Prologis Inc (PLD) 2018 Q2 法說會逐字稿

Welcome to the Prologis Q2 2018 Earnings Conference Call.

My name is Chris, and I'll be your conference operator today.

(Operator Instructions) Also note, this conference is being recorded.

I'd now like to turn the call over to Tracy Ward.

Tracy, you may begin.

Thanks, Chris, and good morning, everyone.

Welcome to our second quarter 2018 conference call.

The supplemental document is available on our website at prologis.com under Investor Relations.

I'd like to state that this conference call will contain forward-looking statements under federal securities laws.

These statements are based on current expectations, estimates and projections about the market and the industry in which Prologis operates as well as management's beliefs and assumptions.

Forward-looking statements are not guarantees of performance, and actual operating results may be affected by a variety of factors.

For a list of those factors, please refer to the forward-looking statement notice in our 10-K or SEC filings.

Additionally, our second quarter results press release and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP measures.

And in accordance with Reg G, we have provided a reconciliation to those measures.

On April 30, we announced a merger between Prologis and DCT.

Materials regarding the transaction are posted on both companies' websites and are also available on the SEC's website, including the joint proxy statement that contains detailed information about the transaction.

This call will focus on our second quarter 2018 results, and the company will not provide comments beyond what is included in our prepared remarks.

This morning, we'll hear from Tom Olinger, our CFO, who will cover results and guidance; and then Hamid Moghadam, our Chairman and CEO, who will comment on the company's outlook.

Also with us today for today's call are Gary Anderson, Chris Caton, Mike Curless, Ed Nekritz, Gene Reilly, Diana Scott and [Colleen McAllen], who is in her second week with us.

With that, I will turn the call over to Tom, and we'll get started.

Thanks, Tracy, and good morning, and thanks for joining our second quarter call.

With very few exceptions, supply in our markets remains in check, and net absorption continues to be strong despite being constrained by limited availability.

Market rents across our portfolio are growing faster than our prior forecast.

We're raising our estimate for full year global rent growth of 6.5%, with the U.S. up 70 basis points to over 7% and Europe up 140 basis points to almost 5%.

The spread between our in-place leases and market rents further widened in the quarter and now stands at 15% globally and 19% in the U.S., extending the runway for strong same-store NOI growth.

Looking to results, we started the year with great momentum, and that carried into the second quarter, with core FFO of $0.71 per share.

Our share of cash same-store NOI growth was 7% and led by the U.S. at 8.2%.

These results were exceptional as quality well-located space remains in high demand.

Our share of net effective rent change on roll was 20.6% and led by the U.S. at over 30%.

Occupancy was up 60 basis points sequentially to 97.4%.

Leasing volume totaled nearly 39 million square feet, with an average term over 5 years.

This includes a record 9.6 million square feet of development leasing, of which 3 million was in China.

Stabilizations in the quarter had an estimated margin of over 40% and value creation of $240 million.

So far this year, we've earned more than $220 million in realized development gains.

Our second quarter disposition and contribution activity was light, but we expect our capital recycling to accelerate in the back half of the year.

You'll note a significant increase in both our wholly-owned and fund assets classified as held-for-sale given that we have several major transactions under contract and escrow funds have gone hard.

With respect to the pending transaction with DCT, their shareholder meeting has been set for August 20, and we expect to close within a few days following the vote.

The integration process is going very well, and we look forward to adding their high-quality assets to our portfolio and welcoming some of their employees to the Prologis team.

We continue to expect $80 million in day 1 synergies as well as $40 million of future annual revenue synergies and incremental development value creation.

With one of the best balance sheets in the business, we have access to attractive sources of capital.

As we've previously announced, during the quarter, we issued $700 million of bonds that had a weighted average interest rate of 4.1% and term of almost 19 years.

We remain very well positioned to self-fund our deployments and capitalize on the opportunities as they arise, given our $4 billion of liquidity and over $6 billion in potential fund rebalancings.

Moving to guidance for the full year, I'll cover the significant updates on an our share basis, but for a complete detail, refer to Page 5 of our supplemental.

Also note that our guidance does not include accretion from the pending DCT acquisition.

We'll be updating guidance to incorporate the impact from this transaction after closing.

Based on the strength of our second quarter results, we are increasing the midpoint of our cash same-store NOI range by 50 basis points to 6.5%.

As a result of valuation gains in Europe, we now expect our net promote income for the full year to be higher by $0.01 per share and now range between $0.12 and $0.14 per share.

The remaining net promote income will be earned in the fourth quarter.

With an expanding build-to-suit pipeline and accelerated lease-up of our spec developments, we are raising our starts guidance by $100 million to now range between $2.3 billion and $2.6 billion.

We're also increasing our contribution guidance by $150 million to now range between $1.5 billion and $1.8 billion.

We're raising the midpoint of our realized development gains by $75 million to now range between $450 million and $500 million, driven by higher valuations across our development portfolio.

At the midpoint, our share of net deployment proceeds will be approximately $350 million, which is $50 million higher than our prior forecast.

As you think about our earnings trajectory for the back half of the year, you need to consider the lag between when sources are generated and when they're put to work primarily through development.

As a result, we expect core FFO for the third quarter to be about $0.01 down from the second quarter.

Again, this does not include the impact from DCT.

Bringing this all together, for the full year, we're increasing our 2018 core FFO range to between $2.98 and $3.02 per share, up $0.02 at the midpoint.

To put this in context, when we laid out our 3-year plan at our investor event in 2016, we called for 7% to 8% annual growth, excluding promotes.

At the midpoint of our 2018 guidance, we'll average 8.7% for the first 2 years, far surpassing our plan.

Importantly, this was achieved while realigning our portfolio and reducing our leverage by over 400 basis points.

As a reminder, every 100 basis points of leverage translates to about 1% of core FFO growth.

Looking ahead, the combination of our significant embedded rent upside, the build-out of our land bank and leverage capacity will continue to fuel our sector-leading performance.

And with that, I'll turn it over to Hamid.

Thanks, Tom.

I want to touch on our long-term outlook.

But first, let me comment on trade and tariffs since we've been getting a lot of questions on these topics lately.

My insights aren't unique, but what we hear from our customers so far is that they're moving forward with their growth plans, and we have yet to see any change in sentiment or decision-making on the ground.

We remain cautiously optimistic as the vast majority of our portfolio is located in large consumption markets, including a significant focus on city distribution and last-touch delivery.

However, escalating trade tensions are a negative for the global economy, and it can do attacks on consumers.

If today's political rhetoric intensifies and translates into actual protectionist policies, it will be a negative for all businesses in the U.S. and abroad, including ours.

At the same time, our portfolio and balance sheet are in the best shape they've ever been, and any dislocation may actually create opportunities for us.

We've built an enterprise and team that enables us to execute on sizable transactions, such as DCT, while delivering best-in-class results and carrying out the platform initiatives that I discussed in our last call.

In closing, I'd like to point out to the perplexing lag in our recent relative stock price appreciation in spite of our sector-leading operating performance and strong guidance.

Some of this lag is surely attributable to the pending DCT transaction, which has helped the smaller companies in the sector.

I suspect the rest of it is caused by all the rhetoric around trade and tariffs.

As the industry's bellwether and the only global company, we believe this factor has had a disproportionate effect on our company -- company's recent relative performance.

Regardless, we remain laser-focused on executing our long-term business plan and are confident that we'll continue to generate net earnings growth significantly ahead of the pack.

Chris, let's open up the call to your questions.

(Operator Instructions) Your first question comes from Craig Mailman of KeyBanc Capital Markets.

Maybe a 2-part question here.

Hamid, I appreciate your comments on tenant sentiment.

Just curious though, as you guys look at the portfolio maybe, where do you see the most risk or, I guess, least exposure to consumption in the portfolio?

And then just as you guys are thinking about development starts and you guys are kind of contemplating 2019, how do the tariffs and material costs kind of weigh your, at least, appetite here to be bidding out projects and other things in advance of maybe buying out the materials?

Okay.

With respect to the market that's probably most exposed to trade and tariffs, I would say the border markets in Mexico are part of that because they are more of a manufacturing and transshipment market than a consumption market.

But you've got to understand that a lot of the value added is material imported from the U.S. with some labor value added to it and then reexported to the U.S. So you really need to focus on just the incremental value added in Mexico.

And that, for a lot of commodities, is not a huge number.

So the tariffs would only apply to that.

For example, a lot of the steel and actually aluminum that's imported for car manufacturing comes through the border and then back.

There are also some manufacturing markets in the Midwest that are -- could be exposed to this because a lot of those are reliant on first-level order material that are imported in the U.S. But so far, I think all those effects are small.

With respect to our decision-making as to the start of development and all of that, so far, the increases in construction costs have been in line with our expectations.

And really, it's on the next series of projects that we're going to see any impact from material increases.

Those are all going to be under $1 a foot.

And as you've seen from our strong margins, we have a lot of room to absorb those kinds of cost increases.

But more importantly, those cost increases are going to translate into higher rents because they will, over time, curtail supply.

So you can't just look at the cost increases.

You've got to also look at the impact of that on supply and rent growth.

Your next question comes from Manny Korchman of Citi.

Real estate's typically a lagging indicator rather than being a leading indicator.

And so I guess as we think about all of this trade policies and the rhetoric that's going on, what are the indicators and -- or data points that you're seeing that give you the confidence that it's not bleeding into effectively the demand quotient for your assets?

So consumption is, by far, the largest driver of our -- demand for our business, and it accounts for about 70% of GDP.

So GDP growth and consumption growth within -- as a subcategory, those are probably the 2 biggest drivers of demand.

The second biggest driver of demand is reconfiguration of the supply chain -- I mean, the long-term reconfiguration of the supply chain.

But on top of that, we, of course, have the much more recent and stronger reconfiguration -- or addition, I should say, because of e-commerce.

So that, by far, overwhelms any slowdown, if you will, in the other factors that we've seen so far.

We don't really look at supply and demand as a way of projecting into the future as to what our underwriting will be.

Those are the results of those other factors.

We really look at much more the leading indicators that affect supply and demand, as you pointed out.

Your next question comes from Ki Bin Kim from SunTrust.

So 20% of DCT's portfolio was in California.

And given that the merger triggered Prop 13, could you talk a little bit about how this increase will impact the overall cost to tenants in California?

And is there some concern to your ability to raise rents after the tax increase?

And when does that [comp] actually kick in?

Yes.

This is Gene.

I'll take that one.

So the proposal for effective lease split rolls is not going to be on the 2018 ballot.

So it's not on the ballot now.

It may appear next year or more likely in 2020.

So the actual timing is probably a couple of years out from now.

Now having said that, even with DCT assets, I think we're better off than the average California commercial property owner, given the vintage of our properties.

And over the long term, our tax exposure is likely to increase.

But if you boil this down to what -- how does it affect our customers' costs, it's less than 0.5% of our customers' supply chain costs.

And I'm talking about what we see as a likely increase in taxes, which should be about 5% overall.

So I think it's going to take a while to take hold, and I think ultimately, the impact isn't really that great.

Yes.

If you look at our overall California business, for example, in Southern California, it's 72 different store leads in the deal for the licensed portfolio and then about 20-plus million feet in the Bay Area and the like.

So we probably have 100 million square feet in California or thereabouts, in round numbers.

And I would say, and I haven't done the math of this, but I'm pretty sure that our strategy of focusing in California started at least a decade sooner than everybody else's.

So it's likely that our cost basis is significantly lower than other people.

So until you have the split roll and everything rolls to market, we'll actually have an advantage.

And after that, we'll be on par with whoever else is supplying space.

So I view our position as actually very favorable.

Your next question comes from James Feldman of Bank of America.

So the -- I think your percentage of build-to-suit in your development starts in the quarter was down to about 25%.

So can you talk about how we should expect that to trend going forward?

And going back to Craig's first question, I think the last part of his question was how do you think about planning going forward, even looking ahead to '19 for development starts, given so much uncertainty out there?

Maybe talk about what you think the mix could be further out and your conviction on -- and the pipeline.

Jamie, this is Mike Curless.

I think you really can't look at 2 quarters for a double [suit] percentages to get a trend.

I'd encourage you to look at the trailing 4 quarters, and you'd see an average of about 43%.

That's indicative of the range we're expecting for this year and why we feel confident about -- that we've got a very strong pipeline both in Europe and the U.S. And multimarket inquiries are way up.

We'll lack available space out there in some key markets.

So I'd expect an arrow up on both supercenters in the second half and net overall percentage to settle in around the 40s.

Your next question comes from Vikram Malhotra of Morgan Stanley.

I wanted to just get some more color and thoughts about maybe ability to push rents from here on, maybe by market and end product type?

We obviously close -- we're close to peak occupancy.

You took the guidance up.

But it seems to me that, obviously, that's a key driver of growth from here.

So if you can just talk about any change that you're seeing and maybe anything that surprised you in terms of rents this quarter.

Well, I will start, and then Gene and Gary can comment on the specifics.

But I think, based on some of the work that Chris Caton has done and shared with you, you can see that logistic cost -- real estate costs are a very small part of the supply chain costs.

And to the extent that proximity to customers is becoming a more and more of a valued attribute, I think you're getting a shift in mentality from a cost-focused decision criteria to much more of a service-level and expediency-focused decision-making process.

So bottom line, look, for 10 or 15 years, these customers had a pretty good run of being able to pit one landlord against the other and getting people to grind it out for the last penny of rent.

I think the smart ones have figured out that right now with a market that is so undersupplied and continues to be undersupplied, that, really, they've got to look at the utility of the space and its ability to affect their service levels and go for the good locations and lock them up.

Because it just takes one competition with another user and the loss of one piece of space when they get that religion very quickly.

Also, take -- keep in mind that we have a 15% or thereabouts mark-to-market in our portfolio.

So -- and that number keeps increasing even though we're burning off of a lot of the below-market leases.

So the market continues to be really strong.

And look, there's always the possibility of a recession or a Great Recession or something, and I'm no better at predicting that than anybody else.

But so far, so good on our pricing power.

[Audio Mac] So maybe just a couple of comments about Europe.

We've been talking about Europe market rent growth for some time now, and we're actually starting to see it come through.

Tom mentioned it in his opening remarks, but, I mean, the sentiment in Europe is very positive.

The demand is healthy.

Vacancy rates are down.

We're approaching 5%, going to 4.9%.

And what Hamid didn't touch on or maybe didn't at a high level, is construction costs are way up.

They are 16% up over the last 24 months, and that is underpinning this market rent growth that we've been talking about.

We've taken our market rent growth assumptions for this year up 140 basis points to almost 5%.

So we're finally starting to see this come through, and that's in the face of 30 basis points of cap rate compression.

So setting the cap rate compression aside, market rents would be up even higher.

So I think good things are coming from Europe finally.

Yes.

I would remind those of you who have been long-term participants in these calls that back in 2015, 2016, we talked about 2018 being the -- a year that the rents in Europe were going to accelerate.

And after that, there could be a possibility of those rental growth rates actually exceeding the U.S. And I wouldn't be surprised if that -- were to happen in 2019, certainly by 2020.

So Europe is actually going to end up being a tailwind instead of a headwind.

Your next question comes from John Guinee of Stifel.

I noticed a number of asset sales.

It looks like you sold 29 buildings just in the second quarter alone, including -- well, I think 8 or 10 in Chicago, a handful in South Florida, 9 in Seattle.

And at the same time, you also dropped your land inventory to a stunningly low 1.1 billion.

Any comments on all the disposition activity and the reduction in your land bank?

Well, let me comment on the land bank.

The land bank, we've been trying to get it to around 1 billion since the merger, and we're getting there.

And what that land bank doesn't show is a whole bunch of land that we have under option, which actually gives us the capacity for growth, but we don't have to carry it on the balance sheet.

So the land bank is getting to where we want it to be.

With respect to dispositions, let me ask Mike to comment.

John, it's Mike.

Dispositions have been ramping up.

And as we've suggested, we have a busy second half with respect to well over 1 billion of dispositions well underway.

As Tom mentioned in the opening remarks, several transactions are under contract with hard deposits.

A series of one-off transactions, portfolios make up that list.

Pricing is very strong both in Europe and the U.S. It's certainly a good time to be a seller.

We expect to do an equal amount in Europe and the U.S. and a bright start, some real good activity in the regional markets in the U.S. So after this work is done through the end of the year, we'll be in real good shape.

We're working our way through the rest of our nonstrategic list.

And we feel pretty darn bullish about our ability to get this all done this year.

We'll be done with our nonstrategic list, with the exception of what we will then go through as part of DCT.

Your next question comes from Michael Carroll of RBC Capital Markets.

Can you provide some additional details on the tariffs?

And I'm particularly interested in understanding how the tariffs could impact U.S. exports and your portfolio.

What type of warehouses do exporters typically use to send goods out of the country?

And are these facilities mainly concentrated in the port markets?

Most of the U.S. exports are things like soya beans and things that don't go through warehouses.

I mean, agricultural products is what we're really exporting.

A lot of the manufactured stuff and stuff that goes into containers is already stuff that we are actually importing.

So I don't see a big impact on that at all.

Your next question comes from Tom Catherwood of BTIG.

Switching over to development yields, you guys reported 7.1% yields on your 2Q stabilizations.

But if we look back between 3 and 5 quarters ago when you likely would have started these projects, the yields back then ranged from 6.3% to 6.5%.

So it looks like in that short period of time, you're picking up anywhere from 60 to 80 basis points of yield.

So the question is really kind of what has driven that upward bias to yields over the short time frame?

And has anything changed between now and 4 quarters ago that's altered your outlook on development yields and kept them lower from here going forward?

Well, development yields are higher than we would have expected before with this rental growth.

It would have been higher than what we would have projected at that time.

And the margins would even be larger because, notwithstanding the rental growth, we've had cap rate compression.

So we perform on much lower margins, at least we have been in the last 4, 5 years than we actually end up realizing.

So that is the explanation for that.

As to going forward, I think every development deal that we approve is scrutinized with respect to the impact of the higher construction costs.

We are using actually higher cap rates than are visible today in terms of underlining -- underwriting exits for purposes of margins.

But this is all a guessing game about cap rates and rents 1.5 years from now.

But so far, we've been fortunate on both rents and cap rates, and we're building in the cushion for some slippage the other way.

We're not expecting any, but it would be imprudent not to build that in when we are dealing with peak rent and peak cap rates.

Your next question comes from Rob Simone of Evercore ISI.

I just wondered if maybe you could comment on the update to the same-store NOI guidance and what it means for the back half of the year.

It seems to imply kind of like the 5% to 6% range over the second half, which is obviously down from first quarter and second quarter.

I was just wondering if you could line out or describe any discrete items that might be driving that.

Rob, it's Tom.

The main driver of the -- of why we're -- of the second half same-store is going to be free rent burnoff approaching more normalized levels.

So if you think about -- our midpoint of our guidance applies -- implies 5.6% same-store growth in the second half.

And you can get there by -- rent change and bumps are going to get you 450-ish basis points, free rent burnoff is going to be about 50 basis points, which is about half of what we saw from the first half, and then a little bit of occupancy and other items gets you to that 5.6%.

Your next question comes from Vincent Chao of Deutsche Bank.

Most of my questions here have been answered, but just a question on the cap rate compression that's been mentioned earlier and then just some maybe commentary on the development gain guidance, which was increased pretty significantly, I think, obviously, on valuation.

So just curious, are you seeing that cap rate compression really accelerate here in the second quarter?

Or is that more of a catch-up from maybe some conservatism from earlier in the year?

I would say cap rates have continued to compress throughout the year.

Even the time when there was a view that interest rates were going up, we never saw it in the private market cap rates.

So I would say, it's been a continuous movement and not a step function.

So yes.

Your next question comes from Eric Frankel of Green Street Advisor (sic) [Advisors].

Two questions, one is regarding trade.

Just given how integrated supply chains are throughout the world and the U.S., is there anything that could be done if tariffs are put in place on a larger scale?

Or are we just going to have to settle for higher prices?

And then second, there was a Wall Street Journal article this morning from the -- that commented about the New York City Economic Development Corporation putting in 100 -- they're planning to put in $100 million of infrastructure to allow for more transit of goods via rail and waterways rather than trucks.

And I'm just wondering if there's a -- some sort of business opportunity for your company down the road related to those type of infrastructure solutions.

Sure.

With respect to your first question, you're absolutely right.

I mean, the world economy is getting very interconnected every day and more so, notwithstanding the recent protectionist talk.

And it is not normal -- it's not a simple factor of looking at your trade balance with a given country and culling that trade because things go through 5 or 6 different countries oftentimes and maybe back and forth to some of those same countries before they end up with the consumer.

So the world economy is a much, much more complicated picture than this sort of 1960s view of somebody makes something somewhere and ships it over here.

So it will have all kinds of unanticipated effects on the global economy.

But I would tell you this, there's a lot more flexibility in the global economy in terms of manufacturing, and things move around very quickly.

We saw things move around very quickly from Eastern China to Western China and then to Cambodia and Thailand and all that when labor costs move around.

So I think it's pretty difficult to take unilateral action and affect the global economy.

I think what you end up doing is putting your own economy in peril.

So the bigger risk that I see is not a risk to the global economy, but a risk to the U.S. economy because we're basically taxing the very same people that are looking for jobs.

And why is the unemployment rate in the high 3% rate?

It's because finally, this economy is employing some people.

Not a great idea to suppress that.

I think that's where the big risk is.

With respect to transit-dependent opportunities, sure, we're looking at all of them.

I mean, as you know, we've got a huge presence in New Jersey specifically.

So anything that happens in the New York area with respect to rail transit, we're the beneficiary of that.

And I'll give you some specific examples.

In places like L.A, Chicago and New Jersey, we have been active acquirers of land for container storage because a lot of these rail yards don't have the capacity onsite.

And this has been a great way of carrying land into the next development cycle because the yields that we can get by leasing land for container storage are very strong and give us a lot of flexibility with respect to the timing of our future developments.

(Operator Instructions) Your next question comes from Manny Korchman of Citi.

Tom, I just wanted to revisit a point you made earlier.

I think you were talking about 3Q guidance being $0.01 below 2Q run rate, which would imply a big ramp into 4Q.

I was just wondering if there is any onetime items that we should think about that or if that's just going to be a natural tick up in leasing or something else.

Yes.

Manny, the-- what we see in Q4 is the drag we're seeing in Q3 reverses, number one.

We're seeing some higher strategic capital revenues going into the fourth quarter, just with timing and transaction-related.

And then third is just some expense timing between the quarters.

And then of course, NOI growth continues to tick away.

Look, the bottom line is that with respect to occupancy rent growth and all the real fundamental things, the business is much better than we would have expected at the beginning of the year.

But it's so good that we've taken advantage of that to get more liquid by accelerating some of our dispositions.

That creates a drag because we're more liquid and have less deployment -- net -- less net deployment.

We actually have more gross deployment than we thought, too.

That's a good news story because I don't particularly care about $0.01 or $0.02 here or there on earnings any given quarter.

We're setting up really nicely for a growth rate beyond that.

And I think the expanding mark-to-market in the portfolio is going to ensure that not only we'll have stronger same-store growth, but it will be for an extended time period.

Your next question comes from John Guinee of Stifel.

Tom, if you've answered this already, let me know.

But I think you expected some pretty significant cost of capital savings as you paid off the DCT debt and redeployed or took advantage of your own cost to capital.

Two questions.

What sort of process do you see there?

How many onetime items do you think we're going to have in tendering for debt?

And then can you get the achieved savings you expect given the execution you just did at $400 million 10-year bonds at cadence of 3.875% and $300 million of 30-year bonds at 4.375%?

John, stop.

So yes.

To answer your second question, yes.

We think we can achieve the projected savings and quite frankly, then some.

Because as we look at the $1.8 billion -- and this is what we said before, and if it holds and if not better, the $1.8 billion of debt that we'll assume, in connection with DCT, we're going to do that through a combination of U.S. dollar, which you saw, euro and yen.

And we're going to get -- we're going to be doing, on average, easily over 10-year debt.

So we're going to get duration out of this.

And we're going to see rates come in.

Our -- when we announced the DCT transaction, our weighted average cost of debt was 2.9%.

And we've said, we thought we could refi all the debt at that rate, if not better.

I'm very confident that we will do better than that regarding transactional cost with the debt.

We will be looking and incurring costs to take that debt out, but as we always look at any -- the economics of any debt tender transaction, when we return a transaction, we always look at the underlying economics on an NPV basis and look at the max maturity to get the real economics.

And these things pencil to where I would expect that they will make economic sense.

Your next question comes from Manny Korchman of Citi.

It's Michael Bilerman.

Let me touch -- let me come back to sort of the trade and the sort of economic impact.

And you talked a little bit about that the biggest risk is clearly to the U.S. and its economic situation.

And therefore, given your portfolio is -- while global has a significant exposure here would be impacted just by -- from an economic perspective.

When you look at your customers, the 3PLs, transport, retailers of e-commerce players and the bricks-and-mortar traditional players and manufacturers, which of those verticals are you paying the most attention to right now in your conversations to really understand their sort of desires right now in terms of space and utilization and they're -- because they're going to be the leading indicator here rather the economy rolling over and getting to be the lagging one.

So what is it about -- which ones of those are you spending the time that you think is going to give you the most accurate data to know what's going -- what's happening?

So let me answer -- I think there are 2 embedded questions there.

One is, what are the 2 segments that we're most focused on, if you will, in terms of the upsides and downsides in our business.

In terms of upsides, we're very focused on, obviously, the e-commerce players in terms of upside.

And by e-commerce players, I don't mean just e-commerce players but also traditional retailers that are building a parallel supply chain.

And you've heard a lot of those announcements, and obviously, there's a lot of growth coming on -- out of that.

So that would be on the good news side.

Correspondingly, we're looking on the bad news side on the impact of all this on struggling retailers, and we do have a retail sort of watch list and the like.

And we're being very proactive on lease renewals to not renew those particular retailers in this strong market and to replace them with other customers that are stronger.

With respect to the impact of these tariffs, I think where you're going to see the most impact in the near term is going to be on autos.

And I mean, look, we have heard a lot of talk about direct German car, if you will, tariffs that are very, very significant and possibly trading that for elimination of tariffs on American cars in Europe.

I don't know where that's going to shake out, but that's going to really affect the car business.

Similarly, steel and aluminum, a lot of that goes into cars, and price of cars are going to go up.

And the good news is that not a lot of cars get stored in warehouses, but a lot of car parts gets stored in warehouses.

So we're looking at the autos as probably the most nearest-term impact on the things that you mentioned.

Okay.

I think Michael's question was the last one.

Thank you for joining our call, and we look forward to talking to you next quarter, if not before.

Take care.

This concludes today's conference call.

You may now disconnect.