Prologis (NYSE:PLD) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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Summary
Prologis delivered strong Q2 2026 results with core FFO of $1.63 per share, exceeding expectations, driven by robust leasing activity and increased occupancy.
The company signed a record 67 million square feet of leases and started $1.6 billion in new projects, highlighting strong demand and strategic investments in logistics, data centers, and energy.
Prologis raised its full-year guidance, expecting net earnings of $4.40 to $4.55 per share and core FFO between $6.22 and $6.30 per share, driven by improved market conditions and increased development starts.
Significant operational highlights include a 95.5% occupancy rate, a 36% rent change on rollover, and the expansion of the power pipeline to 5.8 gigawatts, indicating long-term growth potential.
The company emphasized its strategic capital strategy with a $1.2 billion European joint venture and acquisitions at a 20% discount to replacement cost, enhancing portfolio returns.
Management expressed confidence in Prologis’s integrated solutions approach, leveraging its platform to meet evolving customer demands across logistics, energy, and warehouse operations.
Full Transcript
OPERATOR
Greetings and welcome to the Prologis Q2 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, press star zero on your telephone keypad. As a reminder, this conference also is being recorded. It is now my pleasure to introduce Justin Meng, Senior Vice President, Head of Investor Relations.
Thank you. You may begin.
Justin Meng, Senior Vice President, Head of Investor Relations
Thank you, Operator, and good morning everyone. Welcome to our second quarter 2026 earnings conference call. Joining us today are Dan Letter, CEO, Tim Arndt, CFO, and Chris Caton, Managing Director. I’d like to note that this call will contain forward-looking statements within the meaning of the federal securities laws, including statements regarding our outlook, expectations, and future performance. These statements are based on current assumptions and are subject to risks and uncertainties that could cause actual results to differ materially.
Please refer to our SEC filings and second quarter earnings press release for a discussion of these risks. We undertake no obligation to update any forward-looking statements. Additionally, during this call, we will discuss certain financial measures such as FFO and EBITDA that are non-GAAP and in accordance with ReGG. We have provided a reconciliation to the most directly comparable GAAP measures in our second quarter earnings press release and supplemental.
Both are available on our website at www.prologis.com. I’d also note that in connection with the company’s possible offer for Seagro under the UK Takeover code, for regulatory reasons, we will not take or respond to any questions directly or indirectly related to Seagro or the possible offer. And with that, I will hand the call over to Dan.
Dan Letter, President
Thank you, Justin, and good morning everyone. Thank you for joining us today. As we look across the business, it’s clear we’re entering the next phase of growth where logistics, data centers, and energy increasingly reinforce one another. We delivered another exceptional quarter driven by strengthening demand, disciplined execution, and the expanding capabilities of our platform. As a result, we’re raising our outlook for the year. We signed a record 67 million square feet of leases during the quarter and after several quarters of sustained demand, we believe the market is entering its next phase.
We’re putting that demand to work through disciplined investment. Our 14,000-acre land bank represents 240 million square feet of embedded development opportunity that gives us the flexibility to meet customer demand while creating value through development. During the quarter, we started $1.6 billion of new projects. Our logistics platform is creating opportunities well beyond warehouse development. The same land, customer relationships, and operating capabilities that have made us the leader in logistics are enabling our data center and energy businesses, creating two additional long-term growth opportunities for Prologis.
Our power pipeline has expanded to approximately 5.8 gigawatts, representing about $17 billion of powered shell investment potential or up to $87 billion on a turnkey basis. While this opportunity has been years in the making, we believe we’re still in the early innings. Importantly, the projects in our current power pipeline represent less than 1% of our global portfolio. Underscoring the runway ahead, we’re also seeing customers increasingly look to Prologis for more than real estate.
They’re looking for integrated solutions across logistics, energy, and warehouse operations. Our scale and long-standing customer relationships give us a unique view into how their businesses are evolving. That insight helps us anticipate demand, shape our development pipeline, and stay ahead of the market. Finally, we continue to execute on our strategic capital strategy. During the quarter, we closed our $1.2 billion European joint venture with La Casse, further expanding that long-standing relationship and reflecting strong demand for high-quality logistics assets.
Prologis remains the partner of choice for investors seeking scale, execution, and access to the highest quality logistics portfolio in the world. Taken together, these results reinforce the strength of our platform and the opportunities in front of us. We’re confident in where the business is headed and remain focused on creating long-term value for our shareholders. With that, I’ll turn the call over to Tim.
Tim Arndt, CFO
Thank you, Dan. We delivered an excellent quarter with core FFO of $1.63 per share including net promote income and $1.60 per share without, each ahead of our expectations. We generated $83 million of promote revenue in the quarter driven by outperformance from three vehicles, underscoring the performance-driven nature within our strategic capital business. We ended the quarter with 95.5% occupancy, a 20 basis point improvement over the first quarter.
Rent change on rollover exceeded 36% on a net effective basis, realizing $60 million of incremental NOI and rent change on a cash basis was 22%. Notably, our portfolio lease mark to market remained unchanged from the prior quarter at 17% on a net effective basis, fully replenishing our embedded NOI opportunity of nearly $800 million available without any further market rent growth. In the end, we delivered same-store NOI growth for the quarter of 6.4% on a net effective basis and 8.5% on cash.
Overall, these results continue to demonstrate the strength of a global platform and a portfolio highly curated to outperform. Turning to capital deployment, as Dan mentioned, we started over $1.6 billion in new development during the quarter, including approximately $800 million in logistics properties as market conditions continue to strengthen. Our starts in logistics have spanned our global footprint representing markets such as San Francisco, Vancouver, the UK, Milan, Berlin, and Chennai, all where demand and rents for modern well-located warehouse facilities support new development.
We acquired $1.8 billion of real estate during the quarter at an estimated discount to replacement cost of approximately 20%, executing on our strategy to go deeper within our existing markets. This allows us to leverage our teams, infrastructure, data, and customer relationships to drive scale and operational outperformance. Our disposition activity totaled $800 million during the quarter. Stepping back, the underwritten IRRs on our acquisitions have exceeded the IRRs on our dispositions by 140 basis points year to date, achieving both ongoing portfolio optimization while enhancing long-term returns and finally contributions totaled $500 million for the quarter, demonstrating continued execution of our business model which crystallizes value creation, recycles capital, and grows AUM and revenues within our strategic capital business. As an update on Data Centers, we had an exceptional quarter with advancement of our priorities in every facet of this growing business. We started a 260-megawatt build-to-suit campus with total expected investment of approximately $800 million. Our year-to-date data center starts now total $2.1 billion, exceeding our full-year guidance.
We’ve now commenced nearly $4 billion of data center development, all built to suit for the highest quality digital infrastructure customers. With more than 50% of this capital invested in turnkey projects during the quarter, we also completed a 100-megawatt power land sale, generating an 82% margin and illustrating our disciplined approach to maximizing risk-adjusted returns by monetizing projects at the stage where we see the greatest profit margin.
And lastly, we expanded our power pipeline to approximately 5.8 gigawatts which has now more than doubled over the past two years. Approximately 85% of this pipeline is positioned to support development starts through 2030. The breadth of this activity demonstrates that our data center business is driven by an integrated platform that consistently originates, develops, and realizes value. We see over 10 gigawatts of development opportunity over the next 10 years.
Turning to our market conditions, as we’ve been discussing for over a year, the market has been working through the stages of inflection and we see overall conditions now geared for growth. U.S. net absorption totaled 66 million square feet in the second quarter, a strong result and the highest level since 2022. This contributed to vacancy declining to 7.2% while market rents increased approximately 70 basis points. Customer demand is broadening with notable and growing strength across e-commerce, advanced manufacturing, and increasingly customers supporting the build-out of digital infrastructure.
Our research estimates that each $1 trillion of data center CapEx will generate 30 to 40 million square feet of incremental logistics demand, creating a durable multi-year source of growth. Alongside these secular additions, demand from our largest segment, basic daily needs, and the logistics that support them remains healthy. Taken together, these trends reinforce our view that the market has transitioned into its next phase of growth with additional upside potential when cyclical sectors such as housing, autos, and furnishings recover toward their historical levels.
Europe has been ahead of the US with its market recovery now nearly 12 months in the making, demand remains robust and vacancy has been stable and relatively tight at 5.2%. This has been translating to rent growth which increased approximately 60 basis points during the quarter and 160 basis points from the trough last year. Finally, we are seeing the strength across all size categories. Large format space remains in tight supply, creating upward pressure on rents and adding depth to our build-to-suit pipeline.
We have very limited availability in spaces larger than 500,000 square feet and no availability whatsoever in spaces larger than 1 million square feet. At the same time, occupancy is improving across smaller units in nearly all of our markets. Moving to the capital markets, sentiment towards logistics real estate continues to lead other property types supported by improving operating fundamentals. Transaction volumes are increasing year over year with broader buyer participation.
Across our target markets though, capital remains selective with a clear preference for high-quality, well-located assets. Appraised values across our strategic capital platform increased approximately 1% quarter over quarter. Market cap rates remain around 5% with in-place cap rates in the mid 4s and unlevered IRR stable in the mid 7s. Turning to the balance sheet, during the quarter we completed approximately $3.4 billion of financing activity, accessing capital across the US, Europe, and Asia in multiple currencies. Our debt to EBITDA ratio ended the quarter at 4.7 times, building tremendous borrowing capacity, especially when considering the scale of our balance sheet.
And now turning to guidance, which I’ll review at our share, we are raising our outlook to reflect the strength of our operating performance and continued visibility into earnings growth. We are increasing our forecast for average occupancy to a range of 95.25 to 95.75%. This increase, together with our second quarter outperformance, drives our expectation for net effective same-store growth of 5.25 to 5.75% and cash same-store growth of 6.75 to 7.25%.
Strategic capital revenue excluding promotes remains unchanged at $660 to $680 million, while net promote income is now expected to be flat on the year. GNA is expected to remain in the range of $510 to $525 million. We are increasing development starts on an own and manage basis to a range of $5.5 to $6.5 billion, reflecting strong demand and expanding opportunities. This incorporates the $2.1 billion of data center starts in the first half. We are also increasing acquisitions to $1.5 to $2 billion and expect contributions and dispositions to range from $4.25 to $5.25 billion, consistent with our strategy of recycling capital and optimizing portfolio returns. Putting it all together, we are raising our net earnings guidance to $4.40 to $4.55 per share. Core FFO is now expected to range between $6.22 and $6.30 per share, including and excluding promotes, representing a 100 basis point increase at the midpoint of our prior guidance. In closing, we believe the business is exceptionally well-positioned. We are executing across every part of our platform from operations and development to strategic capital, data centers, and energy.
At a time when market conditions continue to improve, occupier and investor demand is broadening, rent growth is reaccelerating, and our customers continue to turn to us for increasingly integrated solutions. Combined with the strength of our balance sheet and the scale of our platform, we believe these trends position Prologis to continue creating value today while extending our long-term growth opportunity. With that, I will turn the call back over to Dan.
Dan Letter, President
Thanks, Tim. As Justin said, we’re not going to take questions on Seagro for regulatory reasons. What I would say is this: we’ve been very consistent over time in how we think about M&A. The bar is high; it has to be the right asset and it has to be the right strategic fit, and we’ll always be disciplined on price on Seagro. Specifically, we put forward a very compelling proposal. It offers a meaningful premium to where the stock has traded and values the business above its stated NTA.
As importantly, it gives Seagro shareholders the opportunity to participate in the upside of a stronger combined company, and the value of the Prologis enterprise and everything it offers should not be overlooked. Beyond that, there’s not much more we can say today. We’ll stay disciplined, and if and when there’s something to share, we’ll share it. Operator, we’re ready for questions.
OPERATOR
Thank you. And at this time we will conduct our question and answer session. If you’d like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Tom Catherwood with BTIG.
Tom Catherwood, BTIG
Thanks and good morning everybody. Maybe Tim, the blue sky scenario for logistics real estate that you’d always talked about really seems to be playing out and this quarter specifically record leasing again and customer retention started coming down, which is usually a sign of pushing rents. So our question is how much market rent growth is needed for your embedded mark to market to start expanding again? I know it stabilized this quarter and is your portfolio ahead of the curve in any way such that you’re able to capture higher rents before your competitors in a given market?
Tim Arndt, CFO
Hey Tom, well, first off, I appreciate you acknowledging the realization of the call that we’ve been, I think in a sober way, just predicting over the last really six quarters now. It’s been a really steady level of improvement and execution and we’re as pleased as anybody to see the market also coming along in terms of seeing an expansion of the lease mark to market from here. You know, one I’ll just underline again, this was an interesting quarter to see it fully level out.
Now that’s not necessarily something to expect. We know that that number will come down. We’ve talked about that many times in the past. It should normalize at some point in the future in a run rate in a low double-digit kind of range. But the specific answer to your question is if we see market rents achieve a growth level that exceeds rent change in any given year by role, that just can be the math of when we would then turn to see it expand again and we would hold out the possibility that that could occur.
Especially when we look at not just the standing lease mark to market that we have, but when we evaluate replacement cost rents as well, which you know are very favorable. And then I’ll just pile on. As you also asked around the Prologis portfolio, I think what you should look at is just the continued outperformance in occupancy and you’re seeing us just take more and more market share every quarter.
OPERATOR
Operator, next question. Your next question comes from Michael Griffin with Evercore ISI. Please state your question.
Michael Griffin, Evercore ISI
Great, thanks very much. Maybe just going back to sort of leasing demand in the portfolio broadly. Can you give us a sense in your conversations with customers, is this more kind of pent-up demand? Maybe customers have been dragging their feet over the past couple quarters, realize that inventory is getting tighter, they needed to execute on some of these leases. Or are you seeing maybe newer customers you weren’t expecting start to enter the market given what seems like maybe more certainty around kind of their business needs or demand for logistics, real estate?
Dan Letter, President
Thanks, Michael. Let me get started then I’m going to hand it over to Chris. I think the headline here again is really two numbers. We signed 67 million square feet of leases in the second quarter here. That’s our fourth record in the past seven quarters. We also saw 66 million square feet of net absorption across the United States. We’ve also seen our pipeline, we’ve talked a lot about our pipeline over the last couple years. To have that level of leasing and the replenishment of the pipeline rolling where it is, it just shows where this trend is.
You put that together. The tone of the customer conversations continues to improve. We started talking about them making decisions a few quarters ago. Companies are very focused on growth. They’re investing in their supply chains. They’re making these longer-term decisions. You’ve heard us talk about our big box availability. We have only a few, just a small handful of buildings over 500,000 square feet in our 1.3 billion square foot portfolio that are available.
And we’re actually seeing that now migrate into the midsize and smaller spaces as well. So all very positive. And Chris, would you have some more color there?
Chris Caton, Managing Director, Global Head of Strategy & Analytics
Yeah. In terms of the rationale for growth, let’s look at some of the industries that are driving the growth. You have three or four points here. Number one is e-commerce. And this is not just one company or one geography. It’s international in nature. It’s a range of size categories. So e-commerce is for sure driving growth. Second is broadly advanced manufacturing, whether it’s data center construction support, whether it’s defense, whether it’s the semiconductor space.
That’s a growth driver. And then Dan touched on supply chain reconfiguration. Companies are just getting more comfortable investing in their supply chains, competing and winning for revenues. And then there are categories that reflect growth opportunities in the future that are sort of under-punching their weight broadly. Housing comes to mind, whether it’s construction materials or the furniture or appliance space. This is roughly a quarter of our customers that are just not on their front foot quite yet but represent a growth opportunity.
OPERATOR
Operating next question. Your next question comes from John Peterson with Jefferies. Please state your question.
John Peterson, Jefferies
Oh, great, thanks. I just want to make sure I understand the development start guidance correctly. So you increased it by about a billion. That matches the data center development start this year. So I guess if we just think about the difference between what you started year to date and getting to guidance is that mostly imply warehouses and anything you do on data centers is upside to that or I guess how are you baking in data center starts into the guidance and then also maybe just can you talk to us about like a maximum number of starts you think you can do in a year given your strong balance sheet?
Tim Arndt, CFO
Hey, John. Well, I want to be sure I understand your question. Yeah, we took up the overall starts guidance meaningfully last quarter. If you unpack the components of our guidance, it had predicted $2 billion of data center starts, which we have now achieved. So yeah, the uplift I think you’re trying to infer is that coming from logistics that that would be. That would be correct. And when you see the improving market fundamentals across so many of our markets, we’re talking over two dozen markets that we could see specifically this year where the rents have caught up.
And so that’s really great momentum. Then also the build-to-suit pipeline continues to increase. It’s up about 10-12% quarter over quarter. So a lot of momentum on the logistics side.
OPERATOR
Operator, next question. Our next question comes from Vikram Malhotra with Mizuho. Please state your question.
Vikram Malhotra, Mizuho
Afternoon. Thanks for taking the question. I just want to clarify, I guess, two things. One, can you just specifically give us what was the market rent growth in the US in the quarter and your expectation and then do you mind just updating us on your latest net absorption view given the uptick you mentioned in 2Q like what are you anticipating for the year? Thanks. So let’s start with the market fundamentals and then jump into the rent growth dynamic. I want to be clear, we’re upgrading our view in market fundamentals and really this is a natural progression of the view that we’ve held over the course of the last, like Tim described, six quarters. We’re moving through this inflection phase that we’ve been talking about and a broader recovery is taking hold. Market rents and occupancies have stabilized and begun to grow again.
The specific numbers you’re looking for, net absorption, we see that amounting to 220 million square feet in the US this year. And it’s all the things Dan described as it relates to the dialogue we’re having with customers, our pipeline and the breadth across markets and sizes for completions. We anticipate 195 million square feet this year and that should allow market occupancies to rise a total of, let’s say 30 basis points this year. So putting it together, the markets are entering a new phase of growth and it sets us up to see more consistent and sustained rent growth going forward as the occupational recovery emerges.
In terms of rent growth in the quarter, the United States was 70 basis points. It was. And we’re thinking, we’re not thinking, we’re anticipating that growth has the position to become more consistent going forward as this operational recovery becomes more broad based. We could see inflation plus style growth emerge over time given where market rents are relative to replacement costs.
OPERATOR
Thank you, Vikram.
Operator, next question.
Your next question comes from Michael Goldsmith with UBS.
Please go ahead.
Michael Goldsmith, UBS
Good afternoon. Thanks a lot for taking my question. Can you provide an update on the Southern California market? It looks like lease percentage picked up 110 basis points sequentially above the overall average of 30 basis points in the U.S. So can you just talk about the pace of recovery of that market relative to the rest of the portfolio?
Chris Caton, Managing Director, Global Head of Strategy & Analytics
It’s Chris. Yeah, good call out. Southern California also bottomed and is moving towards early recovery. We’ve talked about these three phases of inflection phase, so let’s hit those real quick. Demand that’s become more consistent and broad based across customers, across submarkets, across sizes. Net absorption in the quarter in Southern California amounted to 9 million square feet, led by the Inland Empire. We also saw a vacancy inflection across the marketplace.
Vacancies were down 30 basis points quarter on quarter and are now below 7%. In that geography, market rents are stable with some notable increases in a few pockets occurring this year. So bottom line, Southern California is early in the recovery, but the cycle advanced this quarter just as you’re asking. Now looking forward, barriers to supply both at the municipal and at the state level should help accelerate the recovery as conditions firm.
Dan Letter, President
And let me just pile on there. Tim mentioned earlier about us delivering this forecast over the last several quarters as to what was going to happen in the market. We look at the overall broader market. We talked about this inflection period. We now see these numbers. We see that inflection in the rearview mirror. And we’ve also been talking over the last several quarters about Southern California following that by two or three quarters. Well, here you have it.
It’s playing out as we had suggested. And then I would just pile on. When it comes to our outperformance, I think you need to take into consideration the quality of our portfolio, the location of our portfolio and why you see that recovery show up in our number.
OPERATOR
Thank you, Michael.
Operator, next question.
Your next question comes from Kaitlyn Burrows with Goldman Sachs.
Please state your question.
Kaitlyn Burrows, Goldman Sachs
Hi everyone. Maybe a follow up from earlier on the development side. So it sounds like you’re expecting 2 billion of industrial starts in the second half. Can you talk about the appetite for build to suit versus spec at this point? Sounds like it’s both. And to the extent there’s more spec included, what’s your take on the rest of the market? Is it just Prologis picking up spec developments or is it the industry as a whole?
OPERATOR
Thank you, Caitlin.
Operator, next question.
Your next question comes from Vince Thabone with Green Street.
Please state your question.
Vince Thabone, Green Street
Hi everyone. I wanted to follow up on the comment that you think 85% of the current 5.8 gigawatt data center power pipeline could be started through 2030, which I think is the first time you shared that timeline. I just want to get a sense of how we should think about the mix of powered shell versus turnkey data centers going forward just to help kind of narrow down a reasonable range of the potential capital investment here because obviously it’s a huge swing factor as you outline, depending if it’s all one versus the other.
OPERATOR
Thank you, Vince.
Operator, next question.
Your next question comes from John Kim with BMO Capital Markets.
Please take a question.
Eric, BMO Capital Markets
Hi, it’s Eric. I’m for John. I was just hoping you could provide some more detail on the 160 basis point decline in development yield starts quarter over quarter. You know, is that primarily a function of deal mix or are you seeing changes in pricing due to increased competition?
OPERATOR
Thank you, Eric.
Operator, next question.
Your next question comes from Michael Carroll with RBC Capital Markets.
Please state your question.
Michael Carroll, RBC Capital Markets
Yep, thanks. Tim, you indicated in your prepared remarks that PLD sees 10 gigawatts of data center development opportunities over the next 10 years. How does this differ from how PLD was thinking about the space during the 2023 Investor Day? I know during the investor day, you also highlighted the same 10 gigawatt number over a longer period of time. Is the company, is the outlook similar or should we read that PLD is just more confident on its ability to execute on that 10 gigawatts over the medium term?
Dan Letter, President
Michael, this is Dan. Maybe Tim has something to pile on when I’m done, but what I would say is, you know, Tim also made a remark about the fact that our power pipeline has doubled in the last two years. What I’m very proud of is the fact that we told you all what we were going to do in 2023 with this data center business and that was around building a pipeline, that was around building internal capabilities, that was around round tripping properties.
And we’ve done all of that and continued to do so. And we have dozens if not hundreds of applications out there across all of our geographies, our 6,000 buildings and literally hundreds and hundreds of land sites building a power bank. So we put the 10 gigawatts out there as a projection that we’re very confident that we’re going to deliver. But if again, just look at the size of the sandbox that we get to play in here, you’re going to see a lot more megawatts or gigawatts behind that.
So it’s grown since 2023 and we’ll see how this team is able to continue to outperform.
Tim Arndt, CFO
I might just add on to that. A very critical ingredient here is not just all the real estate, all the power, but it’s clearly the capital as well. And I’ve certainly had to get my head around together with the rest of the company how to take on the entirety of this opportunity. And you’ve seen us kind of preparing ourselves for that. We’ve talked about opening up capital availability via our logistics, development, ventures, et cetera. And we’re really clearing the decks for having all the capital availability here that will be necessary to take advantage of what has indeed been a growing opportunity.
OPERATOR
Thank you, Mike.
Operator. Next question.
Your next question comes from Nicholas Ulico with Scotiabank.
Please state your question.
Nicholas Ulico, Scotiabank
Thank you. In terms of the data centers, as you’re ramping up development there, can you just give us your latest thoughts on the plan to either sell assets outright versus doing JVs or a fund. And then I’m also wondering how you’re comfortable underwriting residual cap rates and values for these assets to achieve the 20 to 50% expected margin you’ve talked about. Thanks.
Tim Arndt, CFO
And then you also had a question there around the margins and the durability of those margins. I believe what I would say is through this process of looking at how we’re going to capitalize a business and then also just executing and round tripping these assets so far we’re seeing that market mature for stabilized assets. We have a very good handle at any given time what these assets are worth either on a powered shell basis or how far down the turnkey spectrum you take it to ensure that we can generate those acceptable margins and more than acceptable margins.
And then keep in mind a couple facts here. All of these deals are build to suits, long term leases with hyperscale customers. So great durable income streams. And then lastly our land basis is a logistics land basis. So these deals have a tremendous uplift in land bases to get to fair market value for powered land.
Nick Thillman
Thank you, Nick.
OPERATOR
Operator, next question.
Your next question comes from Dave Rogers with Raymond James. Please state your question.
Dave Rogers, Raymond James
Yeah, good morning out there. I wanted to tie two concepts together. Tim, thanks for your comments on the cap rate. During your prepared remarks you guys also beat on the promote, I think your own expectations versus the street. So can you talk a little bit about the change in cap rates, the change in asset pricing that you’re seeing kind of coming into this quarter and then also kind of what drove that promote? Was it income? Was it the cap rates?
And will we expect to continue to see more promotes as they came at somewhat of a surprise this quarter?
Tim Arndt, CFO
Thanks. Yeah, I think the way you unpack the cap rates and returns and valuation uplift from my prepared remarks is that all of those yields and returns have been relatively stable. Right. We’ve been talking about a low to mid 5 market cap rate for a while. We’ve been talking about a low to mid 7 IRR for a while. Valuation uplifts manifest because portfolios are chewing through their lease mark to market and the cash flow streams are increasing amidst, you know, constant return requirements.
So the values are rising. The promote was predominantly out of Mexico. That portfolio, our Fibra vehicle there, is excellent and has outperformed the market meaningfully, generating a promote that’s been a pretty perennial occurrence as you’ve seen lately. So we feel very good about it and look forward to its future.
OPERATOR
Thank you, Dave. Operator, next question.
Your next question comes from Todd Thomas with Keybanc Capital Markets. Please state your question.
Todd Thomas, Keybanc Capital Markets
Hi, thanks. Maybe I guess following up a little bit on that last question, but more geared towards acquisitions and maybe acquisition cap rates. You increased the guidance for acquisitions by 500 million. But can you comment a little bit on the competition you’re seeing and whether competition’s really changed at all over the last few months? And can you comment on the 4.1% stabilized cap rate for investments in the quarter and just speak to pricing and cap rate trends there?
Tim Arndt, CFO
Yeah, with regard to the acquisitions in the quarter, we feel great about what was bought there. Incidentally, we don’t focus a lot of detail, but you’ll see a good chunk of assets bought on the balance sheet. That cap rate is reflective of some deeply below market rent leases that come attached to those assets and they’re in premier coastal markets. I mentioned a deep discount to replacement costs and these would be a large driver of that. You could even unpack the price per pound there if you like.
And you’ll find that basis with the knowledge that those are in SoCal and southern Florida. I’m telling you now that there’s a very attractive basis that we, that we bought those assets at. And we’ve said this for years, we are an IRR focused, total return focused investor. So you can get wrapped around the axle on a going in cap rate that may have a substantial lift right around the corner here. So we’re always going to focus on that total, total return.
OPERATOR
Thank you, Todd. Operator, next question.
Your next question comes from Blaine Heck with Wells Fargo. Please state your question.
Jamie Feldman, Wells Fargo
Hey, it’s Jamie Feldman sitting in for Blaine. You commented several times about entering the next phase of the cycle or moving into the next chapter. Every cycle is different. So from what you’re seeing so far and the platform you have today, if you look out the next couple years, what do you think you’re going to throttle up the most across the Prologis platform to drive that growth or to see the opportunities and then just anything else you can provide that just tells you to tell us what feels different this time in terms of the demand you’re seeing or the opportunities you’re seeing.
Dan Letter, President
Thanks Jamie. I’ll get started. Maybe Chris has some color here. What I’d say is just focus on the Prologis platform. What’s different this time is we have the portfolio, we continue to refine the portfolio. Look at the market share that we’re taking every quarter. When you look at the occupancy, look at the rent growth opportunity. We have between the mark to market of 17% and then there’s another 19, 20% to hit those replacement cost rents. So as you look at the direction of travel for rent growth in our core base portfolio, it’s significant and we’re going to enjoy that for years to come.
And then look at our development platform, we just adjusted up our development starts for the second time this year. Given the confidence that we have in the markets that we selected to buy this land and develop out our logistics business. Then we go to data centers. Look at our continuous growth in data centers and what will come of that. We have been round tripping these, taking the profits, these significant margins and putting that back into the core business now for the last few years as we told you all we would do back in 2023 and then look at strategic capital.
Strategic capital. We’ve built a few new vehicles already this year. We’ve talked a bit about what we’re doing in data centers. So the growth prospects in these core businesses is so substantial. As the CEO here, maybe it’s hard for me to say that I love all my kids the same. And you need to look at all these great growth opportunities. Haven’t even mentioned energy. 1.3 gigawatts of power that we have on top of our roofs with only 8% of our roofs covered and then operating essentials continues to be a key driver in leasing.
So really great growth opportunities.
OPERATOR
Thank you, Jamie. Operator, next question.
Your next question comes from Nick Thillman with Baird. Please state your question.
Nick Thillman, Baird
Good morning out there. Maybe a question for Chris. Focusing on the US overall as like the PLD. As you’ve been looking at rent growth forecasts over the last couple of years, the range has been pretty tight between markets, maybe excluding like a southern California, as we sit today between the top and the bottom markets on a next 12 month market rent growth, has that range widened at all? And then maybe could you provide maybe your, your top three markets that you’re expecting over the next month or next year from a rent growth perspective?
Chris Caton, Managing Director, Global Head of Strategy & Analytics
Sure. So as we, as we pass through this, as we put the inflection point behind us and we enter the next phase of growth, there is a fair amount of consistency across markets. So there has been a wide dispersion and it’s narrowing. And so, you know, part of the answer that Dan gave, part of the question that Jamie’s looking for also is I think we could over time be talking about rotation back to the coast around coastal outperformance. It’s a bit early now. We see it in the greater San Francisco Bay Area by way of example. And then in terms of different geographies and the spread, I don’t know that we’ll have any markets with a decline over the next 12 months. And then the best geographies will definitely outperform inflation in terms of the strongest markets. Right now that’s going to be in Texas, across the Southeast and even in the Midwest and then the Bay Area.
Like I mentioned, the softest is probably Seattle. I pick Seattle as the softest. But putting it all together, we’re really entering this next phase of growth where replacement cost rents are versus market presents real upside to some of these geographies, especially the coast. And it may take some time really to emerge to this phase, but we’re moving through it much like we’ve been describing over the last six quarters. And we’ll continue to keep you current on it.
OPERATOR
Thank you, Nick. Operator, next question.
The next question comes from Brendan Lynch with Barclays. Please go ahead with your question.
Brendan Lynch, Barclays
Great. Thanks for taking my question. There’s been a lot of positive commentary about the data center opportunity on the call today. Maybe you could talk a little bit about some of the elements of NIMBYISM that are rising, kind of like with the moratorium in New York and seeing a large project being rejected in Northern Virginia. Can you just talk about how you’re anticipating dealing with these dynamics as they seem to be getting more challenging.
Dan Letter, President
Yeah, no question. The approvals and entitlements continue to be a growing issue and certainly a meaningful barrier to supply. All of these projects are super complex multi year processes where you start with the land and the power you’re securing the entitlements. I would say that’s really where Prologis differentiates in a big way. We have 110 offices globally. These are local people executing our businesses that many of them born and raised in those markets. They’re part of the fabric of the communities. They understand what makes these communities click.
So our goal is to get out as far in front of these issues as we possibly can and, and ensure the education is there for the local municipalities, for the local communities, so people actually understand what’s happening in these data centers and how they benefit from these projects, not how they’re impacted negatively. There’s just so much misinformation out there. We saw this moratorium, we’re not impacted by it. We’ve seen similar type issues in logistics over the years. We don’t see that as something that is necessarily going to continue throughout the country or the, I guess, countries in which we operate. But it’s just the evolution of how these things play out and it’s on us to be as far out in front of these as we possibly can and be the most responsible data center developer there is.
OPERATOR
Thank you, Brendan. Operator, next question.
Our next question comes from Blaine Heck with Wells Fargo. Please state your question.
Jamie Feldman, Wells Fargo
Oh, great. Thanks for the follow up. It’s Jamie again. So I know you had commented that, you know, you think the European markets are at least 12 months ahead of the US on the recovery. You know, you tend to see a relatively rapid supply reaction in warehouse over cycles. What gives you comfort that Europe still has room to run? And can you talk about the competitive landscape? Maybe that would be helpful.
Dan Letter, President
Hey Jamie, I’ll get started. You know, Europe is an attractive marketplace. It’s comparable in some ways, but it has a lot of differences. And so I’d start by saying, look, the demand picture there is really attractive. There’s healthy secular demand drivers. It’s not just E-commerce, it’s modernizing the supply chain. So the demand picture there’s is equal if not better than the US particularly on the continent. Something that you may not be familiar with is the stringent barriers to supply, the focus on green space, the entitlements, the planning requirements are greater there.
And so Jamie, I don’t know that I agree with sort of how you phrase the question. I don’t know that supply comes on as quickly as you’re describing. This is a complex business, particularly given the size and scale of the projects that are now more commonplace in the marketplace. So that, so it’s our experience on the ground. We’ve been in the market more than 25 years. We’ve seen multiple cycles. There we have a diversified business. That’s what gives us our confidence.
Jamie Feldman, Wells Fargo
Thank you, Jamie. Operator, final question please.
OPERATOR
Thank you. And our final question for today comes from Vikram Malhotra with Mizuho. Please take your question.
Vikram Malhotra, Mizuho
Thanks for taking the additional. I just want to clarify two things. Was the 70 basis points you quoted, was that Q over Q or year over year? And you mind just giving us some color? Like what actually happened to average occupancy that dipped in the quarter and then, you know, the build required in the back half seems, you know, a big uplift. Just can you give us some context how we think about occupancy in the backup versus your guide? Thank you.
Chris Caton, Managing Director, Global Head of Strategy & Analytics
Hey Vikram. So in terms of market rents. Yes. It’s 70 basis points, quarter on quarter. The one thing that we’re committed to is visibility in the marketplace. And it’s a couple quarters mature now. We have introduced a consensus source for you to be able to see this. It’s on the Prologis IR website. It’s on the prologis.com website where we go out to four brokerage wonderful partners who build out a consensus with us. And, and those numbers perfectly match the figures we’re describing here.
So 20 basis point improvement in the market vacancy. So take a look at that. And there’s historical trending. So those are some of the details of the question you’re asking. And nothing noteworthy on the average. It’s a pattern. Even if you look at our supplemental where we have average and ending occupancies together in a chart, you see a pretty typical pattern. That average is always a little bit lower than ending. It’s just the way leases roll, often at the beginning of a quarter.
We have some elevated roll this year from all the COVID leasing that’s that’s being marched through. What’s important is we’re getting that occupancy rebuilt. As you saw, we’re very proud of the build that we had over the quarter and feel great about the balance of the year.
Vikram Malhotra, Mizuho
Thank you.
OPERATOR
And we have reached the end of the Q and A session. So I’ll hand the floor back to management for closing remarks.
Justin Meng, Senior Vice President, Head of Investor Relations
Thank you all for joining us. And thank you to our Prologis colleagues around the world for yet another incredible quarter. We look forward to speaking to you all after the third quarter results.
OPERATOR
Take care. And with that, we conclude today’s call. All parties may disconnect. Have a good day.
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