is mixed and there remain many markets that are either flat on rents or positive, such as Houston, Atlanta, Nashville, Northern Europe, and of course, LatAm remains very strong. Overall, bottoming process is underway, and we expect demand to remain soft in the near term. Looking ahead, market vacancy is at or near its peak and will hover there as utilization improves, and global rents will bottom sometime mid next year. It stands to reason then that the near-term growth will be affected by the path market rents and occupancy have already taken. We remain very positive on the outlook for our business, as vacancies are still low in the context of history, starts are down significantly, and supply deliveries are falling below their pre-COVID levels. Additionally, with replacement cost rents approximately 15% above today's market, even with land values marked down by a third from their peak, the long-term growth trajectory remains highly favorable. Moving on to capital markets, we've seen improved pricing and activity in the transaction market and values continue to grow. U.S. and European values, again, increased approximately 1% in the quarter, and Mexico saw an impressive 2.2%. With the bottom seemingly in, our strategic capital business had its most productive quarter in the last two years, raising a net $460 million. Overall, it appears private market sentiment is stronger than the public markets. During the quarter, transaction volumes increased and unlevered IRRs compressed another 25 basis points. In terms of guidance, which I'll review [at our share] (ph), we are tightening our forecast for average occupancy to a range of 96% to 96.5%, and also tightening our forecast for cash same store growth to a range of 6.5% to 7%. Our net effective same store growth is for a range of 5.5% to 6%, which has been tightened and reduced modestly at the midpoint for the increased non-cash write-offs we expect from higher bankruptcies in the balance of the year. We are tightening and slightly reducing our G&A guidance to a range of $415 million to $425 million, and tightening our range for strategic capital revenue to $525 million to $535 million. We are reducing our overall development starts guidance to a range of $1.75 billion to $2.25 billion, which reflects both slow decision-making in build-to-suits and discipline on our part in deferring new spec development amid stubborn demand. Of course, we are in the best position to react quickly as conditions warrant with approximately $8 billion of pad-ready development opportunities. We see attractive acquisition opportunities in the market and are increasing our guidance here, taking our range up to $1.75 billion to $2.25 billion. And finally, the forecast for our contribution and disposition activity is increasing to a new range of $3 billion to $4 billion, reflecting the improving transaction market and stronger fundraising and strategic capital. The positive spread between our buying and selling IRRs year-to-date has been approximately 100 basis points. Putting it all together, we are increasing our GAAP earnings to a range of $3.35 to $3.45 per share, core FFO, including net promote expense, will range between $5.42 and $5.46 per share, while core FFO, excluding net promote expense, will range between $5.49 and $5.53 per share, a $0.01 increase from our prior guidance. Core FFO, obviously, excludes our development gain guidance, but it's noteworthy to highlight our increase to a new range of $375 million to $425 million. In closing, we had a very productive quarter in which we delivered strong operating results, high occupancy, high rent change and meaningful same store growth in a challenging market environment. Alongside that performance, it's clear that we are focused on the future as evidenced in our very active deployment, spanning our global reach and product offerings. The company is well-positioned to capitalize on the structural demand for logistics real estate and our focus on operational excellence, customer centricity and value creation will continue to drive strong performance across all market cycles. Consistent with this drive for excellence, I'd be remiss to not highlight our annual GROUNDBREAKERS forum, which we just held in London. It featured some of the most innovative companies of our day, and we heard from the likes of the legendary Fred Smith of FedEx and Sir Tony Blair amongst many others. GROUNDBREAKERS deepens our customer relationships and builds upon our thought leadership across the supply chain and its emerging foundation for clean energy and digital infrastructure. It's great to see so many of you there, and a replay of the event is available on our website. With that, I'll hand the call back to the operator for your questions. Unfortunately, Hamid is feeling under the weather today, and while he's on the call, he may be limited in his responses. Operator?


net effective and cash same store growth


Blaine Heck: Great. Thanks. Can you give an update on your overall mark-to-market throughout the portfolio? And secondly, I guess, how should we think about the cadence of same-store NOI throughout 2025? You're coming off a fourth quarter at 6.7% cash same-store NOI. So should we expect it to gradually come down throughout '25 and end the year somewhere below that 4.5% cash midpoint? Or is there more nuance and seasonality in the forecast, given that you mentioned, I think that occupancy would build back up towards the end of the year? Any commentary there would be helpful.


Tim Arndt: Thanks, Justin. Good morning, everybody and thank you for joining our call. I'd like to begin by recognizing the devastating wildfires still affecting Los Angeles. We operate a large portfolio there, but more importantly, we have colleagues, customers, and their communities struggling with the aftermath. It's too early to predict the full ramifications, but we'll continue to support the response and stay connected with local and state leaders as well as service organizations as the region works to recover. We have no doubt that a vibrant and dynamic Los Angeles will emerge from this crisis even stronger. In our business, the bottoming process across our markets continues to progress. Leasing in our portfolio accelerated following the U.S. election, and the pipeline has started the year at healthy levels. During the quarter, we signed more than 60 million square feet of leases, a company record, and saw interest diversify across customer profile, size requirements and markets. Looking ahead, we believe market vacancy is topping out and rents will inflect later this year. Turning to our results. Core FFO, excluding net promote income was $1.42 per share and including net promotes was $1.50 per share. Our full-year results ended at the top end of our guidance range, and in the end represent 8.4% growth over 2023, putting us in the 86th percentile of all REITs. Average occupancy was 95.8% for the quarter, 96.3% for the year. Net effective rent change during the quarter was 66% and on a full-year basis was 69%, activity which added over $340 million in annualized NOI. Our net effective lease mark-to-market finished the year at 30% and represents a further $1.4 billion of incremental NOI. And finally, net effective and cash same-store growth during the quarter were 6.6% and 6.7% respectively. In terms of capital recycling, we had another active quarter. Importantly, we contributed $2 billion of assets to our strategic capital ventures, bringing the full-year total to over $3.3 billion. While capital flows in 2024 remain challenging, we did raise over $1.7 billion across the platform, driving the growth in third-party AUM by over 7%. We disposed of over $900 million of assets in the quarter and acquired approximately $450 million. And stepping back, over the full-year, we disposed of over $2.1 billion and reinvested into a similar $2.3 billion of acquisitions at a positive IRR spread of 170 basis points, demonstrating our ability to self-fund and earn a return regardless of the yield environment. Included in our disposition activity for the quarter was the sale of our Elk Grove data center in Chicago. Elk Grove was a logistics asset that we converted to a powered shell before securing a build-to-suit turnkey transaction with a hyperscaler last Fall. We simultaneously identified a buyer and closed in the fourth quarter at very attractive economics. Because the property was owned by USLF for our structuring, procurement, leasing and monetization efforts, Prologis earned a value creation fee of $112 million, which was not included in our prior guidance due to the uncertainty and the timing of the transaction. Elk Grove is a great showcase of our data center development capabilities, which are more comprehensive than most. Today, we have 1.4 gigawatts of secured power and 1.6 gigawatts in advanced stages of procurement. Over the next 10 years, we see 10 gigawatts of development potential across our portfolio. As a platform, we have the team, customer relationships, development and energy expertise, advanced procurement capabilities and the capital required to create significant value for our shareholders. Turning to market conditions. As mentioned, quantitative measures of the market such as vacancy and changes in market rent met our expectations. More importantly, indicators in our pipeline and dialogue with customers have us encouraged that conditions are set for a recovery in net absorption, leading to a bottoming of global rents. It's worth highlighting that our non-U.S. portfolio fared better in rent growth over 2024, particularly in places like Japan, the U.K., Southern Europe, and Latin America, which all grew over the year. Customer engagement is improving and we saw a notable increase in activity amongst our larger global customers who often lead in the recovery of demand as we've seen in past cycles. The improvement in decision-making is reflected in our proprietary metrics where proposals increased earlier in the year, lingered for a period of time and then began converting more meaningfully after the election. That leasing pattern translated to elevated gestation also seen in our metrics. Our '25 forecast for net absorption calls for approximately 20% improvement over 2024, gradually building over the year. We also know that completions will decline significantly, contributing to a supply forecast that is approximately 35% below '24. As such, we expect a decline in vacancy over the year, which will pave the way for rent growth. Longer term, we continue to see the path for uplift from market rents to replacement cost rents, a dynamic that will build upon our already significant lease mark-to-market. Today, we see replacement costs as 50% higher than in-place rents. The capital markets were active with fourth quarter transaction volumes that put the year in total back to pre-COVID levels. Unlevered IRRs have compressed to the mid-7% range, and valuations as reported in our third-party appraisals had the globe marginally up this quarter. Capital raising in our open-end vehicles was more muted in the fourth quarter as investors paused to take in changes in the yield environment, but we remain confident in our expectation for growing capital raises in 2025 as the pipeline is solid and conversations are active. In terms of guidance, which I'll review at our share, we are forecasting average occupancy to range between 94.5% and 95.5%, which contemplates a dip in occupancy over the next one to two quarters, some of which is seasonal before rebuilding closer to 96% by the end of the year. Net effective same-store growth is forecasted to be in a range of 3.5% to 4.5% and cash in the range of 4% to 5%, each driven by still significant rent change. Our G&A forecast is for $440 million to $460 million and our strategic capital revenue forecast calls for $560 million to $580 million. As for deployment, we are forecasting development starts to range between $2.25 billion and $2.75 billion. We will continue to be selective in our starts and clearly have a lot of capacity to grow this number as conditions, rents and returns warrant. As a reminder, data center starts are excluded from this guidance, given their lumpiness. That said, we do expect new projects to begin in 2025, likely in a range of 200 to 400 megawatts. Acquisitions will range between $750 million and $1.25 billion and our combined contribution and disposition activity will range between $2.5 billion and $3.5 billion. Our development portfolio now stands at $4.7 billion with estimated value creation of $1.1 billion, $450 million to $600 million of which we expect to realize this year. Finally, 2025 will be an important year for our energy business where our forecast is to hit our 1-gigawatt goal for solar generation and storage by year-end. In total, we are establishing our initial GAAP earnings guidance in a range of $3.45 to $3.70 per share. Core FFO, including net promote expense will range between $5.65 and $5.81 per share, while core FFO, excluding net promote expense will range between $5.70 and $5.86 per share. In closing, we navigated a challenging year in terms of an operating environment, clearly unwinding from the overbuilding of the COVID era. Our ability to generate over 8% growth in such an environment is a testament to the resiliency and breadth of our company. We're pleased with the increase in activity and improvement in sentiment that we've seen so far in the last two months. And working through great space amid the favorable supply backdrop will further establish the foundation to build occupancy, grow rents, and increase values, unlocking the full earnings potential in our core business. And finally, we're very excited with what the future holds for our data center and energy initiatives. With that, I'll turn the call over to the operator for your questions. Operator?

net effective same-store growth 6.6% quarter


net effective same-store growth 3.5% to 4.5%


Tim Arndt: Good morning and thank you for joining our call. We've had a good start to the year in terms of our operating and financial results in the first quarter. We delivered strong rent change, drove occupancy slightly ahead of our forecast, raised nearly $5 billion in capital, including $750 million in strategic capital, and made important headway in our Energy business. That said, as we evaluate the market, persistent inflation and high interest rates have kept more customers focused on controlling costs. The resulting delay in decision making, easily observed through the first quarter's below average net absorption, will translate to lower leasing volume within the year. Accordingly, we've opted to adjust our guidance early, getting ahead of what looks like a period of occupancy below our forecast in the near term and its effect on same store in a number of our higher rent markets. This is punctuated, of course, by a more pronounced period of correction still underway in Southern California. New starts, however, continues to be surprisingly disciplined, adding to the expectation for limited new supply in the back half of '24, but also extending deeper into '25. When considered alongside muted demand, we arrive at a view that the operating environment has only changed modestly in aggregate, and that demand is simply pushing out by a few quarters. The outcome of this may simply mean moving towards a long-term occupancy expectation more swiftly this year, which sets up for a better next year. Turning to our results for the quarter. Core FFO, excluding promotes, was $1.31 per share and including net promote expense was $1.28 per share, essentially in line with our forecast. Occupancy in the portfolio ended the quarter at 97%. For context, the US market declined 310 basis points since its peak in the summer of '22, while our portfolio's occupancy has only declined 80 basis points, resulting in vacancy today for Prologis that is less than half of that in our markets and reflective of our portfolio quality. Net effective rent change was 68% based on commencements and 70% based on new signings. Following this in-place increase and changes in market rents, our net effective lease mark-to-market stands at 50%, representing over $2.2 billion of rent to harvest without any additional market rent growth from here. Rent growth captured just for the single quarter was approximately $110 million on an annualized basis and at our share. Our same-store growth on a cash basis was 5.7% and on a net effective basis was 4.1%. The same-store from rent change alone was strong at approximately 9%, but is impacted by a 130 basis point change in year-over-year vacancy, as well as 150 basis points from fair value lease adjustments with the Duke portfolio's inclusion in our same-store pool. Additionally, there were approximately 175 basis points of items specific to the quarter, including one-time reconciling items from 2023, as well as unfavorable comps from low expenses last year. We started over $270 million of new developments in the quarter, bringing our portfolio to approximately $7.5 billion at our share, with estimated value creation of over $1.7 billion, a number we feel increasingly confident in with value stabilizing. In our Energy business, we've made meaningful progress on this year's deployment, including the signing of 405 megawatts of long-term storage-related contracts with investment-grade utilities. We also delivered the largest EV fleet charging project in the United States, less than 15 miles from both the ports of LA and Long beach. Finally, we raised $4.1 billion of debt across our balance sheet and funds at a weighted average rate of 4.7% and a term of 10 years. Our debt portfolio has an overall in-place rate of just 3.1%, with more than nine years of average remaining life and liquidity at the end of the quarter of over $5.8 billion. Turning to market conditions. Most broad economic data from unemployment to retail sales to the health of the consumer remain very strong. And while our tour proposal and other proprietary metrics are similarly positive, overall leasing activity and net absorption are running below expectations. Net absorption in the US, for example, was very low this quarter at just 27 million square feet. So while the macro landscape and supply chains continue to generate a need for space, we think it's prudent to expect continued headwinds on overall absorption over the next few quarters. The interest rate environment and its associated volatility have weighed on customer decision making, especially as the 10 year has increased 70 basis points from its level just 90 days ago and expectations for Fed rate cuts have moved from potentially six to now possibly zero. In parallel, sublease and space utilization rates highlight that some customers have available capacity, driven in part by the high rate of absorption through the pandemic. This dynamic of available space intersecting with the desire for cost containment is what leads to lower absorption and is playing out at different rates across submarkets and customers. For example, while slow leasing has persisted so far this year for less capitalized customers and 3PLs, we see a handful of large e-commerce and retail customers further along in this process, such as Amazon, who voiced caution two years ago, but is now active in several global markets and has openly discussed plans to commit to significant amounts of new space. The overall leasing slowdown is most felt in only a handful of markets. Southern California and the Inland Empire being the most acute. In fact, rents in most of our US markets are generally flat, several are up, and it is mainly elongated downtime affecting near-term occupancy and NOI. While Southern California leasing has been challenging, it has not slowed the tremendous uplift we realize every single quarter from rent change on rollover, which was 120% for the market in the first quarter, with the Inland Empire at 156%, nearly the highest in our portfolio. In Europe, rents grew overall during the quarter, which we believe will remain the case over the balance of the year. And of course, LATAM continues to impress with very high occupancy and market rent growth that has led the globe in recent quarters. Overall, global market rents declined slightly over 1% in the quarter, driven mostly by Southern California, and would have been slightly positive if excluded. I'd like to spend a moment on Baltimore, where we own over 18 million square feet and has been a dynamic market of ours for decades. Our employees, customers and properties are all safe following the bridge collapse last month and our customers expect to be able to withstand the disruption with little impact to their businesses. Shifting to capital markets. Valuations increased in all of our geographies, except for China, which saw a very small decline. Over the last 1.5 years, global values have decreased despite increases in cash flow due to cap rate expansion. As cap rates have stabilized, cash flow growth now has the ability to translate to value growth. Even though modest, the value uplift in the US and Europe are important as strategic capital investors have been looking for values to not only bottom, but actually turn upwards before committing new capital. With Europe a bit ahead of the US in this regard, it is indeed where we've seen stronger fund-raising interest in recent quarters. We also had a successful equity raise in FIBRA Prologis, raising over $500 million for deployment into both assets to be contributed from our balance sheet, as well as pursuits of third-party acquisitions. Transaction volumes and activity have ticked up in recent weeks and pricing has certainly improved. As always, we are actively looking at acquisition opportunities across all of our markets, but our focus remains on the development of our land bank, which provides an opportunity for over $38 billion of build out with a return on incremental capital of approximately 8.5%. In terms of guidance, in light of our views on demand and leasing pace in the coming quarters, we are reducing our average occupancy guidance to range between 95.75% and 96.75% of the 75 basis point adjustment from the midpoint. It's important to understand that approximately two-thirds of this change stems from our higher rent markets, meaning they create a disproportionate impact on same store in 2024. Same-store growth on a net effective basis will range between 5.5% and 6.5%, a reduction of 150 basis points, which accounts for the average occupancy decline, slightly lower rent change for the year as well as 30 basis points of annualized impact from the one-time items in the first quarter mentioned earlier. Our revised range on a cash basis is now 6.25% to 7.25%. We are maintaining our guidance for strategic capital revenue, excluding promotes, to a range of $530 million to $550 million and reducing our G&A guidance to a range of $415 million to $430 million. We are adjusting development start guidance for the year to a revised range of $2.5 billion to $3 billion at our share, reflecting our discipline in speculative starts and the timing impact this has in the calendar year. As we've always said, we don't consider our guidance to be a target internally and each deal ultimately needs to be rational and accretive on its own. In the end, we are forecasting GAAP earnings to range between $3.15 per share and $3.35 per share. Core FFO, including net promote expense, will range between $5.37 per share and $5.47 per share, while core FFO, excluding promotes, will range from $5.45 per share to $5.55 per share. Our updated guidance calls for core earnings growth of nearly 8% at the midpoint. As we close out, I'd like to underscore the message of the call, which is that while we have only a modest change of view in the intermediate term, our confidence in the long term is intact. And putting timing aside, we are encouraged by the outlook for supply in the back half of this year and '25, have tremendous lease mark-to-market to harvest in the interim, and are pleased to see valuations, fundraising and transaction activity all picking up. With that, I'll turn the call over to the operator for your questions.

net effective rent change 68% first quarter


Tim Arndt: 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 square feet 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 achievements 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 U.S. In terms of our markets, there are several encouraging signs for demand, including port volumes on both the East and West Coast, 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 square feet and are projected to approach 50 million square feet 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% to 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 gigawatts, which is key to delivering on our five-year outlook for $7 billion to $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 under 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 to $1.5 billion and similarly increasing our guidance for overall dispositions and contributions to a range of $2.75 billion to $3.65 billion. Ultimately, we are increasing our GAAP earnings to a range of $3.25 to $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 FIBRA promote. Our core earnings guidance calls for nearly 8% growth at the midpoint, which ranks in the 87th percentile of 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 2nd 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.

net effective rent change second quarter

Net effective rent change nearly 74% based on commencement


Chris Caton: 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, ports volumes. I think this labor strike has gone on longer than most people anticipated. And the timing of it was such that people have to make decisions about the Christmas season and they've shifted volumes to other ports. And that affect Southern California and honestly, the longer disclose out, I believe the worse it will be for Southern California in terms of doing permanent damage. From now 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 had between ‘20 and ‘22, about an 130% increase in rents in Southern California, that compares to less than half of that for the overall markets that we operate in. So, there is more price sensitivity now because it's a very, very expensive market. So to the extent possible, people will shift to adjacent markets. And combined, it's not just price, but up until a quarter ago, occupancies in the Inland Empire was 99 point something percent. So people couldn't even get the space that they wanted. I think with the 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, Peep and a resolution of the labor strike. I think you see a more normal pattern from which you can draw some conclusions.


Tim Arndt: Thanks Jill. Good morning, everybody, and thank you for joining our call. The third quarter marked a continuation of themes we have been anticipating for more than a year, namely; growing supply translating to increased market vacancy; continued moderation of demand; and market rent growth that will slow until the low levels of new starts drive reduced availability over-time. We have operated in accordance with these views in both our approach to leasing, as well as timing of new development. What’s incremental to our forecast is that continued hawkish posture from central banks and the impact it’s had on rates is delaying decision-making and willingness to take expansion space early. The geopolitical backdrop has clearly become more troubling as well amounting to a lack of clarity that will likely weigh on demand. In the meantime, and also playing out to our expectations is that our existing lease mark-to-market will drive durable earnings growth as it did in delivering record rent change this quarter, as well as strong earnings and same-store growth. We remain focused on the fact that we own assets critical to the supply chain with long-term secular drivers that remain intact. Further, the outlook for future supply will continue to face structural barriers, ultimately driving occupancy, rents and values. In terms of our results, we had an excellent quarter with core FFO excluding net promote income of $1.33 per share. This result includes approximately $0.03 of one-time items related to interest and termination income, as well as the timing of expenses, which we can address in Q&A. Occupancy ticked up over the quarter to 97.5%, aided by retention of 77%. Net effective rent change was a record 84% at our share, with notable contributions from Northern New Jersey at 200%, Toronto at 187% and Southern California at 165%. Same-store growth on a net effective and cash basis was 9.3% and 9.5%, respectively, driven predominantly by rent change. We saw market rents grow roughly 60 basis points during the quarter, the slower pace embedded in our forecast. In combination with the strong build of in-place rents, our lease mark-to-market recalculates to 62% as of September. We raised approximately $1.4 billion in new financings at an average interest rate of 3.2%, comprised principally of $760 million within our ventures, as well as a recast of our Yen credit facility increasing our aggregate line availability. In combination with our cash position, we ended the quarter with a record $6.9 billion of liquidity. Finally, it’s noteworthy that our debt-to-EBITDA has remained very low and essentially flat all year, hovering in the mid-4 times range, despite our increased financing activity, a demonstration of the tremendous growth in our nominal EBITDA. Turning to our markets, while rising, vacancy remains historically very low in the U.S., Mexico and Europe. Market vacancy increased approximately 70 basis points during the quarter in the U.S., driven by low absorption, as well as recently delivered but unleased completions. Europe experienced similar dynamics with an overall increase in market vacancy of 50 basis points. At the macro level our expectations for the U.S. are for completions to outpace net absorption by a cumulative 150 million square feet to 200 million square feet over the next three quarters. Then, over the subsequent three quarters, we see that trend reversing with demand exceeding supply and recovering the net 75 million to 125 million square feet. That trend may extend further into 2025, as we believe development starts over the next several quarters are likely to remain low. Whatever the precise path, we expect that as vacancy normalizes over the long-term, our portfolio will outperform the market due to both its location and quality, as well as the strength of our relationships and operating platform. In this regard, our portfolio has been largely resilient to moderating demand. Our teams would describe the depth of our leasing pipeline as consistent with the last few quarters. In coming fresh off of one of our customer advisory board sessions, it’s clear that our customers have plans to continue to expand their footprint, increasing capacity and resiliency. However, what’s also clear is that they are slowing such investments until there is more clarity in the economic environment. In the U.S., rents increased in most of our markets with the strongest located in the Sunbelt, Mid-Atlantic and Northern California regions. Europe and Mexico were also bright spots for growth in the quarter. Rents across our Southern California sub-markets declined approximately 2% as it continues to adjust to higher levels of vacancy. While the markets and outlook are mixed, we remain confident in continued market rent growth in the U.S. and globally over the coming year, albeit at a slow pace while the pipeline continues to get absorbed. From our appraisals, U.S. values declined approximately 3% while European values remain stable, in fact, having a very modest write-up. The difference isn’t too surprising as the Fed’s language around inflation and the economy has had more effect in the U.S. capital markets, driving the 10-year up 100 basis points since our last earnings call, compared to the bund [ph] at just 50 basis points. We believe that this is likely another instance, as we saw one year ago, where U.S. appraisals at the end of the quarter have not had sufficient time to react to the increase in rates and we are thus pausing on appraisal-based activity in USLF for at least one quarter. Elsewhere, values in Mexico are up 8.5%, while China experienced its first meaningful decline of 6.5%, a write-down that we don’t believe has fully run its course. Our funds experienced their first quarter of net positive inflows with approximately $180 million of new commitments versus new redemption requests of $115 million. Given other activity in the quarter, the net redemptions have been reduced from their height of $1.6 billion to approximately $700 million or roughly 2% of third-party AUMs. In terms of our own deployment, development starts ramped up during the quarter, crossing $1 billion, over half of which is related to a data center opportunity in our central region, a testament to our higher and better use strategy and strategically located land bank. Also notable is the acquisition of $118 million of land, including a strategic parcel in Las Vegas, which will build out an additional 10 million square feet over time and brings our total build-out of land globally to over $40 billion. We are laser focused in identifying and executing on value creation in our core business, our energy business, and their adjacencies. Combined with the debt capacity and liquidity we have worked hard to build and preserve, we see the environment as rich with opportunity. Moving to guidance, we are increasing the average occupancy to a range between 97.25% and 97.5%. As a result, we are increasing our same-store guidance to a range of 9% to 9.25% on a net effective basis and 9.75% to 10% on a cash basis. We are maintaining our strategic capital revenue guidance, excluding promotes to a range of $520 million to $530 million and adjusting G&A guidance to range between $390 million and $395 million. Our development starts guidance is increased to a new range of $3 billion to $3.5 billion at our share, driven primarily from the data center start mentioned earlier. We have $500 million of contribution and disposition activity during the quarter and given our commentary on USLF valuations, we are pausing our planned contributions into that vehicle this quarter and reducing our combined contribution and disposition guidance to a range of $1.7 billion to $2.3 billion. In the end, we are adjusting guidance for GAAP earnings to a range of $3.30 per share to $3.35 per share. We are increasing our core FFO, including promotes guidance to a range of $5.58 per share to $5.60 per share and are increasing core FFO, excluding promotes to a range between $5.08 per share and $5.10 per share, growth of nearly 10.5%. I know that many of you are focusing on 2024, so I’d like to take an opportunity to remind you that the Duke portfolio will be entering the same-store pool in 2024, which will widen the recently observed delta between net effective and cash same-store growth. This is, of course, because Duke rents were mark-to-market at close one year ago, so its contribution to net effective same-store growth and earnings will be minimal, even though the cash rent change will be on par with the rest of the Prologis portfolio. In closing, we are navigating the current environment, assured that whatever the economy brings in the short-term, we are positioned to outperform over the long-term. This stems from not only the premier logistics portfolio and customer franchise with one of the best balance sheets amongst corporates, but also highly visible earnings and portfolio growth ahead of us. We know that turbulent times can bring opportunity for those who are prepared and that’s been central to our strategy and management as a company. I’d like to also remind you of our upcoming Investor Forum on December 13th in New York, our first in four years. We are looking forward to spending the day with you, sharing more about our business, outlook and opportunities ahead. Additional information is available on our website and in our earnings press release. And with that, I will hand it back to the Operator for your questions.


John Kim: Thank you. I wanted to ask about the occupancy trajectory for the remainder of this year. At NAREIT, there was some discussion 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%?


Craig Mailman: Hey, good afternoon guys. Just on the occupancy piece, just a few follow-ups. Tim, maybe you mentioned a couple of tenants that you're monitoring for bad debt and then you also mentioned seasonality. Could you frame up, within that range of 100 basis points at 94.5% to 95.5%, how much of that's sort of seasonality driven versus how much of it is potential bad debt that may not materialize? And then that was helpful on the pipeline update. But I'm just kind of curious here also how you guys are managing the portfolio with an expected market rent inflection potentially by the end of the year. Are you guys prioritizing occupancy over rate at this point to kind of run the portfolio? Or are you holding back at all kind of holding on price? So just kind of curious how much toggle there is in that occupancy guide on kind of what you know versus how you're managing the portfolio.


Hamid R. Moghadam: Yeah. Let me take the second part and I'll pitch it to Chris for the third part of the question. Look, you'll be surprised if we're surprised. So -- and we really worked hard at not being surprised. And the best indicator of what's happening is the ongoing leasing and proposals and all that stuff that we're involved and you guys don't really see directly other than at the end of the quarter. So I would say -- I would describe market conditions as very good to excellent. They are not exceptional like they were a year and a half or two years ago, but they are very good to excellent. The markets you mentioned LA and Inland Empire, not worried about those at all. I mean, those markets are in the one percentage -- one percentage to two percentage vacancy rate. When you get to Dallas and particularly South Dallas and some other markets like Atlanta, way down the South, et cetera, those markets through all the cycles have been prone to over-development and softening of demand when a business was down. So we're watching those very carefully, but I wouldn't characterize any of them as watchlist markets now, otherwise, we would have classified them as such. The 10% rental growth is an overall number, but there is a very wide dispersion around that 10%. And Chris, do you want to elaborate on that?


Tom Catherwood : 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 US rent growth? I think it was previously 10% and you mentioned it globally now. And then, 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 and then conversely are there others like Southern California that have somewhat lagged your expectations?


Hamid Moghadam : Yeah. 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. But 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 former land. So, it's a more muted growth pattern than the US one. But we mitigate that because we employ more of a fund structure in Europe. So the combination of the earnings on the fund management business plus the growth in the underlying real estate business makes up for the - 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 turnaround. I'm not smart enough to know whether that's a, 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% to 2% rent growth would be great. But boy!! there's no CapEx. There's no turnover. There is, - and yields have maintained themselves in Japan, better than anywhere else. There's been no cap rate expansion in Japan at all. And remember, there's hardly any mark-to-market. So there is no cap rate expansion. And in fact, I would say there's probably 10, 15 basis points of compression in the last 12 months. So it's a good development market and 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. There's very little of it leaks out to CapEx and other things. So, each market is different and each market when you look at it as a portfolio plays its role within our overall business.


rent growth captured $110 million first quarter


Brendan Lynch: Great. Thanks for taking my question. I'm hoping you can help us reconcile the guidance from the December Investor Day. It sounds like rent growth is around 0% through 2026 and vacancy is going to peak out a little bit higher than what you had been expecting. So, how should we think about your core FFO CAGR over the next three years?


Southern California increase in rents ‘20 and ‘22


Hamid Moghadam: Yes, one other perspective I might provide to you is that the big change since our 4% to 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 12 months. What we categorize as sort of the weakest market, are another 21% of our rental profile for the next 12 months. And only 56% of the rents rolling over in the next 12 months are in stable or healthy markets. So, 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 12 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.

Southern California rents next 12 months


Steve Sakwa: Yeah, thanks. Good morning. I guess, on Page 12, you guys break out your ending occupancy by unit size. And I noticed, sequentially, there was a much bigger drop on the spaces that were kind of below [250] (ph). So, I'm just wondering if you can sort of speak to the strength of the bigger boxes, maybe the softness in the weaker. And then, just on the Southern California, I noticed that your lease percentage in SoCal went up about 120 basis points sequentially. So, any comments just around Southern California demand either by product type or LA versus Inland Empire would be helpful. Thanks.

Southern California lease percentage sequentially


Chris Caton: Hey, Vince, Chris Caton here. So I think I'd start by saying let's not go market-by-market, detail-by-detail that we're a large global international business, but a couple of touchstones that we've had that I think are worth coming back to. So number one, if it's not clear, it should be that international markets outperformed in the domestic markets. Tim enumerated them on the -- in his script, but whether it's Japan, whether it's Europe broadly, and in particular, some of the geographies there as well as Latin America, that was a clear outperform. And then within the U.S., really talked about this dynamic of Southern California and the rest of the business. In Southern California, we had rents down 25% on a net basis so a meaningful reset in rates there. And so then by contrast, when you look at sort of U.S. ex SoCal, it was only down modestly in the year.


Caitlin Burrows: Hi. Good morning, everyone. Maybe on development. Tim, you touched on it briefly, but the earnings release mentions how the build-out of your land bank is a driver of growth, and this quarter, like you mentioned starts for only like $50 million versus recent quarters over a billion. And it sounds like that is expected to ramp up significantly to over a billion again in the second half. So just wondering what metrics or other things that you're looking at to drive the starts activity? And what makes you confident that increasing starts so significantly later this year is kind of possible and the right thing to do?


Hamid Moghadam: It depends on the actual markets. There are about 20% of the markets that I can see us driving for occupancy and about 80% of the markets that are still in equilibrium or tighter. But the key to your question is what you asked in the middle of it, which is, how do you expect that to change? And the reason we are not going to get super aggressive on rents is because we have a belief that, I mean, just look at the starts. They are down 65% and even with moderating demand, we are going to get something like 60% or 70% of that shortfall that we are going to encounter in the next three quarters shortfall of demand, we are going to get it back in the subsequent three quarters. So there’s no sense really going cheap, it’s just. But I would say 20% of our markets, we are going to be more focused on occupancy.


Steve Sakwa: Yeah. Thanks and good morning. I just wanted to follow up on the development and just make sure I understand on the fourth quarter, I think, you have got something like $1.9 billion of planned starts, given that you have done about $1.4 billion year-to-date. So just curious, does that include other data centers or is that all traditional industrial? And if so, what is the mix between spec and build-to-suit on that fourth quarter starts volume? Thanks.


Dan Letter: Caitlin, this is Dan. I'll respond here. A few thoughts for you. First of all, we started just over $1 billion worth of spec in the fourth quarter. So, we had talked over the last several quarters about the decline in starts in the marketplace and that's when we wanted to come out of the gate here with some starts and that's what you're seeing us do right now. We have a pretty healthy guidance here for the 2024 starts, at owned and managed of about $4 billion. And if you think about it, that's 25 million square feet or so of starts that we could be doing this year. And we have a development portfolio right now of about 50 million square feet. So, we've got an appetite for spec. Our build-to-suit volume we think is going to shake out in that 40% range as we've projected. And then keep in mind, we talked about this plenty at the Investor Day, we have $40 billion worth of opportunities in our land bank. And we have the ability to make decisions on a quarterly basis where we're going to build. We own this land in 50 markets around the globe, 300 different sites. So, plenty of opportunities there.


Chris Caton: Hi, Vince, it's Chris Caton. Thank you for the question, and your read on the quarter is correct. So, we saw 40 million square feet of net absorption in the quarter, 63 million square feet of completions. So, let's just zoom out and talk about the year and talk about how it's -- the direction it's heading, because we are progressing through this bottoming phase. So, net absorption, this year, will amount to 160 million square feet, and that's against deliveries that are 300 million square feet. So, naturally, market vacancies are rising. They're rising up to 6.8%. And it sounds like you're very familiar with historical data, so you'll know that 6.8% is a low number in the totality of history. But there's something that's happening in the background that's really -- that doesn't always get attention we're talking about, which is the emptying of supply chains. So, deliveries peaked a year ago at 135 million square feet per quarter, and they fall into that number I gave you 63 million here this quarter, so less than half in terms of the decline, and they'll continue to decline into next year. At work here, in the backdrop, also is starts are very low. We have them at 40 million, 42 million square feet in the quarter. So, when you put all this together, what you find is the under-construction pipeline, which is about 215 million square feet today, is at its lowest point since 2017. So, we're going to be going into 2025 with a relatively low level of supply and an opportunity for demand to improve as we progress through this uncertainty in the spare capacity.


Dan Letter: Yes. Thanks, Ron. What I would say is our starts last year, we deliberately slowed those starts. We continue a very disciplined approach to our spec program. We also saw a number of very large build-to-suits push into 2025. So what are we looking at right now? We're looking at the market conditions improving so we do expect completions to come way down. They're actually down 70% from the peak -- excuse me, starts are down 70% from the peak as well. So the market itself is heading in the right direction, and we're waiting for that rent to improve, for the returns to improve. One thing to keep in mind is we do have $5 billion under development right now and 30 million square feet. We do have this very large land portfolio with $41.5 billion worth of opportunities, and that's in literally hundreds of sites around the globe. And we've been making infrastructure investments, site work investments so we can really narrow the vertical build time and flip the switch when the time is right.


John Morikis: Thank you, Heidi. Our team delivered another strong quarter in an environment characterized by ongoing uncertainty. My thanks go to our 64,000 employees for continuing to focus on our mission and for executing on our strategy. Their energy in serving our customers and providing them with solutions remains a true differentiator. On our July call, we described the anticipated second half demand backdrop across our businesses. The third quarter played out much as we expected, and we believe the environment remains largely unchanged in the fourth quarter. Paint Stores Group will face another strong year-over-year comparison. Demand in commercial, property maintenance, residential repaint and Protective & Marine remains stable with New Residential remaining soft as we expected. We have now annualized prior price increases. In Consumer Brands, North America DIY demand remained soft. Europe demand has stabilized and Latin America markets remain mixed. Performance Coatings demand remains highly variable by end market and by region. We know we cannot defy gravity in terms of the macro environment. What we can do is aggressively pursue new account and share of wallet opportunities to drive market share gains, we are aggressively focused on doing just that. Moving to the cost side. We're narrowing our full year raw material outlook. We expect cost to be down by a high single-digit percentage in 2023 compared to 2022. We expect other costs, including wages and other input costs to be up in the mid- to high single-digit range. We also continue to see the current market uncertainty as an opportunity to press our advantages through greater investment in solutions for our customers that will drive their success and ours. Our SG&A spend in the fourth quarter will reflect these investments, leading full year SG&A to increase in the high single-digit to low double-digit range compared to last year. This approach has served us well many times in the past. We are highly confident and will again now resulting in continued above-market growth and strong returns. Now moving on to our specific guidance. We anticipate our fourth quarter 2023 consolidated net sales will be up or down a low single-digit percentage compared to a high single-digit increase in the fourth quarter of 2022, with volume flat to down slightly. As a reminder, we've largely annualized previous price increases across the business. For the full year 2023, we expect consolidated net sales to be up a low single-digit percentage with volume down a low single-digit percentage. Our sales expectations by segment for the fourth quarter and the full year are included in the slide deck issued with our press release this morning. We are increasing our full year 2023 diluted net income per share to be in the range of $9.21 to $9.41 per share. We believe this increased range accurately reflects our strong third quarter performance, continued pricing discipline and moderating raw material costs while also acknowledging the ongoing uncertainty in our seasonally smaller fourth quarter. This guidance includes acquisition-related amortization expense of approximately $0.80 per share and restructuring related net expense of $0.09 per share. On an adjusted basis, we expect full year 2023 earnings per share in the range of $10.10 to $10.30. This is an increase of 16.8% at the midpoint compared to last year's $8.73 adjusted earnings per share. We provided a GAAP reconciliation in the Reg G table within our press release. Our slide deck includes additional information on our assumptions for the year. As we begin the fourth quarter, we continue to expect choppiness by region and end market. More importantly, we continue to see opportunity amid uncertainty, and we are extremely confident in how well our various businesses are positioned. Our strategy is clear. It's working, and it's not changing. We'll continue to provide our customers with differentiated solutions that drive their productivity and their profitability. Our capabilities, products and services are unique. We remain on offense, growing new accounts and share of wallet in the right markets with the right customers. We also remain focused on developing and retaining talent and improving and simplifying our operations. We expect to finish the year with momentum that will carry us into 2024. I have the utmost confidence in Heidi, Al, our leadership team and our people. Together, we expect to continue outperforming our competitors and the market. This concludes our prepared remarks. And with that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.

diluted net income per share full year 2023


James Jaye: Thank you, and good morning to everyone. Sherwin-Williams delivered excellent first quarter results compared to the same period a year ago. Consolidated net sales grew by a high single-digit percentage, ahead of our expectations and were led by a mid-teens percentage increase in our professional architectural end markets. On the Industrial side of the business, sales increased in all regions except Asia Pacific. Gross margin significantly improved sequentially and year-over-year, driven by strong volume in the Paint Stores Group and effective pricing. Cost of goods sold includes higher inflation in wages and other employee-related categories, which were partially offset by a slight decrease in year-over-year raw material costs. We expect to hold the majority of the pricing we have put into the market, given the ongoing investments we have made to drive innovation, enhance services and secure the talent that provides differentiated solutions to help our customers reach their goals and drive their success. Segment margin in all three reportable segments expanded sequentially and year-over-year. We also delivered strong double-digit growth in diluted net income per share and EBITDA. Additionally, we continue to execute on the portfolio realignment actions we announced late last year, including the divestiture of a noncore aerosol business, which closed on April 1, and our recently announced agreement to divest our China architectural business. I'd like to highlight just a few of our consolidated first quarter numbers. Comparisons in my comments are to the prior year period unless stated otherwise. Starting with the top line. First quarter 2023 consolidated net sales increased 8.9% to $5.44 billion. Consolidated gross margin increased to 44.5%, an improvement of 340 basis points. SG&A expense as a percentage of sales was 31.1%, an increase of 140 basis points, driven by investments in the Paint Stores Group's long-term growth initiatives and investments in our people across the company through year-over-year increases in compensation and other employee-related benefits. Our people remain our key differentiator in the marketplace. Consolidated profit before tax increased $153.7 million or 33.3%. Diluted net income per share in the quarter was $1.84 per share versus $1.41 per share a year ago. Excluding Valspar acquisition-related amortization expense and costs related to previously announced restructuring actions, first quarter adjusted diluted net income per share increased 26.7% to $2.04 per share versus $1.61 per share a year ago. EBITDA in the quarter increased $185 million or 26.7% and was 16.1% as a percent of sales. Let me now turn it over to Heidi, who will provide some commentary on our first quarter results by segment. John will follow Heidi with comments on our outlook before we move on to your questions.

Diluted net income per share first quarter 2023


Adjusted diluted net income per share first quarter 2023


Jim Jaye: Thank you and good morning to everyone. Joining me on the call today are John Morikis, Chairman and CEO; and Heidi Petz, President and Chief Operating Officer; Al Mistysyn, Chief Financial Officer; and Jane Cronin, Senior Vice President of Enterprise Finance. Sherwin-Williams delivered excellent second quarter results compared to the same period a year ago. These results, coupled with a similar strong performance in the first quarter led to an excellent first half that exceeded the expectations we laid out back in January. Given the strong first half and current visibility into our second half, we are significantly increasing our full year guidance, which John will talk about in just a few minutes. But first, let me touch on a few second quarter highlights. Consolidated net sales in the quarter exceeded our expectations and grew by a mid-single-digit percentage. Sales in all 3 reportable segments came in above our guided range. Gross margin significantly improved sequentially and year-over-year, driven by strong volume in the Paint Stores Group and moderating raw material costs. Pricing discipline remains strong. SG&A expense increased over the prior year quarter, though the year-over-year percentage increase was lower than that of our first quarter. Excluding the impact of incremental acquisition and restructuring costs SG&A increased 8% year-over-year. Approximately 85% of that second quarter increase was related to investments in Paint Store Group long-term growth initiatives with the remainder driven by increases in compensation and benefits. We are highly confident these growth investments will deliver strong returns and benefit our customers. And while we recognize SG&A expense was higher year-over-year in the quarter, we ultimately manage the business to drive operating profit and margin, both of which expanded meaningfully in the quarter. We are committed to investing in and profitably growing the business at the same time. Segment margin in all three reportable segments expanded sequentially and year-over-year. We also delivered strong double-digit growth in adjusted diluted net income per share and EBITDA with adjusted EBITDA margin of 20.9% near the high end of our current long-term 19% to 21% target range. Let me now turn it over to Heidi, who will provide some commentary on our second quarter results by segment. John will follow Heidi with comments on our outlook before we move on to your questions.

adjusted diluted net income per share EBITDA adjusted EBITDA margin 20.9%


James Jaye: Thank you, and good morning. In what is a seasonally smaller first quarter and with continued demand choppiness in several end markets, Sherwin-Williams delivered consolidated sales within our guided range, gross margin expansion and diluted earnings per share and EBITDA growth. Throughout the quarter, we continued to execute on our strategy, demonstrate our value proposition with current and prospective customers and position ourselves to take advantage of disruptions in the market. While our results were at the lower end of our sales expectations, we remain confident in our full year outlook and there is no change from the guidance we provided in January. We also remain highly confident in our differentiated business model and we are well positioned as the painting season begins. While uncertainties persist in the macroeconomic environment, we see opportunity. We are encouraged by pro architectural sentiment in April and customers in several end markets are optimistic about an improving demand environment as the year progresses. Competitor decisions coupled with our recent growth investments are enabling us to continue penetrating our targeted end markets at multiple levels. We expect share gains and returns to become more and more evident as the year progresses. Consolidated sales in the quarter were at the low end of our range, driven by lower than anticipated volume, primarily in Paint Stores Group against the strongest comparison we will face this year followed by Consumer Brands Group in North America. Contributions from price were modest, as expected and we are now seeing our recently announced increases in Paint Stores beginning to ramp more fully in our second quarter. Gross margin expanded 270 basis points year-over-year to 47.2%. Higher SG&A in the quarter reflects the deliberate and accelerated investments in growth we made in the second half of last year and which have not yet annualized. EBITDA margin improved by 60 basis points to 16.7% and adjusted diluted net income per share increased 6.4%. We also maintained our disciplined capital allocation approach and returned $728 million to our shareholders through dividends and share repurchases during the quarter, an increase of 59% year-over-year. Let me now turn it over to Heidi, who will provide some commentary on our first quarter results by segment before moving on to our outlook and your questions.

adjusted diluted net income per share 6.4% the quarter


Heidi Petz : Thank you, Jim. I'll begin with the Paint Stores Group, previously known as The Americas Group. We described this change on our last call and in this morning's press release. There is no impact to prior year consolidated results related to this change. Current and prior year segment results have been restated to reflect this change. First quarter Paint Stores Group sales were ahead of our expectations and increased 14.8%, driven by high single-digit volume growth and continued effective pricing. Segment profit increased by $97.9 million and segment margin improved 120 basis points to 18.4%. Our Pro architectural sales grew by a mid-teens percentage in the quarter. All Pro market segments increased by double digits, led by property management and followed by commercial, residential repaint and new residential, respectively. Sales in protective & marine and DIY also increased by double-digit percentages. From a product perspective, interior and exterior paint sales were both strong, with interior sales growing faster and representing a larger part of the mix. Moving on to results in our Consumer Brands Group, which again now reflects the addition of a Latin America architectural business in the current quarter and prior year. Sales were well ahead of our guidance and increased by 2.4% in the quarter. Performance was better than expected in North America, where sales were down less than 1%; and in Europe, where sales were down low single digits. In other regions, sales were up strong double digits in Latin America and down double digits in Asia. Effective pricing led by Latin America was partially offset by a mid-single-digit decrease in volume and low single-digit FX headwinds. The tightness in alkyd resins impacting our ability to produce stains and aerosols, improved significantly during the quarter, and we expect this issue to be behind us by the end of the second quarter. Adjusted segment margin was 13%, up 120 basis points year-over-year. As Jim mentioned, we divested a noncore aerosol business at the beginning of this month, and we also entered into an agreement to divest our China architectural business. We expect these actions will benefit segment margin over time as we drive a return to our high teens, low 20s adjusted margin target. Onetime restructuring costs in the quarter were immaterial. Sales in the Performance Coatings Group increased 3.4% against a 20.4% comparison. The increase was driven by low teens pricing and mid-single-digit sales from acquisitions, partially offset by a low teens decrease in volume, which included the impact from discontinued operations in Russia and a low single-digit unfavorable FX impact. Adjusted segment margin increased 390 basis points to 15.7% of sales. This is the fourth straight quarter this team has delivered year-over-year segment margin improvement, driven by execution of our strategy, including effective pricing. Sales in PCG varied significantly by region. In North America, sales increased high single digits against a nearly 30% comp. Latin America sales increased by double digits, also against a strong comp. Sales in Europe were up mid-single digits, while sales in Asia were down double digits. From a division perspective, growth was strongest in Auto Refinish, which was up by a mid-teens percentage, followed by Coil and General Industrial, which were both up mid-single digits. All three of these divisions grew against double-digit comparisons. Industrial Wood sales were down mid-single digits as expected due to slowing in furniture, cabinetry and flooring related to new residential softness. Packaging sales also were down mid-single digits against a 30-plus comp with volume down about 1 point in the remainder due to our exit of Russia and unfavorable FX. We continue to feel very good about our position and growth prospects in this end market. With that, let me turn it over to John for his comments on our outlook for the second quarter and the full year.


Heidi Petz: Thank you, Jim. I’ll begin with the Paint Stores Group. Second quarter Paint Stores Group sales were ahead of our expectations and increased 10%, driven by mid-single-digit volume growth and continued effective pricing. Segment margin improved 280 basis points to 24.3%. Growth was led by our protective & marine business, which was up strong double digits and was driven by industrial flooring infrastructure and oil and gas applications. In our pro-architectural end markets, the strongest performers were commercial and property maintenance, both of which increased by double-digit percentages. Residential repaint was close behind with sales up by a high single-digit percentage. Demand in this market is being somewhat tempered by the extended period of weak existing home sales. New residential sales were flat against a double-digit comparison, reflecting the softer start that we saw at the end of last year, which have continued into this year. As we’ve previously noted, we anticipated new residential would be challenging in 2023, though we are performing better than the market as we continue to focus on new accounts and share gains. Our DIY business was up strong double digits, albeit against a softer comparison where sales were impacted by supply chain challenges. From a product perspective, interior and exterior paint sales were both up high single digits, with interior sales growing faster and representing a larger part of the mix. Sales in our Consumer Brands Group also exceeded our guidance and increased by 5.1% in the quarter, primarily driven by mid-single-digit pricing. Sales in North America, our largest region, increased by a low single-digit percentage. We continue to invest here with our strategic retail partners for growth. In other regions, sales were up strong double digits in Latin America and Europe. Sales in China were down double digits, and we expect the previously announced divestiture of the China business to be completed in the third quarter. Adjusted segment margin was 15.7%, up 470 basis points year-over-year. Sales in the Performance Coatings Group increased less than 1% against a strong 15.2% comparison. Volume decreased low single digits but was offset by mid-single-digit increases in price. Adjusted segment margin increased 420 basis points to 18% of sales, which is within the range we have been targeting for this business. Sales in PCG varied significantly by region. In North America, sales increased low single digits against a nearly 30% comp. Sales in Europe were up mid-single digits. Latin America sales were down less than 1%, also against a strong comp of over 20%. Demand in Asia remained weak with sales down double digits against a soft period a year ago. From a division perspective, growth was strongest in Auto Refinish, which is up by a high single-digit percentage followed by General Industrial, which was up mid-single digits. Industrial wood sales were up less than 1% as softness in new residential continued to impact demand for furniture, capetry and flooring. Coil sales were down mid-single digits driven mainly by Europe, which was impacted by last year’s Russia exit and against the nearly 40% comparison. Packaging sales were also down low double digits against a 20%-plus comp. We anticipated this decline given the near-term destocking by brand owners that we described on our last call. We continue to feel very good about our position and growth prospects in this end market. With that, let me turn it to John for his comments on our outlook for the third quarter and the full year.

adjusted segment margin 15.7% 470 basis points year-over-year


adjusted segment margin 420 basis points 18% of sales


Heidi Petz: Thank you, Jim. I'll begin with the Paint Stores Group. Third quarter Paint Stores Group sales increased 3.6% against the challenging 21.5% comp. The increase was driven by continued effective pricing and higher Pro architectural volume, excluding New Residential. Segment margin improved sequentially and year-over-year to 25.9%, driven by pricing discipline and moderating raw material costs. Protective & Marine was the fastest growing in the quarter, driven by strong volume as sales increased by a double-digit percentage against the mid-teens comparison. Industrial flooring, infrastructure and oil and gas applications remain key drivers. In our Pro architectural end markets commercial sales were strongest, increasing by a high single-digit percentage versus a high teens comparison. Residential repaint sales increased by a mid-single-digit percentage amid continued softness in existing home sales and against a 20% comparison. While this is a solid performance in the current environment, we are not satisfied, and res repaint continues to be our largest opportunity for growth. Property maintenance sales grew by a low single-digit percentage against a mid-20s comparison. New Residential sales were down mid-single digits with volume down high single digits against the mid-20s comparison. As we've previously noted, we anticipated New Residential would be challenging near term, given prior softness in single-family starts. We expect our continued share gains and new account wins to become more and more apparent as starts improve. Our DIY business was down low single digits against a very difficult low 30s comparison. From a product perspective, interior paint sales were up low single digits and exterior paint sales were flat, both against double-digit comparisons in last year's third quarter. Sales in our Consumer Brands Group decreased by 4% in the quarter, primarily due to the divestiture of the China architectural business and softer DIY demand in North America, which was partially offset by selling price increases. Sales in North America, our largest region, decreased by a mid-single-digit percentage against a double-digit comparison. The Pros Who Paint category continued to grow, while DIY demand remained muted by inflationary pressures on consumers. We continue to invest here with our strategic retail partners for growth. In other regions, sales were up high single digits in Latin America and low double digits in Europe. Sales in China were down high double digits as we completed divestiture of the business on August 1. Adjusted segment margin was 13.8%, which was lower than a year ago, primarily due to lower sales volume and lower fixed cost absorption due to lower production volumes. Sales in the Performance Coatings Group decreased 1% against a low teens comparison. Volume decreased by a high single-digit percentage, but was partially offset by positive low single-digit contribution from pricing, FX and acquisitions. Adjusted segment margin increased to 19.1% of sales, primarily due to pricing discipline and moderating raw material costs. Sales in PCG varied significantly by region. Sales were strongest in Europe and increased by a mid-teens percentage. Latin America sales increased by low single digits against a mid-teens comp. North America sales decreased mid-single digits against a 20% comp. Demand in Asia remained weak, with sales down double digits against high single-digit growth a year ago. From a division perspective, growth was strongest in our Industrial Wood business, which was up by a low double-digit percentage against a mid-single-digit comparison. This growth reflects our ICA acquisition, share gains and a potential bottoming of New Residential construction. We expect to gain further momentum in this business. As we closed October 1st on the previously announced acquisition of Germany-based specialized industrial coatings holding comprised of the Oskar Nolte and Klumpp Coatings businesses. We are gaining share and seeing steady demand in Auto Refinish, where sales increased by a mid-single-digit percentage against a high single-digit comparison. Sales in Coil and General Industrial both decreased by low single-digit percentages against challenging comparisons and vary widely by region. Packaging sales were down by a mid-teens percentage against the high single-digit comparison. We anticipated this decline given the near-term destocking by brand owners that we described earlier this year. Packaging sales in the quarter were also slightly impacted by the fire at our Garland, Texas plant. Our business continuity team is executing our contingency plans to minimize customer impacts from this event near term. Longer term, we continue to feel very good about our position and growth prospects in this end market, and we expect to bring additional capacity online at our , France plant by early 2024. With that, let me turn it to John for his comments on our outlook for the fourth quarter and the year.