WEBVTT - CEO of Prologis Dan Letter Talks Data Centers, Global Logistics and Shipping

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Wow.

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<v Speaker 1>We like to remind everybody that Amazon Home Depot, Fedexups,

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<v Speaker 1>also Giga Cloud Technology are just some of our next

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<v Speaker 1>guest big customers. We're talking about the one hundred and

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<v Speaker 1>twenty five billion dollar market cap company. It is a

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<v Speaker 1>warehouse logistical read it is Prologious, that is massive, and

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<v Speaker 1>it owns, develops and manages logistical warehouses for the biggest

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<v Speaker 1>companies like we just mentioned. And they've got more than

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<v Speaker 1>a one point three billion square feet in twenty countries.

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<v Speaker 1>So what a great person to get a view in

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<v Speaker 1>terms of the macro of what's going on around the world.

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<v Speaker 3>Considering tim our backdrop.

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<v Speaker 4>Shares up about three percent so far this year. We've

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<v Speaker 4>got Dan Letter with us CEO of pro Logis. He

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<v Speaker 4>joins us here in the studio. Dan, good to see

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<v Speaker 4>you again. You just took over as CEO that we've

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<v Speaker 4>spoken just a few months before that. I want to

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<v Speaker 4>start with what Carol mentioned in the macro, because we

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<v Speaker 4>are just squarely focused on an increase in oil prices

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<v Speaker 4>as a result of the war or iron what that

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<v Speaker 4>means for consumers, what it means for business leaders.

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<v Speaker 5>How are you looking at the macro environment.

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<v Speaker 2>Yeah, well, first, thanks for having me. Great to be

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<v Speaker 2>here with you too. I look at the macro environment

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<v Speaker 2>right now, and I think about all the chaos and

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<v Speaker 2>turbulence our customers have been through, going back to COVID

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<v Speaker 2>six years ago, the world was shut down right over

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<v Speaker 2>the course of these six years. Think of all the

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<v Speaker 2>geopolitical events post COVID, the raid hikes, and how that

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<v Speaker 2>impacted our customers. And I actually look at these customers

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<v Speaker 2>and I realize they've built a lot of endurance. They

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<v Speaker 2>actually this turbulence is more of a feature of the

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<v Speaker 2>environment that we're living in today. And I look back

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<v Speaker 2>to a conference where we were talking to investors a

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<v Speaker 2>couple weeks ago, actually right after the weekend of the

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<v Speaker 2>original I ran bombing, and we were telling our customers

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<v Speaker 2>twenty twenty six started really strong. Twenty twenty five was

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<v Speaker 2>our second largest leasing year ever, and we were seeing

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<v Speaker 2>that go into twenty twenty six.

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<v Speaker 3>Does that continue.

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<v Speaker 1>There's a lot that's happened, like it's just I think,

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<v Speaker 1>kind of shocking. And we talk about this so much.

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<v Speaker 1>No one expected some of the things that have come

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<v Speaker 1>at us DAN in twenty twenty six, So since that

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<v Speaker 1>that was just a few weeks ago or a month

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<v Speaker 1>ago or so of that update and that you were

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<v Speaker 1>talking with like is that optimism still there and is

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<v Speaker 1>your outlook on twenty twenty six still the same.

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<v Speaker 2>So what we see at this time is customers don't

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<v Speaker 2>necessarily pull back. I look back to last year at

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<v Speaker 2>this time we had expressed a little caution that led

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<v Speaker 2>into what was Liberation Day, right, and you see customers

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<v Speaker 2>just look around and see what's going on and then

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<v Speaker 2>lean in. They make long term decisions, five, seven, ten

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<v Speaker 2>year decisions when they're working with us, right, and so

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<v Speaker 2>they're really kind of seeing through that noise. And when

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<v Speaker 2>you look at these decisions they're making, it's really only

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<v Speaker 2>three to five percent of the overall cost of the

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<v Speaker 2>supply chain.

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<v Speaker 1>So no people who were maybe going to sign a

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<v Speaker 1>contract that backed out or anything.

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<v Speaker 2>Like that, we hadn't seen that. And it's really just

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<v Speaker 2>a matter of they digest it and then they it

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<v Speaker 2>comes in different forms. Maybe you end up seeing some

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<v Speaker 2>short term leasing or but certainly no pullback.

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<v Speaker 4>What about when it comes specifically to data centers, because

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<v Speaker 4>last time we talked with you about the data center

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<v Speaker 4>activity you're seeing and in that time a lot has happened.

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<v Speaker 4>We've heard from different companies. Microsoft is renting a Texas

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<v Speaker 4>data center that was dropped by Oracle and open Ai.

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<v Speaker 4>Are you seeing any signs of weakness or slow down

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<v Speaker 4>or changing trends when it comes to the data center business?

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<v Speaker 2>So, our data center business was really born from our

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<v Speaker 2>higher and better use business. When you have six thousand buildings,

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<v Speaker 2>fourteen thousand acres of land close to seventy eight percent

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<v Speaker 2>of the world GDP, that is where the next way

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<v Speaker 2>of the economy is. That's where data centers need to be.

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<v Speaker 2>And we have deep relationships with these hyperscalers. We have

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<v Speaker 2>a fortress of a balance sheet, and every megau we

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<v Speaker 2>can deliver over the next three years is in some

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<v Speaker 2>sort of least discussion right now. And we have five

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<v Speaker 2>point seven gigawats of power that we control or are

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<v Speaker 2>in its advanced.

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<v Speaker 5>Meaning full capacity in terms of negotiations.

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<v Speaker 2>Right now, we're at full capacity.

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<v Speaker 4>So nobody else could come to you right now and

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<v Speaker 4>say we're interested in the next few years and you

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<v Speaker 4>have an option for them.

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<v Speaker 2>No, that's not the case. Just the next three years

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<v Speaker 2>of power that we can deliver. These hyperscalers. These major

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<v Speaker 2>data center users are heavily focused on near term power,

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<v Speaker 2>and we're focused on delivering power much longer beyond that,

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<v Speaker 2>and so we're certainly in discussions beyond that next three years,

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<v Speaker 2>and that's where this five point seven gigawatts of power

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<v Speaker 2>will come in.

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<v Speaker 3>So that's the power you've secured, right.

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<v Speaker 2>So we've secured one point eight gigawatts, and then we

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<v Speaker 2>have three point nine gigawatts that we call in the

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<v Speaker 2>advanced stages, which means it's a year or two behind. Okay,

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<v Speaker 2>but again, think of the universe of opportunities we have

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<v Speaker 2>behind that five point seven you have, which is just

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<v Speaker 2>the size of our platform.

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<v Speaker 1>All right, So then I'm going to say, are you

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<v Speaker 1>looking to secure even more power?

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<v Speaker 2>Absolutely, we are working. And remember we're a global company.

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<v Speaker 2>As you said, we're in joy countries and so we're

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<v Speaker 2>working around the tier one, tier two mare it's in

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<v Speaker 2>the United States, we work around the flapp dy markets

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<v Speaker 2>in Europe, and we're starting to see it actually in

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<v Speaker 2>Latin America and Japan as well.

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<v Speaker 1>So has anything changed because of the war or is

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<v Speaker 1>really everybody kind of looking through this because we talk

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<v Speaker 1>about an energy environment, you know, We've talked a lot

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<v Speaker 1>about LNG specifically because Qatar has lost about thirty percent

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<v Speaker 1>of their capacity and that's going to take three to

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<v Speaker 1>five years to build. There's going to be a floor

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<v Speaker 1>where energy prices are higher, and so I'm just curious

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<v Speaker 1>has any of that impacted you guys in terms of

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<v Speaker 1>how you think about outlook build spend.

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<v Speaker 2>Costs well as it relates to logistics real estate. Again,

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<v Speaker 2>it's three to five percent of the overall costs. So

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<v Speaker 2>our customers need to make these decisions long term and

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<v Speaker 2>they want to be close to those population centers. So

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<v Speaker 2>can't necessarily sit back and wait.

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<v Speaker 3>Can I just throw one thing out there?

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<v Speaker 1>This could be a little wacky, but it's it's Elon

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<v Speaker 1>and so that's kind of whacky. But we've talked this

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<v Speaker 1>week right about data centers in space. Is that something

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<v Speaker 1>you are thinking about and how that might impact you guys?

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<v Speaker 1>You obviously are doing this on Mother Earth, and I'm

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<v Speaker 1>just wondering, is that just something that.

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<v Speaker 2>Well, we're going to stick to these twenty countries that

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<v Speaker 2>we're focused on. I think I think there's plenty of

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<v Speaker 2>opportunity for us for the foreseeable future. But maybe ask

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<v Speaker 2>me in ten years.

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<v Speaker 4>Okay, yeah, I mean, but to Carroll's point, why you know,

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<v Speaker 4>with that getting so much discussion right now, why are

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<v Speaker 4>you just focused on terrestrial? I mean, I know it

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<v Speaker 4>would have sound crazy. It sounded crazy a year ago

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<v Speaker 4>to be talking about this, but this is something that

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<v Speaker 4>you know a lot of people think is the future

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<v Speaker 4>of these data centers.

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<v Speaker 2>Well, we do this business one hundred percent on a

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<v Speaker 2>build the suit basis, so we have leases in place

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<v Speaker 2>before we put a shovel in the ground, and we

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<v Speaker 2>have so much opportunity in front of us, we don't

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<v Speaker 2>need to be thinking about another vector to grow this

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<v Speaker 2>data center business.

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<v Speaker 3>Yeah, that's pretty fascinating. What would change your mind?

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<v Speaker 2>Though?

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<v Speaker 3>In terms?

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<v Speaker 1>Would it have to be an economic slode in which

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<v Speaker 1>some have talked about, depending on when this war ends

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<v Speaker 1>or even if we start, if we see inflationary pressures continue,

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<v Speaker 1>and whether there's demand destruction that slows down essentially.

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<v Speaker 3>The global economy, a lot has to fall into place, as.

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<v Speaker 1>You know, Is that what would maybe change your outlook?

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<v Speaker 1>Or again, because everything's locked in place, if the economy

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<v Speaker 1>slows down, what kind of impact might that have on

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<v Speaker 1>you guys? Or it doesn't matter because you've already kind

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<v Speaker 1>of signed things in are moving ahead because it's longer term.

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<v Speaker 2>When I think about our core business, Yeah, if you

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<v Speaker 2>think of the building blocks for our core business is

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<v Speaker 2>seventy percent of the US GDP is consumption. Our buildings

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<v Speaker 2>are close to the major population centers the United States.

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<v Speaker 2>So on top of that, there's the e commerce secular

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<v Speaker 2>demand driver. We've been talking about e commerce for a

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<v Speaker 2>long time. Pre Covid, e commerce penetration as a percentage

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<v Speaker 2>retail sales was in the seventeen ish percent ratio rate.

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<v Speaker 2>Now it's like mid twenties. We see that growing another

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<v Speaker 2>one seventy five to one hundred basis points a year

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<v Speaker 2>through the end of the decade. That alone is additional

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<v Speaker 2>demand on top of that. So there's a big tailwind

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<v Speaker 2>for our growth.

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<v Speaker 1>So but if there was an economic slowdown, that could

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<v Speaker 1>be a problem, well or would that not even impact

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<v Speaker 1>That's what I'm saying.

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<v Speaker 2>One thing I forgot to mention is, yeah, e commerce

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<v Speaker 2>for every dollar retail sales, it needs three x the

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<v Speaker 2>warehouse space because think of all the activities that happen

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<v Speaker 2>in the brick and mortar and the returns happened there.

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<v Speaker 2>There's the stock in the back. And then with e commerce,

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<v Speaker 2>there's been that proliferation of skews and all of us

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<v Speaker 2>we're looking for speed and we're looking for choice, right

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<v Speaker 2>and so that's been a big driver. And you may

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<v Speaker 2>see flat retail sales, but you'll see e commerce penetration.

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<v Speaker 5>That's good.

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<v Speaker 2>That's commerce penetration is great news for logistics real estate.

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<v Speaker 4>On that I'm interested in the droid venture that you

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<v Speaker 4>guys announced last week, one point six billion dollar JV

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<v Speaker 4>with GIC to build a suit warehouse development.

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<v Speaker 5>Why partner with GIC, Why not do this solo?

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<v Speaker 2>Well, we've long been developing on our balance sheet, but

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<v Speaker 2>now look at our development business. We can build forty

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<v Speaker 2>three billion dollars more of logistics space in our land

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<v Speaker 2>bank alone, not buying any more lane. And on top

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<v Speaker 2>of that, we have this data center business.

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<v Speaker 3>We see that one more time. That's tremendous.

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<v Speaker 2>So we have two hundred and thirty billion worth of

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<v Speaker 2>AUM today at the end of last quarter. Yeah, we

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<v Speaker 2>can build another forty three billion of logistics buildings on

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<v Speaker 2>our fourteen thousand acres of land. That's two hundred and

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<v Speaker 2>forty million square fee. We can grow at the company

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<v Speaker 2>eighteen percent without buying another piece of land. Then we

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<v Speaker 2>have this data center business. Think about it from a

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<v Speaker 2>megawatt perspective. If you build a powered shell that's on

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<v Speaker 2>the continuum poweredshell over here, that's about two and a

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<v Speaker 2>half to three million dollars of megawatt. You go out

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<v Speaker 2>this side of the continuum and that's a turnkey that's

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<v Speaker 2>everything soup to nuts built out. That's fifteen million a megawatt.

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<v Speaker 2>So think about how big that data center development could be.

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<v Speaker 2>So we're looking at diversifying our capital stacked there and

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<v Speaker 2>our partners great to have a new partner with GIC here.

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<v Speaker 2>They want a piece of this development business and when

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<v Speaker 2>we're doing that to help build bigger relationships globally.

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<v Speaker 3>Same you're not optimistic, Dan, come back soon.

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<v Speaker 2>Thanks for having me.

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<v Speaker 3>Really appreciate it. Dan let Our CEO of Prologists,