Prologis Earnings Call
Prologis is the largest REIT and owner worldwide of industrial property. There is none with a higher visibility in the industry which is why we watch their quarterly earnings calls to help look for new signals within the marketplace. * Investment thesis - The supply cliff will converge with normalized demand later this year, delivering an environment conducive to strong market rent growth. + The outlier on rent growth is Southern California which is the strongest market for cash flow growth given the continued mark to market opportunity. This remains the largest difference from legacy lease rate to new market lease rate in the country. o Annual market rent growth will average between 4% and 6% over the next three years, with 2024 being modestly positive and ramping thereafter. o Prologis's global rents declined 90 basis points predominantly impacted by an estimated 7% decline in Southern California. + The supply pipeline continues to dwindle with the majority of completions having been delivered without a replenishment of new projects in the pipeline. + There is still a high volume of new deliveries that need to be absorbed in the following quarters. + Tenant utilization declined to 83% along with a decrease in the inventory to sales ratio. o This isn't necessarily bad as retail sales over the fourth quarter and holiday season drove lower inventories, which will need to be replenished. o Global instability will also lead to continued conservative inventory strategies. + Sunbelt markets outperformed the coastal markets in 2023. + Suez and Panama Canal issues and resolution of West Coast port labor negotiations translate to more movement of goods through the West. * Listen to the call here and read the transcript here .
Key metrics we're watching in their portfolio:
Re-Introduction
We have met a lot of new faces over the past year so I thought it would be important to reintroduce our team and focus to remind you of where we can work on opportunities together: * Team + Justin Smith o I'm in my 20th year in the brokerage business, and a partner here with Lee & Associates. o Born and raised in Corona Del Mar, went on to UC Irvine to study economics and joined Phi Kappa Psi Fraternity. From there I went to USC to complete the MBA and Masters in Real Estate Development master degrees. From there I eventually joined the SIOR network of the top producing industrial brokers across the globe. 80% of Justin's work is within Southern California in LA, OC, IE, and SD with 20% of his work being national for select clients having completed work in 15 states. + Grant LaBounty o Grant is in his 5th year of the business having come up organically through our internship program, having completed his undergraduate degree at UC Santa Barbara, and rising from Associate to Vice President in record time after having weathered through the difficulties of the pandemic environment. Grant is well versed in LA, OC, and IE industrial markets as well as national STNL 1031 exchanges. + Chris Vassilian o Chris is in his first year as an associate after having also come through our internship program, after having completed his undergraduate degree at UC Irvine in 3 years. He went on to complete his Masters in Finance from UCI shortly thereafter. His first year production includes great tenant and landlord experience throughout OC and the IE and he is a rising star of our associates. + Jeannette Cano o Jeannette Cano has been with the team going on 3 years and is the key to our organization, marketing and client support. Jeannette helps survey property, confirm availabilities, schedule tours, and set up custom client portals. She also helps edit and produce all of the team's podcast episodes, YouTube videos, and audio recordings. She aids with prospecting intel, research, and customer relationships. We could not do it without her!
* Business Segments + Tenant Representation o We represent a diverse group of tenants and business owners throughout Southern California. 80% of our business is repeat customers and of those 80%, half of them are lease renewals whereas the remaining half are relocations and subleases. o We represent a few national companies in their real estate across the country and regularly help executives look at their properties on a portfolio level in order to make annual adjustments in their footprint. o We provide clients with consultants for network supply studies that help clients focus on labor and transportation availability and expense in addition to location and real estate. + Landlord Leasing o We represent institutional investors, high net worth, family offices and business owners in the lease up of their industrial properties primarily in LA, OC and IE. We have experience from multi-tenant business park leasing all the way up to larger freestanding single tenant properties. We specialize in helping landlords figure out how to reposition their properties during the lease up cycle to maximize the value of their next lease and recently published a book on the process. You can find it here on Amazon or ask me and I will mail you a hardcopy. + Investment Sales o We regularly source off market industrial properties ripe for acquisition to both institutional and private capital buyers. o We list industrial property for sale to the institutional and private capital markets and are adept at running a multiple stage blind bidding process when appropriate to maximize the sellers leverage. o We excel where most teams stop, which is in the 1031 exchange of proceeds for private capital buyers into new properties across the country in a variety of different property asset types. We are familiar with the pertinent timelines, tax implications, depreciation schedules, and strategies for exchanging into more active or passive real estate investments. + Multi-Tenant Industrial Acquisitions o We practice what we preach and buy industrial property on our own account preferring multi tenant industrial parks that have multiple small tenants per property. We think of this as the multi family apartment complex of industrial. This strategy provides for durable cash flows, constant market to market strategies and value add opportunity.
Lease Comps
Here are the latest lease comps for your review.
We have noticed three trends in the last 90 days: * An uptick of tenants coming to us after having tried to renew their leases with their landlords on their own. * Tenants coming to us after having a less than stellar experience with their prior brokerage team. * Tenants prolonging negotiations in the hopes of further rate deflation. * Tenants signing shorter term leases in order to buy time to make a larger adjustment in their overall operation and footprint.
Here's to the next 90 days of progress! Reach out to us for all of your industrial needs and we'll get back to you the same day with timely intelligence to help you make your next decision as informed as possible.
Best Regards,
Justin
Justin Smith, SIOR jbsmith@lee (mailto:jbsmith@lee-associates.com) irvine.com (mailto:jbsmith@leeirvine.com?subject=Newsletter%20Follow%20Up) 949.400.4786
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