Prologis, Inc. (NYSE:PLD) 2024 Bank of America Global Real Estate Conference Call September 10, 2024 12:45 PM ET

Company Participants

Tim Arndt - Chief Financial Officer

Conference Call Participants

Camille Bonnel - Bank of America

Camille Bonnel

Good afternoon and welcome everyone to our afternoon session with Prologis. My name is Camille Bonnel; I am the Industrial REIT Analyst here at Bank of America. And I'd like to welcome back Tim Arndt, CFO. And many of you might be meeting Justin Mang for the first time, who is leading the Investor Relations team at Prologis.

We're asking Tim, just for some opening remarks before heading into Q&A. So, I'll pass it over.

Tim Arndt

Sure. Well, hello, everybody, Tim Arndt. I've been with the company for about over 20 years now which is crazy. If you don't know Prologis, I imagine everyone in this room does. But very briefly, we're world's largest global logistics REIT. We have about $200 billion in assets under management around the globe. That's about -- 65% of that is in the United States. But the rest of the portfolio is situated around Asia, Latin America, Canada and of course, Europe. The portfolio is about $200 billion in value and we use strategic capital to capitalize, roughly 1/3 of that. That goes all the way back to our company's founding. We've been a heavy user of strategic capital originally in the form of joint ventures and open-ended funds.

Today, we also do that in the form of a few public vehicles. And strategic capital is a very important part of the overall self-funding model that Prologis has had for a few decades now, where we -- in addition to all the real estate that we operate, we develop about $3 billion to $4 billion of development every year. And we use strategic capital integrally with that to recycle the capital, build the assets, stabilize them, offer them to the funds, capture the value creation in the P&L but more importantly, return capital to the mother ship for next development of logistics facility which has been a self-funding model that we've used to compound value over the years. We're located on the consumption end of the supply chain.

I may get some questions about that as we think about the election and some other topics but it's made us relatively agnostic to where the production of goods occurs. We're much more focused on where they're ultimately consumed and that's evidenced by the top 30 markets that were in the United States as well as the larger consumption markets that we are in around the globe. And maybe the last thing I would just highlight is we've got, I think, a somewhat unique approach to our customers and how we run the portfolio. We're a very customer-centric organization. We have a Chief Customer Officer, it's kind of unique in our industry.

We've built some businesses around that ideal, especially as we've amassed a lot of scale and we have very deep relationships with our customers. And that has led to things like our operating Essentials business that we've talked about and I can expand on here, our energy and mobility businesses as other examples. And I could talk about the market unless that's your first question. I'll pause there.

Question-and-Answer Session

Q - Camille Bonnel

Well, that's where I wanted to go and we encourage questions throughout the session. But lots happened since your Investor Day and I think it surprised many of us in the room, how quickly demand went away. So could we start with where your view is of where we are in the cycle across the [indiscernible] in your international markets?

Tim Arndt

Yes. I'd say, look, demand did not go away per se but it was a surprising low in the first quarter which was on the heels of a couple of low quarters in 2023. And yes, it's fair to say that at our Investor Day which was held in the fourth quarter we had presumed we'd see a normalized level of demand because we had actually already seen it as somewhat inexplicably low for what was going on in the economy just with regard to the health of the consumer and consumption and other indicators such as these.

The first quarter wound up bringing us 27 million square feet of absorption that's in our U.S. markets at the market level, not our own portfolio, that would be less than -- a little less than half of what we would normally expect. So that was a big surprise and that did lead us to update our view early we saw it early and we wanted to adjust in April, what we thought would be in store for the year.

In the second quarter, we saw a pretty good recovery, not all the way back to normal but we saw 43 million, I think, square feet of absorption in the second quarter; so up a little over 50%. That was good. But what we still saw was that, that was focused in renewal activity, a lot of retention activity. We've seen the behavior of customers be to make fewer decisions around expanding, make more decisions around contracting or consolidating, in fact, where they can. And that's what we saw as in play at the time in April. In July and then even up to today, I would say we've seen that theme continue. We saw a pickup in leasing activity, as I mentioned. Here in the third quarter, my guess is that we're going to see net absorption in our U.S. markets somewhat on par with the second quarter.

There's a few weeks left to see where it ultimately lands until we can really see the data. But if we extrapolate from our activity, it probably feels like it's in the high 30s, low 40s kind of range. August is always a little bit of a quiet month. So if I were to put that all together, I would say that the market is performing to our expectations which is not to say that they're great or anything by any means, customer decision-making is still a little bit sluggish. We'd like to see new leasing decisions in a greater volume than we've seen so far. But we would be on forecast overall in terms of overall activity and leasing.

Camille Bonnel

And just diving into your specific regions, are you seeing any one being more further along this moderation?

Tim Arndt

In terms of markets?

Camille Bonnel

In terms of like your key regions like U.S., Asia, Europe.

Tim Arndt

In that category might almost be the markets that aren't going to adjust that manage to not have a great need to adjust and those might be the markets that didn't have the big surge in activity and pricing. The poster child for that, of course, being Southern California, where demand was exceedingly high, rents went to incredible levels and of course, we're seeing that surge pricing relax in a pretty dramatic way over the last several quarters. There are going to be many other markets that just did not have that kind of beta, if you will, where they're just going to coast through maybe with some moderate level rent growth in absolute. And then there's everything in between. There are plenty of markets that had very high market rent growth like Northern New Jersey, for example and are having some moderation in those rents but nothing to the degree of SoCal.

And then there may be some others like am I point to Dallas, where the rent growth wasn't so high, nothing on the order that we saw in these coastal markets. But at the same time, there's a little bit of softness in those rents. So it's really kind of a tale of every market has its own story about how high market rents grew what the demand factors are and what the supply factors are.

Camille Bonnel

Okay. And I'd like to touch on your update in a second. But this morning, we heard from our economists talking about seeing higher nominal rates than the markets maybe pricing in or expectations for Fed cuts here. So when you think about the tenant demand and the conversations you're having there; where do you see levels rebasing to if we are in this?

Tim Arndt

Well, again, we would see normalized levels of absorption in our markets in the U.S. around circa 220 million square feet, 225 million. We would call that normal. We have not seen much in the economic activity of the country that would point to a reason that demand has been as low as it's been for almost a year running now. What we've wound up unwinding as we do look back is utilization in which stemmed from over absorption of space through COVID is a more important variable in our calculus right now than we may have appreciated. And we've also observed that utilization, utilization by the way, isn't occupancy, utilization is an assessment that we make and it's not perfect science but how much of the space inside the building is being used.

We measure it every month with our customers to the best of our ability. But that -- our utilization measures show that there was more space taken up, not only in terms of physical space. And there was more physical space taken up during COVID for 2 reasons. One was customers either wanted to take expansion space early or the other is that landlords had a little bit more ability to thrust perhaps more space than was needed upon certain customers because there was such a lack of options out there. But in either event, there space taken from that perspective but also time. Customer’s ways we're taking space for longer than they needed either because they wanted to. They wanted to prevent another rate reset in a period which they are observing very high growth or we, as landlords, certainly landlords saw that 3PLs, for example, who might normally lease on 3-year terms need to take a 5-year lease because that's what my other option is.

And so 3PLs were taking more space, not just in terms of square footage but also in terms of time. So these things led us to today where in an environment where companies were seeking to get some cost reductions in their systems. They were no longer looking at a just-in-case approach to inventories but very much back to just in time, had these levers with regard to utilization to downsize or consolidate. So again, I'll say the appreciation of how much of a factor that could be and is very present in SoCal. It's more acute than SoCal is what wound up adjusting the view.

Camille Bonnel

Okay. And before we get on to the exciting topic about SoCal. Just touching on the operating update that you put out yesterday, not sure if everyone's had a chance to see it but it looks like occupancy has been trending in line. Leasing spreads coming in a bit more. So can you put that into perspective on that 70% target you were hoping to achieve for the year?

Tim Arndt

Yes. So occupancy at the end of August was 96.1%. It was 96.4% at the end of June, so relatively in line with where we were. I think if you look at that in the context of our average occupancy for the year, our results have been a little bit elevated which is a way of saying, we do expect occupancy declines in our portfolio even still. And we expect them in the market which we've also been clear about. We think that vacancy could still build another maybe 50 basis points or so before it peaks out. And we expect to outperform that but we wouldn't be fully immune from that. So I think that we'll still see that ahead in our own occupancy rates. Rent change you're citing. We like to give at these conferences a very contemporaneous view of what we're achieving in terms of rent change signings.

So to be aware of with Prologis at least when we report rent change in our supplemental and our earnings, we're typically telling what the rent change was for leases that commenced but there is a 6-month lag between signing leases and when they commence. So that's not very current view. So we hear like to typically update investors on, well, where are we signing things this quarter and that's the 60% increase on a net effective basis. You might be observing that in contrast to the first and second quarter which were closer to 68% or 69% combined, I would say that, that 8 or 9-point difference is not fully market rents.

It is in part market rents. Market rents have been declining but it's -- probably 2/3 of that is more mix than any change in market rents. And we should be clear. Market rents has been declining. We believe that they will continue to decline. We gave a forecast -- a reforecast, I should say, on that in July where we said the next 12 months from July of '24, we thought it could sit in the range of 2% to 5% decline and that, that is very much led by SoCal. SoCal carries about a 20% weight in our portfolio and that's the market that has been and will be adjusting the most but that is still our call.

Unidentified Analyst

So on your Investor Day, you had demonstrated an 8.5% growth rate memory server market growth and zero net environment over the next 3 years. Do you think that -- should we think about that as like the base case there?

Tim Arndt

No, I don't think so. I think that it's going to need some reset and rethinking. I think the one number I would point you to would be the same-store element of that. And so what Jonathan is referring to in the Investor Day, we said what we thought was in store for the 3 years but we wanted to present a case at the time because we can be wrong about market rent growth, like what was -- what if market rent growth was zero and we recast what same-store or earnings would be on that basis?

And there's a couple of things that are different from that. One is that -- I do think and the company thinks that market rent growth over that 3-year period, '24, '25, '26 will be about 0 but the path to 0 is different. We are down this year. We're going to be down in aggregate on market rent growth over 2024. And I think in 2025, maybe the first half, we still may not be through those declines. It would say that the back 18 months then, we'll see growth. But what it does mean that same-store on that basis, then if that's the path to 0 down and then up, that's different than 000. So same-store will be weaker on that basis.

And we also underneath our public disclosures have given a view that occupancy is probably going to be lower in that. At the Investor Day, we said market vacancy would top out around the high 5s, 5.8 or 5.9. And here in July, we said that might be more in the mid-6s. So that would have to go into the math as well. So we haven't recast those numbers in specifics, just kind of have given the breadcrumbs for people and that would have to go into numbers.

Unidentified Analyst

It sounds like that you've been surprised from -- through this year about some of the weakness in rents and maybe occupancies. How confident what you've just stated is likely to stick given that we're probably running a little behind.

Tim Arndt

Well, the question is just around our confidence and how we look at that now. So much of it, Jonathan, involves getting our arms around SoCal, I think and I hate to lay it so much at its feet. I think many of the other variables in the equation, we feel good about. I think we feel good about understanding where supply is going to be, where it is and where it's going to be by the right of low starts. We have a good amount of confidence in where the consumer is, where consumption is probably a good view that we've achieved, some kind of soft landing here. Hopefully, the election and the Fed don't screw that up in some way and we stay in a productive territory over next year. So I think a lot of the ingredients that would underpin how to think about the market fundamentals overall are our reasonably well known.

But again, with that 20% weight in SoCal and the adjustments being so significant and frankly, the behaviors from other landlords, not being fully appreciated like just the willingness and how much rents could decline has been difficult to peg. So that I would -- I just hold that out as the X factor on all of this.

Camille Bonnel

On that point around SoCal, many investors continue to look at that market with a very broad brush. I was wondering if you could walk through the market dynamics you're seeing in Los Angeles versus Inland Empire. And is the magnitude in change that you're seeing the same maybe rental growth demand?

Tim Arndt

Inland Empire which is where we're more concentrated, has been the toughest submarket. And surprisingly, Inland West as well, not just East. Inland West is suffering, as many of you probably know from a lot of very like-sized availabilities and 200,000, 250,000 square foot kind of size category literally dozens of availabilities. And while there may be some tens of demand for that space, the volume that needs to be taken up as many quarters absorption to fully write that particular segment of that particular submarket. Surprisingly, larger space sizes which there are fewer of, we're talking about like 1 million type square footers and I are doing okay. You have -- it seems like L.A., more in the Bay Area has taken a little bit of a breather on some of the smaller sizes; so it's very fluid. It's maybe very satisfactory answer but it seems like with every quarter or two, a new pocket of demand grows or retreats and it's just a lot of block and tackling.

Camille Bonnel

And going back to your point around consolidation, are you mostly seeing that in the Inland Empire, where like people are moving up to that 1 million square footer and giving back space?

Tim Arndt

From the level that I see, it's all around our markets, I would say. I can think of numerous examples of leases that we felt we had where it comes back is anecdotal, I guess. But where it comes back that the customer decided, they could move all their operations from Baltimore up to New Jersey and not going to renew the Baltimore space after all, as you just hear those stories pretty much across the markets.

Camille Bonnel

And there are some -- well, a number of structural factors that are going on in supply chains today. I'm curious if rents that you've seen, the change in rents that you've seen in SoCal has been consistent with the fundamentals you're seeing? Or is it also being impacted by other drivers like reshoring that's happening down in the Sunbelt markets?

Tim Arndt

I think it's a very good question. I think it's hard to know. I think it will be easier to answer in a year or 2 if we try to draw line between the rent growth that SoCal had enjoyed pre-COVID, draw through the COVID years and we see where rents are landing in '25, '26 -- my expectation is we're going to see that line and see it as expected, if you will and recognize that the growth in rents and occupancy and ultimately, all that aback was indeed a surge.

I can't think of any other factors that I would really tend pin the adjustments to. And one little interesting anecdote on that point because this is one that came up but is maybe writing itself again. But as we are describing the softness in SoCal 6, 9 months ago, if you were following our story then, we are often citing that one of the factors in addition to the port labor issues and everything else was just that rents were very high in Inland Empire and we would definitely see users who are up for renewal for example, would say, "Yes, I want to renew but I do not need to be here.

I can be up in the Central Valley. I can be in Phoenix. I can be in Vegas and we would see demand to leave the market for that reason just that the rents were so high. So that might fall in the category, I think, that you're asking about. But actually, rents have corrected so much already that we're starting to see that, well, now actually Inland Empire can be competitive with some of those overflow markets and it may actually bring some of that demand back.

Camille Bonnel

So just to clarify, you do see SoCal still being competitive even if goods start to shift towards the East or the flow of goods?

Tim Arndt

Yes, I think so. And remember, there's a huge population base, not only in Southern California but the markets that surround it. And the portfolio is oriented, while a lot of it is going to be driven by those the port activity which is growing, if anything. A lot of it is just for consumption within the Southwest markets and that's really what our portfolio is built to serve.

Unidentified Analyst

Tim, can you talk about the factor of some of the numbers you mentioned lower rents higher -- but if you look out, I guess, when do you said that could be weak again in the first half of '22. So that's kind of a year later than you thought. So from the demand and supply curves demand has to pick up for you to kind of get that side instruction, I guess, maybe your numbers inflection point pushed out since you guys started to say [indiscernible]?

Tim Arndt

Well, yes, I think I think our forecast is pretty much leaning on an assumption that absorption returns to something with a 5 handle on it per quarter, let's say, 50, 55, 60. Those will be normalized numbers. I think pegging the precise quarter that, that's going to happen, we're just going to acknowledge we can't do. We've tried to put it out to the middle of next year as a comfortable place where it just -- again, I keep using this term as inexplicable or at some point, we wouldn't understand how it could stay so low pending, normalized levels of activity within all of our markets. So that's why we've kind of put it in a wide range. We've -- you guys all know, we've definitely gotten burned by being a little overly specific on some of these things. So trying to widen out but feel good about it hitting those levels.

Camille Bonnel

And what do you see as one of the biggest challenges to that return in demand given like we're facing a number of things into the back of this year, whether that be the U.S. elections, port strikes, how are you thinking about that and whether the CFOs or your tenants telling you?

Tim Arndt

I don't think port strikes is -- I think that will be fine in the end. I mean, of that list, might be the election. We've got some broad range of ideas out of the candidates and what could ultimately get enacted might be all significant. And I think that, that would be more on the macro. I'm not really saying that with regard to a specific concern we would have tariffs, for example, because I think that winds up tariffs, we see all the tricks going on and how goods are ultimately getting to the U.S. regardless of where the tariffs are sent and where things can be shipped from. So I'm not sure that we draw a significant line between that by itself but the implication it could have on the economy, whether it would steer an economy into recession, those would probably be the things we would look out but I think that would be at the macro level. I don't see supply as being something that's really possible to be a surprise. So I think it's more on that macro level and what delivers on demand.

Camille Bonnel

Is that supply comment more so on like what -- where financing is today? And do you have any visibility on what those smaller developers can borrow at the spreads?

Tim Arndt

We don't do project level borrowing, so you would be better off getting that number from somebody else. It's going to be -- now I'll give a number anyway but I'm assuming it's 250, 350 something like that in that range. Any easing of SoCal is going to be helpful but it's going to be kind of slow and coming. I think the other lending issues are not solely the rates. It's -- the bank appetites as well. So I think that will ease the financing availability may not be the largest factor to turning on larger levels of starts.

My sense is people want to see more of an all clear in terms of rents really settling in some of these markets and vacancies reducing before we might see normalized levels of construction starts which again, we put in to 200 and 250 million square foot kind of range.

Unidentified Analyst

[Indiscernible]?

Tim Arndt

Yes. We're really only in one market in Canada which is Toronto which is a fantastic for us. It's a little off the radar but it's got pretty unique barriers to supply, as you may be aware, it was one of our highest market rent growth markets, I think, like in our competing with SoCal in Northern New Jersey. And given the rent adjustments that we'll see in SoCal, maybe it will wind up being top 1 or 2. So it's faring pretty well. Europe has been just slower and steadier. So many people may not realize Europe occupancy has been pretty much on par with the U.S. which is to say it's good which we should all remember, by the way, we're 96%, 96.5% occupancy. We should remember, it actually is an okay environment.

But in any event, the Europe is similar at that level, 96.5%. It probably is going to have some of the better market rent growth in the coming 12, 18 months versus the U.S. It's like the U.S. is on a spectrum. There's markets that are stronger. Some of our southern markets in Spain, Italy, even France have been a little bit better which is not always the case historically. Central and Eastern Europe, a little bit weaker; so there's puts and takes but in large, it's been slower study.

Camille Bonnel

And we recently ran a global comparison of all the industrial players; and it was a bit surprising to see how much internal growth was a driver to the U.S. and your development pipeline is not really at its full capacity. So I'm curious, as you think about like we're at that peak of the interest rate cycle here, how you're thinking about investments today?

Tim Arndt

Yes. It's a good point. We had -- I think our peak year on development starts was about $5 billion a few years ago. We have been much more -- disciplined is the word we like to use. We -- you've heard Hamid many times talk about this, if you listen to our calls, that our development activity is one by one. I can assure you we don't dictate that we need $3 billion of stars, $4 billion of starts this year, right, wrong or different, you might think we should but it's not how we do it. We trust our local teams and their sharpshooters in their markets. They have plenty of development to go through. We have about $40 billion of TEI in our control to go build on a pretty small amount of land, by the way, $3.5 billion, $4 billion of land, I want to say, by right of unique covered land play structures, option structures, et cetera. So there's no shortage of opportunities. The pace is really dictated by each individual team across roughly 80 markets looks at requirements that are coming into their markets and what our basis is and what we think rents are going to do and bring projects forward. So we feel no pressure to increase that number. And I do anticipate, however, we will see up as we turn through this over-absorption issue.

Camille Bonnel

And if you think about the investment that you're putting in, I think you've built this new department around data centers. How are you guys -- like your asset managers versus that team looking at the land bank and identifying alternatives [ph]?

Tim Arndt

That's a great question. So -- and just to get the group a little more color. So we have pretty vocal and describing a new higher, better use category or a growing one in terms of demand which is around data centers, very topical, of course. We have a few things under construction today. We have 450 megawatts of data centers in construction.

Now which is under an umbrella of about 1.3 gigawatts of power that we have available to us. And per your comment around the team, this is an activity that we would have done off the side of our desk, 3, 4 years ago. And I think seeing the surge in demand, we've built a pretty good size and capable team around the opportunity to be sure to chase it hard. Every investment committee book, we have an investment committee every Monday, we have a handful of deals that we look at. If it's buying an asset or if it's starting a development on a piece of land has a discussion about why are we not doing a data center there here? In effect, just have we gone through every alternative here that this is indeed the highest and best use.

So that is definitely top of mind and it's the job of this new team that I'm describing led by Chris Curtis to mine the portfolio in terms of all those redevelopment opportunities, really surveying everything for what the fit of the building is and the power availability and prioritizing the list that we'll work through.

Camille Bonnel

And is the current priorities just as you're looking at existing buildings itself or more focused on the land bank?

Tim Arndt

It's both; it's both. So this will be redevelopment activity and it will be out of our existing land bank for it can be and it may even be around new land that will take down where we think we have a unique access to power.

Unidentified Analyst

Did you look at the [indiscernible]?

Tim Arndt

I don't know.

Unidentified Analyst

The Blackstone $16 billion [ph] acquisition -- you would get to the data centers -- or the centers to [indiscernible]?

Tim Arndt

No, this is really on the theme of higher and better use and value creation of what we own already; that will be the predominant mode.

Unidentified Analyst

And I mentioned M&A; would that be an area you want to explore now is some of the weakness in the warehouse space into the large scale acquisition?

Tim Arndt

The question is around logistics M&A and the answer is going to be generic that we will always look and we do always just keep apprised of what's out there public and private and look for the right alignment of conditions to maybe pursue something in earnest.

Unidentified Analyst

[Indiscernible]. How you want to fund it?

Tim Arndt

How we might fund it did you say?

Unidentified Analyst

Yes.

Tim Arndt

Yes. Right now, we have capacity to -- we -- if you think of it from a capital markets perspective, we've, in effect, established a credit line internally for this activity. We've done the same in all of our energy business that we're very comfortable with. We have a lot of capacity within our balance sheet for that kind of investment, especially in the recycling mode that we see that it will be in which is to say, if you're unfamiliar, we have said we don't intend to own this product. In the long term, we see it as a value creation opportunity and something that will actually help create real dollars to fund back into our core business. As assets stabilize and maybe season for a year or two, we will -- we'll be selling these back out into the market.

Unidentified Analyst

[Indiscernible]?

Tim Arndt

Well, we -- you'll probably have to say but we don't want to complicate our story. And I know we're sort of complicated enough in many ways but we think having a completely different sector in the operating portfolio is probably unnecessary. The real return is in the value creation that we think we have a unique ability to chase and we don't need to hold it over the long term.

Camille Bonnel

And would that also encompass not holding any strategic funds that are data center focus or could that be an option?

Tim Arndt

It can be an option. Never say never, right? And that is -- you know, that is Dorsey, there's owning them, they're selling them, they're putting them in a fund. I think Hamid has been super clear about -- we preferred Door A, if that's how I just said it, the sale door. But we will evaluate whether it makes sense to actually keep some small amount of interest. But right now that's not the plan.

Unidentified Analyst

[Indiscernible] is that you’ve got a very large platform [indiscernible].

Tim Arndt

Yes, we did just for India. We have 2 investments there now that are development in nature and that will be a high-growth area for us. Other markets that are China, Japan and we have a small portfolio in Singapore. The big opportunity we see ahead of us is maybe in China. We think that we are capable of pursuing what maybe some very strong opportunities there on our own. So in the spirit of ESR and such, I won't comment on that. But China is rough right now in terms of logistics real estate. And the pricing has to find its bottom.

We have a very capable organization there but it's a very small part of our balance sheet today. It's probably may even be less than 0.5% but somewhere between 0.5% and 1% is our China business. But it could be a place where there is pretty incredible opportunities in the coming years and we're really just setting ourselves up for that.

Unidentified Analyst

Just for context, what sort of cap rates at this trading out internally [ph]?

Tim Arndt

I don't have a number to give you on that. I'm sorry.

Unidentified Analyst

Are you setting yourself up in India? What [indiscernible] venture basis do you have a team down there?

Tim Arndt

We have a team, a small team right now and we also have a small joint venture that we utilize for some of the on-the-ground work. But there is a team located there now. We anticipated we might have $0.5 billion in India in the next 2 or 3 years. So large on that basis, it's small dollars per project but still relatively small in our balance sheet size.

Camille Bonnel

So we've hit our time. I have 3 rapid fire questions for you, Tim. First, do you expect real estate transactions to increase once the Fed starts to cut? If yes, when do you expect them to cut or pick up?

Tim Arndt

Okay. I expect them to cut this week. Yes, I expect them to pick up and they've been picking up. So they've been picking up and I think that will accelerate.

Camille Bonnel

Would that be in the fourth quarter of this year, first half, second half 2025?

Tim Arndt

I think every quarter will bring a high level of activity for the next 4 or 5 quarters.

Camille Bonnel

Secondly, how would you characterize demand for space today, improving, steady or weakening?

Tim Arndt

Steady, which is to say not out of this.

Camille Bonnel

And last year, a majority of the companies at our conference stated that they wanted to ramp up on AI spending. So, I was wondering how you'd characterize your plans for next year? Is it higher, flat or lower?

Tim Arndt

On AI spending; higher.

Camille Bonnel

All right. Thank you.

Tim Arndt

Yes. Thank you.