Welcome to the Prologix Q1 2021 Earnings Conference Call. My name is Julianne, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Also note that this conference is being recorded.
I'd now like to turn the call over to Tracy Ward. Tracy, you may begin. Thanks, Julianne, and good morning, everyone. Welcome to our Q1 2021 earnings conference call. 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 and EBITDA that are non GAAP measures. And in accordance with Reg G, we have provided a reconciliation to those measures. This morning, we'll hear from Tom Olinger, our CFO, who will cover results, real time market conditions and guidance. Hamid Moghadam, Gary Anderson, Tim Arndt, Chris Kaden, Mike Kirlas, Dan Leiter, Ed Nekritz, Gene Riley and Colleen McEwen are also here with us today. With that, I'll turn the call over to Tom.
And Tom, will you please begin?
Thanks, Tracy. Good morning, everyone, and thank you for joining our call today. Positive momentum in the Q4 has carried into 2021 as evidenced by our operating results, profitable deployment activities and strong outlook. Demand driven by the powerful economic recovery, retail revolution and higher inventory levels is unfolding more strongly than we expected. Headlines in the past 90 days have been a testament to the value of Brazilian supply chains.
Those who were prepared are now growing and taking market share. There is great momentum moving through the supply chain as signaled by retail sales, import volumes and rising inventory levels. This will continue as inventory and sales ratios have just begun to rise as companies race to keep pace with demand. Starting with our proprietary metrics and our view of the market. Space utilization is 84.5%, Of 100 basis points in the last 90 days, our customers tell us their activity levels are rising at the fastest pace since 2019.
Lease proposals reached 93,000,000 square feet in the Q1, a new high watermark and are up 13% from 2020 adjusted for the The lease signings were 60,000,000 square feet, our 2nd highest quarter on record. Much of this activity is in new leasing and as a result retention was 69% for the quarter as we're optimizing credit and rents. Given our high volume of lease signings, our portfolio operating portfolio was 96.4% leased atquarterend. Our leasing mix continues to broaden with strong demand continuing from space sizes above 100,000 square feet and small spaces demand is improving. E commerce demand remains elevated, representing 25% of new lease signings in the Q1.
The balance of leasing is diverse with outsized growth among companies that provide food and consumer products as well as renewed momentum in the construction segment as In the U. S, we now expect net absorption of 300,000,000 square feet in 2021, which would be the highest in history. This strong demand is being matched by supply and we expect 300,000,000 square feet of deliveries this year. However, supply remains broadly disciplined. Years of historic low vacancy rates have constrained demand due to a lack of available properties, particularly in the most desirable markets.
Many of our markets Shortages of land for logistics uses. In addition, obsolescence and conversions to hires that are used have added to this broad based scarcity. Vacancies are below 2% in many of our top markets, such as Southern California, Toronto, Germany's main markets and Tokyo. Our supply watch list continues to include just 4 markets: Houston, Madrid Poland and West China, which taken together account for just over 5 More recently, we've begun to see a rapid acceleration in replacement costs. In the U.
S, we expect replacement costs to increase 20% to For example, the team has procured steel for 5,200,000 square feet of starts, Apprising relatively 5% low market and providing us with a 10 to 20 week schedule advantage. Strengthening demand in ultra low vacancies are leading customers to increasingly compete for stakes, which is translating into pricing power. Rent growth for the quarter, which was up 2.4% in the U. S, outperformed our expectations. We are raising our 2021 rent forecast to 6.5% in the U.
S. And 6% globally. Our in place to market rent spread now stands at 13.6%, up 80 basis points sequentially. This represents future annual incremental organic And a wide growth potential of more than $600,000,000 Turning to valuations, logistics assets values are up A record 7.5% over the last two quarters. A weighted capital has emerged coming both from rising real estate allocations and investors strategically reassessing their Applying the valuation uplift to our $148,000,000,000 owned and managed portfolio, We estimate that the value of our real estate grows by more than $10,000,000,000 over the past 2 quarters.
Moving to results, the work we've done to position the portfolio and optimize the balance sheet is continuing to deliver excellent financial results. For the quarter, core FFO was $0.97 per share, which includes net promote expense of 0 point 0 $1 Net effective rent change on rollover was 20 At 7% led by the U. S. At 32%. We are prioritizing rents over occupancy in substantially all of our markets.
Occupancy at quarter end was 95.6%, down 60 basis points sequentially, in line with normal first quarter seasonality. Rent collections remain very strong and we effectively had no bad debt expense in the quarter. Our share of cash same store NOI growth was 4.5 For Strategic Capital, our team raised $1,400,000,000 in the Q1 As investor demand remains robust, equity queues for our opened ended vehicles are at an all time high at more than $3,000,000,000 at quarter end. This level of interest is another indicator that valuations for high quality logistics assets should continue to increase. Looking at the balance sheet, we continue to maintain Excellent financial strength with liquidity and combined leverage capacity between Prologis and our open ended vehicles now totaling $14,000,000,000 We were able to get in front of the recent increase in interest rates and issued $3,500,000,000 of debt with a weighted average rate of 96 basis points and a term of 11 years.
This activity included the issuance of a 10 year U. S. Dollar bond with a spread of 55 basis points, The lowest 10 year refund spread ever and the completion of our 15th green bond offering. The assets backing these bonds are the product 2 decades of sustainable development. Our debt maturity stack is in excellent shape with minimal maturities until 2026.
Subsequent to quarter end, we closed on a green revolving credit facility adding $500,000,000 more capacity to our already exceptionally Strong liquidity position. Moving to guidance for 2021, our outlook is more positive across the board. Here are the updates on an on our share basis. We are increasing our cash same store NOI growth midpoint by 75 basis points, And they are in the range of 4.5% to 5%. We now expect that debt expense to be in line with our historical average 20 basis points in gross revenues, down from our prior guidance midpoint of 30 basis points.
We're increasing our average occupancy midpoint for our operating by 50 basis points to 96.5 percent. So, gi capital revenue excluding promotes will now range between $460,000,000 up $12,500,000 at the midpoint. The increase is primarily due to higher asset management fees resulting From increased property values. Whether you look at public comps or recent transactions, both would indicate that our Strategic Capital business is significantly undervalued. We are increasing development starts by $400,000,000 and now expect a midpoint of $2,900,000,000 Build to Zoos will comprise more than 40% of the volume.
Our land portfolio today comprised of land options And covered land place supports approximately $17,000,000,000 of future development. We're increasing the midpoint for dispositions and contributions By $800,000,000 in total. Consistent with the rise in asset values and higher contributions, we're increasing realized development gains $200,000,000 with a new midpoint of $750,000,000 Net deployment uses are now expected to be $50,000,000 with leverage remaining effectively flat in 2021. Putting this all together, we're increasing our core FFO midpoint by Moving from notes will range between $3.98 $4.04 per share, representing year over year growth at the midpoint of 12%. Our efforts over the past 10 years to reposition the portfolio and balance sheet have set us up to outperform in 2021 and beyond.
And you're probably tired of us saying this, but it continues to be true. We believe the best years for the Company are still ahead of us.
Your first question will come from Vikram Malhotra from Morgan Stanley. Please go ahead. Your line is open.
Thanks so much, and good morning, everyone. Maybe just building off of some of the comments I heard where Strategic capital is undervalued, and you're just much more bullish about the growth prospects. I guess from sitting on the other side, investors and The Street generally understand that things look really good. Fundamentals have improved, NOI is trending up. So I guess, I'm just looking forward.
What would you say are some of the areas of organic growth that could surprise us Positively. And second, what does this mean for Prologis' ability to do external growth, be it development or even larger scale M and A?
Let me take a crack at that. I think organic growth is the prospects are actually better than they've been And as far as I remember, replacement costs are moving very quickly and interest rates are moving Up or generally up in the last 6 or 7 months. So both of those things argue for the need for higher rents to pencil out of development. Now, lowering cap rates mitigate that a bit, but we don't we can't really count on that. So, a prudent developer With more higher input costs and higher yield requirements, would have to get higher rents to make that work.
That This puts a pricing umbrella over our in place rents and widens that in place to market spread, Which gives us more pricing power going forward. And given our concentration and focus on the most desirable markets where the Supply picture is the tightest. I think organic growth is always the engine that we count on For propelling our growth, all the other stuff is episodic and it's basically a cap Conversion between the private markets or the public markets or the public market valuation of 2 different companies in Those are not things we control, but where we invest, how we invest, how we push rents, how we use our Scale to drive value for our customers and how we extract that value in the form of higher rents and other fees for services It's really where we add value. The external growth income and grow come and go. Having said that, we have Great external growth prospects too without having to do deals.
We have a great land bank. They're well positioned. We have Even greater Shadowland Bank and covered land plays, you add it all up together and we can Probably grow the portfolio organically by the size of 1 of the top 3 companies in the sector just with the land that we already own. So I feel really good about both organic and external sources of growth for the company.
Your next question comes from Albrich Rajeev from Bank of America. Please go ahead. Your line is open.
Good morning and this is Alex for Hamid or Tom. On the call, you mentioned the procurement team that you have and the ability to secure lower steel prices versus the market. Can you talk a little bit about sort of the team and what the team is doing there and how that helps you versus your competitors near term and longer term? Yes, let me start it and I'll turn it over to Gary actually who oversees that function. Look, scale gives us the advantage in 2 ways.
1, We can make bulk deals and 2, we don't have to guess right about where we're going to use the steel because we can spread it over a bigger base. And if we guess wrong in one project, we're going to use it up in another project. So those are really good dials to have to be able to play with. But Gary, Why don't you add to that?
Yes. Hey, Elvis. So we set this function almost 3 years ago now and really focused on our Controllable spend, primarily on the construction side and on TI and operating expense And we set a goal at that time of delivering about $150,000,000 per year in savings and we have exceeded that. This is the first time In my view, in the company's history that we've actually taken advantage of our scale in a way that I think is really meaningful. And you're starting to see it show up in development margins and operating margins.
And both Tom and Amit mentioned steel. It's not just about procuring a 5% to 10% cost savings on steel, it's about procuring those critical raw materials. Tom mentioned 10 to 20 weeks of schedule advantage. And when you're talking development and particularly build to suits, that is a game changer. So I think that the procurement organization has created a real competitive advantage for us, not only on the construction and cost side, but also on the essential We're now starting to deliver a different type of value proposition beyond
the 4 walls and the roof.
Your next question comes from Emmanuel Klushman from Citi. Please go ahead. Your line is open.
Hey, good morning. Tom, you talked about the drivers of the retention being, I think, an upgrade you said to credit quality And maybe tenancy. But maybe I was a little bit surprised at the occupancy dip and I realize that 1Q is usually seasonally lower, but Given that just the amount of demand, thought that maybe that would have been a little bit less. So could you address both of those topics, sort of The seasonal occupancy dip as well as the retention and what we should look at for retention going through the rest of the year here? Yes.
I think, as we said, we are we had more churn in the portfolios. We're pushing in certain We have excellent credit quality by looking at our stats and our low bad debt. I think retention is going to improve Over the year, but it's something we really don't look at and I wouldn't focus too much on it. I would focus on our leasing momentum and our rent growth And branch and strength growth. And I think if you look at both, they're accelerating.
The other thing I would point you to is look at our lease percentage at the end of the quarter, We were 96.4%. So, we are leasing up that vacancy. And again, I point to the record level of proposals And increasing rents. So, I think we're making the right decision for the real estate First of all, we can make the occupancy be whatever we want and retention be whatever we want. If we were more dovish on rents And what we can get.
And I do think that we're actually leading the market in that direction. The other thing is you may remember from Last year around this time, maybe it was the 2nd quarter call, I don't remember. But we talked about we're taking very careful notes On who's behaving and who's not behaving when the markets really soften and there were people who were requesting deferrals and We're really trying to take advantage of the situation where the businesses were not distressed. And those are the people that given a Fights between 2 tenants on a given space are going to be on the losing end of that fight. So people's behavior It does affect how we make these leasing decisions.
And if it hurts a retention stat, so be it, we'll make more money and we'll have a better portfolio of customers.
Your next question comes from Derek Johnston from Deutsche Bank. Please go ahead. Your line is open.
Hi, everyone. Just Sticking on the development side, you have yields compressing across most or all of the markets through 2022 and beyond, But not as much as we would have thought. I mean given steel prices up around 100%, I don't think a 5% or 10% discount It gets us to that yield stickiness. So is this due to the cost basis on your land bank or is it more demand and growth in rent or enough to First of all, you should be clear, in reported margins, we don't We use book value. We use the market value at the time that we do the we start construction, but land markets have been moving.
These increases, if you figure it takes 9 to 12 months to build the building, a lot of this steep price escalation has been during the period in the last 9 12 months. So we haven't had we don't adjust the land basis in the middle of the project because We do it at the beginning of the project. So we've had a good surprise margin expansion, if you will, From rents being higher. Remember a lot of these things are also pre leased. So if we were if the space were available again with the leases at a higher rate.
That's why I focused on in place to market rents because that's what really is the additional fuel in the tank for
Your next question comes from Craig Mailman from KeyBanc. Please go ahead. Your line is open.
Hey, guys. Just want to touch on same store Here, we kind of figured maybe the initial cut was a little bit conservative, but the 75 basis point increase It was pretty strong here for a Q1 upper revision and I know that occupancy guidance is moving higher. But just could you walk through maybe the bridge us into what really drove that upside here and give you guys confidence to bump the debt high this early The year and hopefully give yourself continued room to the upside in the next couple of quarters. Sure, Craig. The main driver, the substantial driver of same store growth is in place to market role.
But the increase that we saw quarter reported in our guidance, it would be occupancy, occupancy 50 basis points, ad debts lower by 10 to 12 basis points, and we are seeing higher rent growth. And most of the hiring growth we're going to get in the out years, but we're getting a little bit of benefit of that this year. But those would be the main drivers of the increase. But again, I would point you to the proposal level, the record level proposals. Demand is excellent.
And we are leasing up space at higher rents.
Your next question comes from Ki Bin Kim from Truist. Please go ahead. Your line is open.
Thanks. Good morning. So, Hameen, your team has made comment or Very interesting venture capital investments. And there's some pretty clear themes that come across, which is mainly seeking to reduce customer pain points, Reducing truck detention times or route optimization, improving workforce efficiency or energy efficiency. And let's just say all these ideas worked out perfectly.
My couple of questions are, what could it mean for the PLD platform? What does success look like to you at this arena? And lastly, where do you think we are in terms of converting these novel ideas to broad industry adoption? The last part of your question is that we're very early because we're on the leading tip of that spear and we are early in implementing it. So very, very early.
By the way, was this Ki Bin because my earphone fell out? By the way, you know More about that venture capital portfolio based on the report that you wrote last week that I wrote that you can answer this question actually better than I can. But we've made roughly as you pointed out about 30 investments totaling about $100,000,000 I would look if And I said this 5 years, 6 years ago when we started this activity. If those investments were 5x multiple, which is a Good venture capital outcome. Okay, it's great.
We made $500,000,000 but across a company which has Got an enterprise value of $100,000,000,000 It's interesting, but it's not huge. It's not a game changer. But if we can change The effectiveness of our business, the value of our business to our customers by 5%, now you're talking some serious though. I mean that's $5,000,000,000 So really the way the reason we're doing all this stuff is not because we're great venture capitalists, but because we can actually Assess the quality of an idea in this sector. We're not in other sectors and we can actually affect the outcome probability By letting those companies get traction quickly, improve their product offerings, etcetera, etcetera.
So By the way, not all of them are going to be successful for sure. And we've had one that has not been a sale So far, but that's actually a pretty good track record for a portfolio of this size. If 20% of them work out, we'll be very, very happy, But primarily happy because of its impact on our customers and our portfolio.
Your next question comes from John Kim from BMO Capital Markets. Please go ahead. Your line is open.
Thank you. A question on retail conversions. Amazon has been more actively pursuing the retail, the last mile distribution conversions, although primarily in secondary markets. Last fall, you estimated this would amount to approximately 5% of last mile stock over a 10 year period. Has your view on the amount or the timing changed at all since you report last fall?
No, it's probably even we were on the high side I think. I mean we're working on lots of these deals, probably more than anybody combined, everybody combined, but they're really tough. The 10000, 20000 square foot conversions you can do. But if you think about it in the context of our business, I continue to believe that they're going to be very attractive, but they're going to be few and far between and you got to go through the Five stages of grief to get to them. So, they're tough.
Your next question comes from Blaine Heck from Wells Fargo. Please go ahead. Your line is open.
Great. Thanks. We noticed you guys bought a good amount of land. I think it was $225,000,000 in the quarter. Given where your land holdings and land bank And now do you think you'll need to keep buying similar amounts quarterly or was this maybe outsized and maybe in anticipation of Continued increases in land values.
And then just given the increase in land prices that we've seen this cycle, where do you think that fair value of your land bank Let me start, I'll turn it over to Gene for some specifics and Tom We are not that precise with respect to land purchases. We're opportunistic. So a lot of these land deals have long gestation periods and we certainly can't time what quarter they fall in. We work on these things for years years and sometimes they never happen, sometimes they happen in the quarter different than what we thought it would happen. So don't I spent so much time on the quarter because we don't control that.
But the overall quality of the land bank and size of land bank Is one factor, but where it is also another factor. So Our overall number may look in line with what our goals are, but there are definitely markets that were short on land and some markets that we may be Long Island and we're constantly in the process of adjusting that. Based on our In house underwriting, our land bank book value is about 40% undervalued and that number is Moving up fairly quickly based on what you heard earlier. But, Jane, Tom, do you guys have anything to add to that? Yes, I guess this is Gene.
I'll just add in terms of the magnitude, you're going to see this number move up. It's going to move up in tandem with how our development activity moves up. And frankly, land as a percentage of overall cost is also increasing with these escalations. And I'd also add our development volumes, if you look at the midpoint of our guidance for this year, the updated Guidance, it's less than 1.5% of AUM. So we have room to go And that's spec development activity.
So, we're going to move this number up and I don't really have anything LSAT except to punctuate that quarterly almost even annual numbers Aren't that important because we see our opportunity with land is to buy big complex difficult pieces, So, we're not paying retail. So, Tom, I don't know if you have anything else to add? The only thing I would add is, it's not just the land bank, but it's covered land Where you're going to see really important strategic acquisitions that allow us to further develop in these various fill sites.
Your next question comes from Michael Carroll from RBC Capital Markets. Please go ahead. Your line is open.
Yes, thanks. Tom, I think earlier in the call you mentioned that you estimate supply will be around 300,000,000 Square feet in 2021, but Houston is the only market where there is current issues or that you're tracking. I mean, are there any other markets that you think could become an issue over the 12 plus months or is demand just so broadly strong that will take down all that excess space? I'll start out with Jameson potentially waiting in. I called out 4 markets and Houston was the one in the U.
S. But, I mean across the board, where we're trying to develop and where our tenants want to be, I guess, is largely Very in. So, we're going to watch the bulk markets like we always do like the Phoenix, that type of a market. We'll watch it, but those Markets are working effectively now. But I'll turn it over to Gene with any other color.
Yes. Houston has a couple of issues. I mean, it's got a 9 plus percent vacancy rate and oversupply and some demand So it's going to take some time for that market to stabilize. Phoenix is on our watch list, but frankly isn't that bad. And Tom really hit it.
I mean the submarkets we like to operate in Are very healthy right now. Most of them are quite constrained. And these entitlement Processes are just getting more difficult and longer. So I see equilibrium out there And if we're really honest, we've been in equilibrium in the U. S.
At least for about 4 years. So obviously, we're calling for that with 300 each of demand and supply this year. I think you're going to see that for a while.
Your next question comes from Steve Sakwa from Evercore ISI. Please go ahead. Your line is open.
Yes, thanks. Just two quick questions. Tom, on the weighted average term of the leases, it kind of dropped down here in the first quarter, I know it was also lower in the Q1 last year. Just anything there? And then secondly, Hamid, as it relates to sort of things like the Suez Canal And dislocation in transportation systems and low inventories, what is your expectation for, I guess, Structurally higher inventory and better demand going forward.
Hi, Steve. This is Tom. I'll take the first one. The shorter term on the operating leasing was all mixed. It was higher Southern Europe, Pretty good trends where you've got 3 year leases, China for example, lower the UK where we have our long leases.
So, it's all mix. The length of leases when you look across markets are stable, it's not increasing.
Yes. And Steve, in terms of
structural inventory levels, there are 3 things that are driving it up. For sure, they're going to be up in my estimation for the foreseeable future. The first structural thing is that people are just carrying more safety stock because With all the fluctuations COVID induced and Suez Canal induced and everything else induced, You just need to carry more inventory to buffer yourself from these risks because the cost of lost sales is much greater than the additional cost of carrying inventory. So across the board, we've quantified that as 5% to 10% more inventory in a steady state environment. I think you've seen Chris' Paper on that.
And if I were going to pick a number, it would be on the higher end of that range, more closer to the 10%. So That's a big driver. Secondly, inventory to sale ratios have been really stretched spend. I mean, The starting point of where inventories are is very stretched and it just has to normalize To its regular level. And then the third thing is that the transition to e commerce As that percentage goes up, we'll drive that number up.
So I think yes, we're going to have more inventories across the system. By the way, there's a 4th thing and I haven't thought about First, but you have utilization rates that are 85%, 86%. So there is not like there is a lot of slack In the system, so that the mechanism for having more inventory will translate for demand to demand for more space pretty quickly Because those are very high utilization rates.
Your next question comes from Vince Tibone from Green Street. Please go ahead. Your line is open.
Hi, good morning. Could you provide some additional color on your U. S. Market rent growth forecast, particularly how So market rent growth compares to non coastal markets? Yes, David, it's Chris Ketan.
Thanks for the question. Indeed, it's Widening out as I think you might be suggesting. So in the U. S. 6.5%, but the top five markets With 7% or better growth, New Jersey, Baltimore, Toronto, obviously, that's Canada, Southern California and Seattle, I think you can see the pattern there.
That's for sure your broader coastal markets. By contrast, if we exclude Houston, The low end of the range are markets that are running in kind of a 2% to 3% range. So that brackets it for you.
Your next question comes from Todd Catherwood from BTIG. Please go ahead. Your line is open.
Excellent. Thank you very much. Actually, following up on that previous question and Chris' comments. So, I want to focus on development starts If we look back at 2019, you guys started roughly 2,600,000 square feet of developments. In the first three quarters of 'twenty one, you started less than 600,000 square feet.
And then just in the last two quarters, It's accelerated to 3,100,000 square feet. Can you provide some detail on kind of what you're seeing that's driving This investment acceleration and especially given Chris' comments on the bifurcation and rent growth, does your investment In that in these kind of central markets in any way reflect an expectation that coastal markets could be weaker over the long term? You guys really think we're smart. We're not that smart. Let's just start with that.
And our business doesn't lend itself Quarter by quarter analysis. So you put those two facts together, we have no clue what exactly development starts are going to be by We can give you a pretty good sense of roughly overall development in the U. S, roughly Percentages of where it's going to be, rough percentages of how much of it is built to suit. But when you're talking about numbers in the 2,500,000 square foot range per Quarter, one go to see that the 1,000,000 feet can really move that number around and depending on where that lands, it could really affect the numbers. So, I hate to be in the position of some of these smaller companies answering those questions, because I mean for them it must be a really tough question to Sure, given that they don't have the benefit of the large numbers.
But honestly, we're not there is Nothing systemic in the central region other than the fact that obviously we're not going to do a lot of development in Houston. And I would say Dallas by and large has stayed stronger than we would have expected. So those are the two things I would tell you in terms of our Strategy but quarter by quarter numbers I have no clue.
Your next question comes from David Rodgers from Baird. Please go ahead. Your line is open.
Yes. Maybe first question, Tom, I wanted to ask you about the turnover costs and the concessions on the leases in the last couple Obviously lease proposals have been up. Is that a function of maybe smaller leases or the lease term you addressed earlier? And then I was hoping maybe Jean could talk a little bit more about Small leases and maybe the percentage that that's making up of your lease proposals going out the door and what the trend is there. Thanks.
On turnover costs and concessions, concessions aren't really increasing at all. What you're seeing on turnover cost It's really a mix issue driven by more new leasing relative to renewal leasing and concessions are typically a bit higher On renewal leasing, so again you're seeing that mix. Also with turnover costs, we're certainly seeing higher rents and with turnover costs and Including lease commissions that will be a driver as well. When you think about short term leasing or I'm sorry, Leasing for smaller spaces, it is certainly improving this quarter, particularly when we look at proposal levels. Proposal levels by segment where I believe we're the highest, the growth was the highest in the quarter amongst All the segments.
So, proposal activity is good and rent change is accelerating. So, I think we're going to see The smaller spaces improve pretty well over the next for the next balance of the year.
Your next question comes from Brent Dilts from UBS. Please go ahead. Your line is open.
Hey, thanks. Could you just talk about your Community workforce initiative and how it's doing given the labor shortages you read in the press? And then how you think warehouse automation may advance over the next couple of years to help alleviate Thanks. There is a paper on warehouse automation that Chris wrote about 3 or 4 months ago that I think lays out our There are aspects of it that lend itself there are aspects of the activities in the warehouse that lend themselves more easily to automation And those aspects are going to take place sooner than full automation. But companies are being used pushed into more automation And they would otherwise use because of the labor shortage.
And if the labor shortage didn't exist, they wouldn't Automate so much because it's expensive and the ROIs are pretty unproven in many cases, but they simply have to do them to meet the service levels Their customers demand of them. On the community workforce initiative, let me turn it over to Ed Nettkritz, who oversees that So at the end of 2020, we had trained in excess of 5,000 Individuals and we are well on our way to our goal of 25,000 trained throughout the globe. We have 9 programs underway in the U. S. And we just announced expansion of the CWI program in the UK.
So we fully expect to hit our goal number 1. Number 2, the connectivity that we have with our customers It's very significant as they're looking for us to help them train and enhance their initiatives with their employees, not just from acquiring employees, But also retaining employees. And I will mention it's also significant development for us to be in front of our Local municipalities in terms of showing and demonstrating to them that we are focused on delivering labor In order to keep those communities vibrant, the last thing I'll say is that we are in the final throes of negotiating certifications
Your next question comes from Mike Mueller from JP Morgan. Please go ahead. Your line is open.
Yes. Hi. Development starts to increase to about $3,000,000,000 for 2021, are we likely to see that number increase meaningfully over the next few years? Mike, it's Gino. I'll take that one.
It is hard to say what we're going to do next year and the year after, Mike, because Obviously, the market environment is going to guide us. But as I said earlier, at this point, our speculative development starts. We'll do as much build to suit as we can do and that business is obviously going very well right now. But our speculative activity And less than 1.5% of AUM is relatively low. The market environment looks really good right now.
The years to come, we will cross that bridge when we come to it. Mike, you would actually We remember this because when we were coming out of the downturn of 2,008, I think it was in our 2011, 'twelve. No, it was in our 2010 analyst meeting before the merger with Prologis that we actually said for the next Development guidance is going to be between $2,000,000,000 $3,000,000,000 That's a reasonable amount of development to expect. And at that time, remember, everybody Scared of Prologis kind of numbers around $5,000,000,000 and that whole debacle. So Our number from literally 11 years ago was $2,000,000,000 to $3,000,000,000 and that was with AMD, which at the time was about 250,000,000 square feet.
Today, the new Prologis is a 1,000,000,000 square Today, the new Prologis is a 1,000,000,000 square feet, that's 4 times as big. So to normalize that number for today, given the Size of the base, that number would have to be $8,000,000,000 to $12,000,000,000 So the fact that we're doing 3 To 3.5 or whatever it ends up being is in the historical context and the size of the company Is much, much smaller than the numbers you used to see in the mid to late '80s. And the reason for that is that development is that much Particularly in the markets that people have figured out they want to be, at that time, people didn't have quite the same Appreciation of the quality differences between markets that they do now. But so in the historical context, those are really small numbers. I mean To get to their equivalent, you would have to take old ProLogistix guidance, the old AMB guidance, the Old Liberty guidance, the old DCT guidance and couple of private things in between and add them all up together.
So I think there is a potential upside opportunity if we could get our hand on good land and that is where the dilemma lies. That's why I think there's so much pressure on rents going forward.
Your next question comes from Caitlin Burrows from Goldman Sachs. Please go ahead. Your line is open. Hi.
I was just wondering maybe if you could talk about leasing volumes. Obviously, they're really Strong, could you go through who you're seeing the most demand from, what type of tenants, how broad it is and any recent shifts that you've noticed either stronger or possibly weaker?
Yes, I think the healthy companies really stepped up in pretty much every sector during COVID and Use that opportunity particularly the early days to jump in and do more activity. Obviously, CPG companies, food and beverage companies, Ecom of any form, those are the growth sectors. I think housing is going to accelerate because housing has been Operating at a pretty low level, healthcare is accelerating for all the reasons that you can imagine. But Chris or Mike, do you want to add to that? Yes.
I can add just to give a little more flavor. Obviously, e commerce is a big component of it, but certainly not all about Amazon. Certainly, they're the most active customer, but we're seeing a lot of activity from the Targets, the Walmarts, Home Depots and lots of evidence The Chinese players making their way to the U. S. And Europe as well.
And then don't forget about just some of the conventional players that are really active right now, food and beverage, Very active transportation factory just did 2 build to suits this quarter in addition to Amazon with Kellogg's and FedEx that represent kind of the continued strength of the durability of this broad customer demand that we're seeing.
Your next question comes from Bill Crow from Raymond James. Please go ahead. Your line is open.
Yes, good morning. Thanks. I just wanted to follow-up on the Discussion on replacement cost inflation or construction cost inflation, how should we think about that growth translate into AFFO and I think longer term that will add As to the growth rate in terms of same store NOI, long term meaning 3, 4, 5 years compared to what it would have been Without that cost increase in replacement costs, but it's a hard thing to prove because you never are going to know what it would have been to compare it to. But I think it's a longer kind of burn and that compounded with the challenge of getting more land. I just think that those are going to be all tailwinds for rent growth into the foreseeable future.
And Going back to something that I think we shared extensively with you guys couple of years ago, at the end of the day, rent is anywhere between 2% 4% of supply And people are just getting smarter about how to use well located real estate to actually save cost On the other aspects of supply chain costs, as they are pulling together their space buyers and their logisticians And the people who set up inventory and the people who do the demographic analysis of where they want to locate, thanks. So I think all of that is going to translate into longer runway for rental growth compared to would have been. Of course, turnover costs are going to go up as well, because you use steel and all that in building out the space. But I think rents As a percentage of rents, which is the way we like to look at them, I don't think they're going to change that much because rents are going to be affected by the same factors too.
Your next question comes from Elvis Rodriguez from Bank of America. Please go ahead. Your line is open.
Just one more question, maybe this one is for Gene or Hamid, if you want to comment. Amazon in particular, so on our JOL call last week, They noted that there's an increased interest in medium sized boxes from that tenant. Can you talk about sort of their demand in the quarter, your For them for the year and just generically what you're seeing in their shift and their supply chains? Thanks. Well, Mike is actually probably the best person to answer that.
But they did gone out and built out by far The base infrastructure of the big buildings and now it's a trench warfare of getting the more last tax And that's where their focus is going to be. I would say they're pretty much ahead of everybody else in terms of the backbone infrastructure and now it's the rates for the last touch. Mike, anything? Yes, just to further add on. Last year was a Historic year in terms of Amazon's square footage leasing, I think you'll see the same kind of velocity, if not more going forward in terms of the transaction account.
To Hemian's point, there's going to be there are going to be smaller facilities and more focus incrementally spent in places like Mexico and Europe, Seeing evidence of that already and we're certainly well positioned to take advantage of those opportunities there as well. Thank you, Mike. That was the last We really appreciate your interest in the company and look forward to our continuing dialogue. Take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Goodbye.