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Wow.
We like to remind everybody that Amazon Home Depot, Fedexups, also Giga Cloud Technology are just some of our next guest big customers. We're talking about the one hundred and twenty five billion dollar market cap company. It is a warehouse logistical read it is Prologious, that is massive, and it owns, develops and manages logistical warehouses for the biggest companies like we just mentioned. And they've got more than a one point three billion square feet in twenty countries.
So what a great person to get a view in terms of the macro of what's going on around the world.
Considering tim our backdrop.
Shares up about three percent so far this year. We've got Dan Letter with us CEO of pro Logis. He joins us here in the studio. Dan, good to see you again. You just took over as CEO that we've spoken just a few months before that. I want to start with what Carol mentioned in the macro, because we are just squarely focused on an increase in oil prices as a result of the war or iron what that means for consumers, what it means for business leaders.
How are you looking at the macro environment.
Yeah, well, first, thanks for having me. Great to be here with you too. I look at the macro environment right now, and I think about all the chaos and turbulence our customers have been through, going back to COVID six years ago, the world was shut down right over the course of these six years. Think of all the geopolitical events post COVID, the raid hikes, and how that impacted our customers. And I actually look at these customers
and I realize they've built a lot of endurance. They actually this turbulence is more of a feature of the environment that we're living in today. And I look back to a conference where we were talking to investors a couple weeks ago, actually right after the weekend of the original I ran bombing, and we were telling our customers twenty twenty six started really strong. Twenty twenty five was our second largest leasing year ever, and we were seeing that go into twenty twenty six.
Does that continue.
There's a lot that's happened, like it's just I think, kind of shocking. And we talk about this so much. No one expected some of the things that have come at us DAN in twenty twenty six, So since that that was just a few weeks ago or a month ago or so of that update and that you were talking with like is that optimism still there and is your outlook on twenty twenty six still the same.
So what we see at this time is customers don't necessarily pull back. I look back to last year at this time we had expressed a little caution that led into what was Liberation Day, right, and you see customers just look around and see what's going on and then lean in. They make long term decisions, five, seven, ten year decisions when they're working with us, right, and so
they're really kind of seeing through that noise. And when you look at these decisions they're making, it's really only three to five percent of the overall cost of the supply chain.
So no people who were maybe going to sign a contract that backed out or anything.
Like that, we hadn't seen that. And it's really just a matter of they digest it and then they it comes in different forms. Maybe you end up seeing some short term leasing or but certainly no pullback.
What about when it comes specifically to data centers, because last time we talked with you about the data center activity you're seeing and in that time a lot has happened. We've heard from different companies. Microsoft is renting a Texas data center that was dropped by Oracle and open Ai. Are you seeing any signs of weakness or slow down or changing trends when it comes to the data center business?
So, our data center business was really born from our higher and better use business. When you have six thousand buildings, fourteen thousand acres of land close to seventy eight percent of the world GDP, that is where the next way of the economy is. That's where data centers need to be. And we have deep relationships with these hyperscalers. We have a fortress of a balance sheet, and every megau we can deliver over the next three years is in some
sort of least discussion right now. And we have five point seven gigawats of power that we control or are in its advanced.
Meaning full capacity in terms of negotiations.
Right now, we're at full capacity.
So nobody else could come to you right now and say we're interested in the next few years and you have an option for them.
No, that's not the case. Just the next three years of power that we can deliver. These hyperscalers. These major data center users are heavily focused on near term power, and we're focused on delivering power much longer beyond that, and so we're certainly in discussions beyond that next three years, and that's where this five point seven gigawatts of power will come in.
So that's the power you've secured, right.
So we've secured one point eight gigawatts, and then we have three point nine gigawatts that we call in the advanced stages, which means it's a year or two behind. Okay, but again, think of the universe of opportunities we have behind that five point seven you have, which is just the size of our platform.
All right, So then I'm going to say, are you looking to secure even more power?
Absolutely, we are working. And remember we're a global company. As you said, we're in joy countries and so we're working around the tier one, tier two mare it's in the United States, we work around the flapp dy markets in Europe, and we're starting to see it actually in Latin America and Japan as well.
So has anything changed because of the war or is really everybody kind of looking through this because we talk about an energy environment, you know, We've talked a lot about LNG specifically because Qatar has lost about thirty percent of their capacity and that's going to take three to five years to build. There's going to be a floor where energy prices are higher, and so I'm just curious has any of that impacted you guys in terms of how you think about outlook build spend.
Costs well as it relates to logistics real estate. Again, it's three to five percent of the overall costs. So our customers need to make these decisions long term and they want to be close to those population centers. So can't necessarily sit back and wait.
Can I just throw one thing out there?
This could be a little wacky, but it's it's Elon and so that's kind of whacky. But we've talked this week right about data centers in space. Is that something you are thinking about and how that might impact you guys? You obviously are doing this on Mother Earth, and I'm just wondering, is that just something that.
Well, we're going to stick to these twenty countries that we're focused on. I think I think there's plenty of opportunity for us for the foreseeable future. But maybe ask me in ten years.
Okay, yeah, I mean, but to Carroll's point, why you know, with that getting so much discussion right now, why are you just focused on terrestrial? I mean, I know it would have sound crazy. It sounded crazy a year ago to be talking about this, but this is something that you know a lot of people think is the future of these data centers.
Well, we do this business one hundred percent on a build the suit basis, so we have leases in place before we put a shovel in the ground, and we have so much opportunity in front of us, we don't need to be thinking about another vector to grow this data center business.
Yeah, that's pretty fascinating. What would change your mind?
Though?
In terms?
Would it have to be an economic slode in which some have talked about, depending on when this war ends or even if we start, if we see inflationary pressures continue, and whether there's demand destruction that slows down essentially.
The global economy, a lot has to fall into place, as.
You know, Is that what would maybe change your outlook? Or again, because everything's locked in place, if the economy slows down, what kind of impact might that have on you guys? Or it doesn't matter because you've already kind of signed things in are moving ahead because it's longer term.
When I think about our core business, Yeah, if you think of the building blocks for our core business is seventy percent of the US GDP is consumption. Our buildings are close to the major population centers the United States. So on top of that, there's the e commerce secular demand driver. We've been talking about e commerce for a long time. Pre Covid, e commerce penetration as a percentage retail sales was in the seventeen ish percent ratio rate.
Now it's like mid twenties. We see that growing another one seventy five to one hundred basis points a year through the end of the decade. That alone is additional demand on top of that. So there's a big tailwind for our growth.
So but if there was an economic slowdown, that could be a problem, well or would that not even impact That's what I'm saying.
One thing I forgot to mention is, yeah, e commerce for every dollar retail sales, it needs three x the warehouse space because think of all the activities that happen in the brick and mortar and the returns happened there. There's the stock in the back. And then with e commerce, there's been that proliferation of skews and all of us we're looking for speed and we're looking for choice, right
and so that's been a big driver. And you may see flat retail sales, but you'll see e commerce penetration.
That's good.
That's commerce penetration is great news for logistics real estate.
On that I'm interested in the droid venture that you guys announced last week, one point six billion dollar JV with GIC to build a suit warehouse development.
Why partner with GIC, Why not do this solo?
Well, we've long been developing on our balance sheet, but now look at our development business. We can build forty three billion dollars more of logistics space in our land bank alone, not buying any more lane. And on top of that, we have this data center business.
We see that one more time. That's tremendous.
So we have two hundred and thirty billion worth of AUM today at the end of last quarter. Yeah, we can build another forty three billion of logistics buildings on our fourteen thousand acres of land. That's two hundred and forty million square fee. We can grow at the company eighteen percent without buying another piece of land. Then we have this data center business. Think about it from a
megawatt perspective. If you build a powered shell that's on the continuum poweredshell over here, that's about two and a half to three million dollars of megawatt. You go out this side of the continuum and that's a turnkey that's everything soup to nuts built out. That's fifteen million a megawatt. So think about how big that data center development could be. So we're looking at diversifying our capital stacked there and our partners great to have a new partner with GIC here.
They want a piece of this development business and when we're doing that to help build bigger relationships globally.
Same you're not optimistic, Dan, come back soon.
Thanks for having me.
Really appreciate it. Dan let Our CEO of Prologists,