Prologis, Inc. (PLD) Q1 2019 Earnings Report, Transcript and Summary

Welcome to the Prologis Q1 Earnings Conference Call. My name is Chris, and I'll 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. [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 first quarter 2019 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 first 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 reconciliation to those measures. 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. Gary Anderson, Chris Caton, Mike Curless, Ed Nekritz, Gene Reilly, and Colleen McKeown are also here with us today. With that, I'll turn the call over to Tom.

Thanks, Tracy. Good morning and thanks for joining our call. Let me start with a few high-level observations. Supply generally remains disciplined across our markets. User demand is exceptionally strong in the small and the medium type segments as our customers are prioritizing access to the end-consumer and labor. Our proprietary leasing data continues to reflect healthy demand showing average gestation period and conversion rates have improved from the fourth quarter. This is notable as the first quarter is typically the softest leasing period of the year. Europe remains strong despite negative economic headlines, including the UK where our Build-to-Suit pipeline remains very active. Now for our results. We had a great first quarter with very strong operating performance and core FFO of $0.73 per share. We leased almost 43 million square feet bringing occupancy at quarter end to 96.8%. This was down 70 basis points sequentially, consistent with our strategy to push rates and term. Rent change on roll continued to be excellent with our share at over 25% led by the U.S at over 30% and Europe over 13%. Globally our spread between in-places and markets rents remains elevated at more than 15%.Our share of cash same-store NOI growth was also strong at 5.5%. This included a benefit of about 75 basis points from positive recovery and expense timing. G&A was about $5 million higher than expected due to the stock base compensation expense resulting from the increase in our share price. For capital deployment, we completed $157 million of dispositions and contributions. This excludes $500 million from the formation of our joint venture with Ivanhoe Cambridge in Brazil that closed in January. Starts were seasonally low at $239 million. However, we expect starts to accelerate meaningfully in the second quarter. Stabilizations were a record $691 million with an estimated margin of 30%. We continue to access capital globally in very attractive terms. In addition to our $3.5 billion global line of credit recasts announced earlier in the quarter, we've refinanced 1.1 billion of yen debt at a weighted average interest rate of 45 basis points and a term of more than eight years. During the quarter, we reduced our ownership in our open ended European fund from 28% to 24%, generating proceeds of $313 million. This was to accommodate our partners and to bring our ownership in line with the venture's long-term target of 15%. Investor interest in the logistics sector continues to be very high. We have significant investment capacity with over $4.1 billion of liquidity and more than $6.5 billion from potential fund sell-downs positioning us to self fund our run rate deployment needs well unto the foreseeable future. Now for 2019 guidance highlights, which were on in our share basis. As we mentioned last quarter, we tempered our initial 2019 guidance by $0.05 per share to account for market and political turbulence at that time. We feel better today about our outlooks and our updated guidance removes $0.03 of that conservatism. As a result, we're raising and narrowing our cash same-store NOI guidance and now expect a range of 4.25% to 5%, up almost 40 basis points at the midpoint. We're bringing up the bottom end of our year end occupancy forecast like 50 basis points to a range of 96.5% to 97.5%. We're raising our guidance for both development starts and acquisitions by $200 million to revise midpoints of $2 billion and $600 million respectively. We're increasing the midpoint for stabilization by $100 million more than $2.1 billion. We're also raising our realized development gains by $125 million to a midpoint of $350 million. We generated net sources of $550 million on the first quarter. And as a result, there will be an earnings drag given the timing [indiscernible] this capital. For the full year, we expect $400 million of net deployment usage, which we plan to fund with modest leverage and free cash flow. As a result of valuation gains in Europe, we now expect our net promote income for the full year at $0.14 per share, up $0.04. As a reminder, the vast majority of the promote revenue will be earned in the third quarter. Taking these changes into account, we're increasing our 2019 core FFO guidance midpoint by $0.07 to $3.23 a share and nearing the range between $3.20 and $3.26 per share. This includes $0.14 of net promote income. At the midpoint, core FFO excluding promotes is now approximately $8.5 higher than last year. I want to point out that the value we create from our development business adds to this growth. This business is often underappreciated in valuation as we did not include realized gains in our core FFO, but it obviously adds to our cash flow growth. Our development business has a long successful track record of significant profitability. We've completed over $12 billion of development since the merger in 2011. Over this period, our development business has delivered an average margin of approximately 30% and has created more than $3.5 billion of value, roughly $450 million [ongoing] [ph]. To sum up, we had a great quarter. We feel good about our position and are excited about our prospects for the rest of the year. And with that, I will turn it over to Hamid.

Thanks, Tom. You covered it well, and I don’t have much to add. We had another great quarter. Our portfolio is in excellent shape and our balance sheet is stronger than ever. With this foundational work behind us, we're entering the next phase in our evolution as a customer-centric organization. Our scale and global reach enable us to address the key pain points for our customers through innovation, data analytics, technology and customers service. That’s why we realigned our executive team earlier in the quarter. In closing, our plans are clear. We'll stay vigilant in looking for shifts in market conditions and customer sentiment, and remain confident in our ability to deliver sector leading operational and financial results. With that, I will turn it over to Chris for your questions.

[Operator instructions] Your first question is from Jeremy Metz with BMO. Your line is now open.

When we started the year, you had talked about how Europe rent growth could possibly outpace the strength here in the U.S. as we move further into 2019? Obviously, the first quarter look quite good in the U.S. You talked about the increased optimism in the market what you're seeing in your data and your traffic there. So do you think Europe can still get there? And maybe more broadly, can you comment on your outlook for rent growth from here for both the U.S. and abroad?

It’s Chris Caton. That's good question. Yes, indeed we've revised our rent growth forecast. We expect mid-to-high [4s][ph] globally. That's more than 100 basis points increase. We still expect Europe to outperform later this year, but the increase was principally driven by the U.S.

Your next question comes from Manny Korchman with Citi. Your line is now open.

This is Michael Bilerman here with Manny. Hamid, in your comment at the end of the call, you had talked about transforming through this customer centric organization. And I’m curious how far down do you want to go in that outside of just leasing space to your customers? And clearly you launched the whole data analytics platform. But could we see Prologis move into other verticals in helping your customers? I think, the past quarter Simon announced that they are launching an e-com platform where people are going to be able to buy goods online. They'll get them rather than them coming to the store. And I just don't know how far and how you are thinking strategically about the other verticals that the company can go into?

The way we are thinking about it today is that we are going to attack all of those things that our customers need to basically operate our properties. So these are products and services that they need to basically fully utilize our services. We are going beyond the roof and four walls in that sense. Are we going to be in those businesses ourselves? The answer is clearly no. But we will partner with vendors and other players that can help us to execute that business plan. I'll say -- I will never say, never, but right now our vision is limited to the logistics sector and the supply chain.

You next question is from Nick Yulico with Scotiabank. Your line is open.

Tom, help me hear just a little bit more about what drove the increase in the same-store guidance, and then on occupancy as well. You boosted that and, I know you talked about the strategy of trying to push more renewals this year and you thought that that would create a little bit more frictional, I guess, vacancy on turnover. But with the occupancy guidance going up does that mean that you're just finding tenants are willing to accept your higher renewable pricing more or so?

Yes, Nick, if you look at the increase in same-store, it can be a function of continued strong leasing activity, continued strong customer interest and demand. And occupancy did outperform. Our expectations, our retention was quite good and quite high this quarter, but we are continuing to push rents, and we will go that. Don't be surprised if you see occupancy be a little lower throughout the year. But we are going to make the right long-term decision, which is going to be pushing rents and extending term. So it's really a function of better occupancy, a little bit of rent growth, and really, really good customer dialogue and activity.

Your next question is from Jamie Feldman with Bank of America. Your line is open.

Tom, you had mentioned in your remarks about the strengths of the small and midsize segments. I just want to get your thoughts on how Prologis can attack that given the size of the company. And you are traditionally kind of larger box developments. And also, does that suggest you're seeing a slowdown at all in big box, and just thoughts on supply there going forward?

Jamie, it's important to remember when you look at our space sizes, our space sizes greater than 250,000 square feet, represents about a third of our square footage by space. So spaces under 100,000 square feet, spaces between 100,000 and 250,000 represent two-thirds. So we have a lot more much space that's infilled than not. And then when you look at that, that is on square footage. So when you look at it based on NOI, certainly, more NOI, in the 100 and 150. So we are well positioned to capture that market. And when you look at occupancy potential, occupancy is actually a little lower in the smaller and medium sizes boxes and the big boxes right now. So I think we have a -- we are well positioned to capture that opportunity.

Yes. Just to put some specific numbers around that. Only about 25% of our portfolio is sort of the really big box super-regional type of facilities. So the vast majority of our portfolio is actually city distribution and maybe closer end stuff. And to the extent that we have multi-market super regional distribution centers those tend to be in very high barrier to entry markets. So the commentary about small and medium size businesses was really intended to point to that strength, I wouldn't read weakness in the larger spaces, but there are some markets on the periphery, for example, the outlying corridors in Chicago where there are lot of big buildings and the market rent its softer for now until those buildings get absorbed, but that’s the exception not the rule.

Your next question is from Craig Mailman with KeyBanc Capital Markets. Your line is now open.

Just two quick ones, I guess, first, Tom, you guys raised to promote $0.04, was any of that related to the sale [indiscernible] did that trigger anything? And also, separately, you guys mentioned two thirds of the portfolio is lesser lease in the big box stuff. Are you guys getting better pricing power on the smaller spaces than the big box spaces? Is there any kind of bifurcation in the market depending on space size?

Craig, so on your first question, there was no impact on the promote increase and the fund sell down. Those are totally two separate items. Second, on the smaller spaces, under 100 to 250 we're definitely saying higher rent change on roll in that category versus the bigger box that's been something that’s been pretty consistent. And I would say it's probably accelerating -- that spread is accelerating a bit.

Yes. The big boxes got their growth early in the recovery cycle. And if you look at those rents, there are up significantly as much as 40% or 50% during the course of the last four, five years. And now they are taking a pause and somewhat of a backseat to the medium and smaller spaces. But I think by [indiscernible] all over, all segments enjoyed really good rent growth.

These rents are going to follow replacement cost, and replacement cost on smaller spaces is significantly higher, and it's growing faster as well.

Your next question is from Steve Sakwa with Evercore ISI. Your line is now open.

I wanted to ask a question about development. I guess you guys took your starts up for the year. And I’m just wondering if you could sort of talk about maybe the geographic kind of focus of where you seeing the best opportunities? I guess Gene made the comment about replacement cost and that going up. And just how that’s maybe impacting your going in yield, given the strong rent growth we're seeing but presumably higher replacement costs.

Yes, Steve, I would generally say that every deal is underwritten very specifically looking at the dynamics of that market and the competitors that are on the markets today and will be coming out of the ground down the road during the development period. So there is no general answer to that question. I mean we underwrite rents that we think we’re going to get. And by and large, the experience in the last three or four years has been that we have under shot rent growth. And actual rents have been higher than what we have projected, which is why the margins are better that and obviously cap rate compression. So the smaller spaces are also more difficult to replace because they are generally areas where land constraints are greater. So anyway, Gene, do you have answer for that?

Yes. Steve, may be just a little bit of color. So the starts in the quarter were in 12 different markets. And by the way, the average building size of those starts is about 200,000 feet. And every single building we build whether it's million feet or 150,000 feet, it's sub-dividable. So we can build to the smaller customers. And if you look at our overall development program, it's 160 buildings in 51 different markets. And obviously, we are going to take through all of these, but we stay away from the markets that are getting over built. And I think we are very clear to keep you all updated where those are. And so, from a market selection perspective, we're lucky that most of the markets are very healthy right now. We feel very good about that composition.

You next question is from Blaine Heck with Wells Forgo. Your line is open.

Tom, following up on from notes, when I look at the strategic capital page in your supplemental, there are six co-investment ventures that are eligible for promote this year. Obviously, some are bigger than others, but I guess I'm just wondering how many of those are assumed to be in the money at this point? And is there a change that we could see promote guidance continue to move up as we progress through 2019?

You need to look at what's driving those different promotes. Some of the funds have annual development promotes to extend the new development. But the vast majority of the promote will be earned, we're stating the obvious where the larger AUM is. So that's going to be in our open ended funds. And that's what's going to drive the bulk of our promote revenue.

I would say, I can't think of any venture that is not in the money. I mean, they're all pretty much at this point in the cycle have been and will continue to be in the money more or less. But the more time passes, obviously, the more will capture that and there's going to be less of it available down the road. I mean, it will normalize down to a number, which historically has been about 25, 30 basis points of AUM. And the share that goes to the bottom line is about 60% of that. So you can think about it as sort of 15-ish basis points of AUM that would be the across the cycle type of number. I mean, not only to that, but that's what it's been over the last 10 or 15 years.

You next question is from John Guinee with Stifel. Your line is open.

Great. Thank you. Talking about some of your multi-level development, I think, you've got one in Seattle. Can you talk about what rents you need to hit different floor levels? And how that compares to market and whether the market is accepting of that product type? And then, segue in into the most current Amazon prototype, which, I think maybe goes up 60 or 70 feet relatively small footprint. And are you involved in those build-to-suits?

Yes, John, it's Gene. Let me start with that. So we do have a project in Seattle. It's Georgetown. And to give you a sense, market rents on the ground for older -- naturally, older product in that new location sort of range from $1 a square foot to $1.40 depending on the size of the customer. And most of that is going to be sort of in the $1.10 range per month. Our product on average is probably going to be in the $1.40, but it's going to range from sort of $1.30 to maybe over $2 a square foot for certain space in our product. So there is definitely a premium. It's 20% to 25% depending on the size of denomination. And we have done 100,000 square foot lease in this asset. And we've gotten that behind us. But one lesson we've learned about this is that there is a process that we have to go through with customers. This is new product in a new location. We need to get a premium. We think we'll get that premium, but deal gestation periods are long, and they'll continue to be long until customers are basically more accustomed to this product. With respect to the question on Amazon?

John, it's Mike, with Amazon. We certainly see everything in terms of RFEs given that they're our largest customer, and we pursue those opportunities that we think are the best fits within our portfolio. But broadly, we're seeing customers like Amazon and other customers focus on e-com with some network rollouts involve a combination of large buildings and a series of a higher number of smaller buildings that are located close in to larger population centers, all of which fits really well for our portfolio.

Yes, I think that John what you were probably driving at is that the old prototype was 880 and the new prototype, it’s a little bit lower -- smaller, but much smaller footprint and the reason for that is that they just would like to have more options in terms of the size of -- the parcel size that they can put the building on. So that’s essentially what they are doing. They are putting the same building into clear high with more mezzanine floors et cetera, et cetera, in it, so effectively increasing the utilization of the site.

Your next question is from Eric Frankel with Green Street Advisor. Your line is open.

Just a question on same-store results. Can you clarify how much of your same-store NOI growth is attributable to free rent burn-offs? And then, just on, obviously, your investment activity in the first quarter is generally fairly light, but just noticed in your acquisition this quarter, I think your 4.3% stabilized cap rate, I think, is an all-time low. So maybe you can just talk about pricing the market for assets that you'd like to buy and the competitiveness and what you think the total return profits are? Thank you.

Eric, this is Tom. I’ll the first question. On free rent, what was a little more than 50 basis points of benefit in the first quarter? And that's a pretty good run rate. It will bounce around quarter-to-quarter just based on mix and the like, but that's a pretty fair run rate. And it also would explain long-term the spread between -- why the spread between cash and GAAP should be about 50 basis points on same-store.

Yes. And that's why we actually focus on the GAAP number more than the cash number, but we got tired of that battle. So we now feature in the cash number more prominently, but really the right way to look at it is the way you asked, which is to factor in all the concessions. With respect to the 4.3% yield on investment this quarter, look, we're not buyers of stabilized operating properties that have been maxed out, by and large we're buying value-added place. We're buying covered land place, we're buying things that have significantly below market leases. We're trying to operate in areas where other more constrained institutional capital cannot compete. And we're not afraid to take on lease single risk or redevelopment risk or rehab risk. So a lot of that 4.3% reflects those kinds of situations. If you were to, for example, look at the NOI at market, those investments would be actually in the mid-5s to high-5s, low-6s type of numbers, but it may take us a few years to get to those numbers. We're very focused on replacement costs in those kinds of investments as well because that shows us how much upside there is in those deals.

You next question is from Vikram Malhotra with Morgan Stanley. Your line is open.

Thanks for taking the questions. Just going back to Europe, just two parts to that, given sort of the broader slowdown in several markets, can you give us a little bit more color on maybe rent growth and prospects by some of the key markets? And then, second just a bigger picture question on looking at Europe as a case study for how logistics may perform in somewhat of a slowing environment as it relates to the U.S. if the U.S. were to slow down, any thought there would be great.

Yes. Let me -- it’s Gene. I'll take the high level and then Chris can probably add some color on the rent growth specifics, but basically Europe is performing very well right now, more so by far than the economic headlines. And remember that higher demand in Europe continues to be supply chain reconfiguration and monetization of that supply chain. So you're going to continue to see take-up that is in excess of economic growth. And other than some limited weaker markets, Spain is pretty weak right now, for example. And some of the CEE is fairly weak, but overall, we're seeing strength. And with respect to specifics on rent growth, maybe I'll turn it to Chris.

Yes. Happy to share. So key message naturally will be the rotation of our performance from the UK that the economy where the rents result rising and that effect the basis on economy. That's led by a combination of market Germany, the Netherlands and the one region, Central Europe, both in Poland and Czech Republic are also outperforming.

Your next question is from Sarah Tan with JP Morgan. Your line is open.

Thanks for taking my question. On the line for Michael Muller, quick question on -- could we get some color on the low acquisition cap rate of 4.6% [indiscernible] Where did you guys buy?

Sara, we are having a really hard time hearing you. But I think your question was what explains the low cap rates on our recent acquisitions, and you may have [Multiple Speakers] that we just talked about. Yes.

Yes. I'm sorry. I just explained that maybe minutes ago in response to Eric's question. But basically the 4.3% reflects a lot of unstabilized deals and covered land plays and the like that are not stabilized. If you were to look at the stabilized numbers at market, there will be significantly higher cap rates.

You know I'd add on what you just said. You are going to see this quarter-to-quarter. You're going to see cap rates and acquisition are going to be all over the map because we are buying particularly in infield side. It's almost impossible to buy a site that is leased at market because rents have been growing so quickly. So this is something probably we'll get used to it.

By the way, anticipating everybody's next question, that our dispositions that are high cap rate than our acquisitions and the answer is yes, because they're value maximize. We've rolled out those leases to market, and by large their sale of non-strategic assets. So, that explains the other end of that equation.

Your next question is from Dave Rodgers with Baird. Your line is open.

Yes. Hi, everyone. I guess maybe just a follow-up on the total sale. Thoughts about selling down in Europe maybe versus selling down in the U.S., can you give us some added color on demand for assets and kind of where you still over-own in the U.S. and your funds, especially given kind of the comments about growth you just mentioned about Europe? So maybe wrap all that up would be great.

Our challenge in selling down is that we don't need the capital. And if anything, it gets us to too lower leverage and dilutes our earnings growth. So we're now underlevered. We're just over 20% of the market value in terms of leverage, and we'd like to be higher than that. So that's why we're not out there rebalancing to the target size immediately. It's in effect, its money that's invested and we're happy with where it's invested. And once we find other deployment opportunities, for example, building up our land bank or other acquisitions, then we can in effect sell down those funds and redeploy in places where we want. In terms of our ability to sell down, both of our open end funds are -- have significant use. And in fact -- and they have significant chateau use, and we've stopped trying to raise more money for them because until we can get the capital invested, there's no point doing that. So there's plenty of money and our timing decision is more driven by our alternative investment opportunities. We are not making a market call about Europe or US or any of these things. We think there's plenty of rental growth left in both markets.

Your next question is from Derek Johnston with Deutsche Bank. Your line is open.

Thank you. With rising equity valuation, how do you think about the possible use of equity capital given the favorable cost profile?

The most profitable use of capital for us is building out our existing land banks because the marginal return on those investments is significantly higher than anything else we can do with capital. As to whether we need more capital or more equity, we don't need more equity. So, we're not going to be raising any equity anytime soon and maybe never. And we can -- the way we look at it, in terms of our run rate development needs and capital, our ability to sell down in our funds back to targeted levels is enough to take care of 10 years of that type of deployment. So, we've got lots of money. The question is, what are the best places to deploy it?

Your next question is from Manny Korchman with Citi. Your line is open.

Hey guys. Tom, earlier in the call, I think you said that $0.03 of the guidance weight was related to being less conservative than you were, call it, 90 days ago. If we go back to your comments then, it looks like about $0.02 of that was based on same-store occupancy and $0.03 was based on deployment. Is that still the same mix or are you now essentially not just less confident or buffering but you're actually beyond where you thought things would be?

Yeah. So just a reminder, so the $0.05 originally in the January call was $0.02 of NOI, including same-store; $0.02 of more and faster deployment potential and $0.01 from just fees related to higher transaction volumes, that was our original plan, that was the delta. Today, I think the mix we've got $0.02 to go there and that mix is relatively the same, that $0.02 is probably a little back half weighted from a deployment standpoint -- from a driver standpoint, but no, we've got $0.02 to go if the market conditions hold, customer segment remains strong, build-to-suit activity is good. Then I would expect that we would see this $0.02 of upside down the road if things hold. But we'll tell you how things are, where given a few straight, this is our best guess of where we're going to land today based on what we see. And we'll update you as that view changes.

The converse of what just Tom said is by definition, if the mix is the same with the $0.02 that remain, the $0.03 of -- if you want to call it outperformance or reversion to original performance targets is also the same mix. So, everything is the same mix that we originally laid out for the price. It's just we haven't realized the full potential yet, it doesn't mean we won't, but we'll report on that as time goes on.

Your next question is from Jamie Feldman with Bank of America Merrill Lynch. Your line is open.

Just a quick follow up on the AI initiatives or big data initiatives. Can you provide some thoughts on what you think it might mean for margins or impact on earnings or development margins? Just some ability to quantify what this whole program might mean?

Well, the first -- that's a big topic. The first specific project that we're tackling is revenue management. And our expectations for the impact of revenue management is between 1% and 3%. And if you are going to put a gun to my head, I would probably say 2% to 3%, but we'll see. And we're expecting to fully roll that program up in at the beginning of the third quarter. But of course it will take a number of years before the results of that are fully come about because not all the leases are rolling over at the same time. So that's just the first project we have. Once we get that one over the finish line, we have a number of other projects that are in the docket for us to roll that out. But we're going to take our time and do the each part properly and build some confidence in the organization in terms of our ability to do that work and move on to the next one.

Your next question is from Ki Bin Kim with SunTrust. Your line is open.

Thanks. I think most of the big questions have been asked already, so just a couple of follow-ups. Going back to Europe, can you talk a little bit more about your customer behavior you're noticing there as it compares to like the U.S.? And maybe it doesn't show up in a rental rate for occupancy and maybe it's more subtle in terms of like was the language in the leases or duration or TI usage, but maybe you can provide some color on how that compares to U.S.? And the second question, this might be a little bit early, but do you have any kind of early thoughts on micro fulfillment centers and what impact that might make on business?

So in Europe, look, absorption in the content was in the 68 million to 70 million square foot range a couple of years ago, and now it's in excess of 90 million square feet of absorption. So, trends are reasonably healthy in Europe. And in terms of discernible trends, I would say, there is less spec development in Europe and therefore more of our business is built-to-suit and customers. We have a better -- I mean, we have plenty of built-to-suit pipeline in the States, but it's even better in Europe, and that market tends to be less spec. So, in land, land is interesting in Europe because in couple of the big markets like Germany and France, by and large, land is controlled by the government and there are strict controls as to how much of it they release for development and usually is tied to employment generation and the like. So they're metering out of land and, if you will, the risk of overbuilding of spec is less in Europe than it is in the US for that reason. Mike, anything else you want to add?

I think more pointing out, 3PLs are very active, and probably at two times the percentage we see in the US. A lot of activity in last touch activities and we're seeing familiar players like UPS and Amazon over there making some significant structural investments, so good activity and sentiment in Europe.

And on e-commerce, they're ahead of us by and large, because they don't have quite the same infrastructure of existing retail in 26 different formats.

Your next question comes from John Guinee with Stifel. Your line is open.

Yes. One follow-up question, my recollection in the -- Tom, correct me if I got this wrong, but you raise your dividend about $0.05 a share, 10.4% late in the first quarter, was that just to meet your taxable minimum or did you pay a dividend above your taxable minimum?

No, John, it's the former. It's to meet our minimum. We continue quite frankly to run that type. We're retaining a lot of cash flow. If you look at our earnings over the last three years, we're going to grow north based on our new midpoint north of 9%. Our cash flow and AFFO has grown in the low double digits. Our dividend has grown 8% over that same period of time. So we clearly have capacity.

By the way, while we delevered by about 10 points.

Yes. So we're -- the bare minimum is the short answer.

Okay. John, you get the last word. I thank you for your attendance and look forward to seeing you next quarter if not sooner. Thank you.

This concludes today's conference call. You may now disconnect.