Welcome to the Prologis and DCP Merger Conference Call. My name is Dan, 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. Thank you.
Also note, this conference is being recorded. I would now like to turn the call over to Tracy Ward. Tracy, you may begin.
Thanks, Dan. Good morning, everyone. Welcome to the Prologis and DCT merger conference call. If you've not yet downloaded the press release or acquisition presentation related to this call, they are available on Prologis' website at prologis.comunderinvestorrelations and DCT's website atdctindustrial.comunderinvestors. This morning, you will hear from Hamid Mochadam, Prologis' Chairman and CEO Gene Riley, Prologis' Chief Executive Officer for the Americas Tom Olinger, Prologis' Chief Financial Officer and also joining us for the call from Prologis is Ed Nikris.
With us today from DCT is Phil Hawkins, President and CEO Matt Murphy, Chief Financial Officer John Spiegelman and Melissa Sachs. Following our prepared remarks, we will host a question and answer session. Before we begin our prepared remarks, 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 the companies operate as well as beliefs and assumptions of the management of both companies. Some of these factors are referred to in Prologis' and DCT's 10 ks's or SEC filings.
Additional factors that could cause actual results to differ include, but are not limited to, the expected timing and likelihood of completion of the transaction, including the ability to obtain the requisite approval of DCT stockholders and the risk that conditions to the closing of the transaction may not be satisfied. Forward looking statements are not guarantees of performance and operating results may differ. Finally, this call will contain forward financial measures such as FFO and EBITDA that are non GAAP measures. In accordance with Reg G, the companies have provided reconciliations to those measures in their respective earnings packages. With that, I'll turn the call over to Hamid.
Hamid, will you please begin?
Thanks, Tracy, and good morning, everyone. I'm very excited to be here this morning with the Prologis team as well as Bill I'd like to I'd like to start by telling you about the tremendous respect and admiration we have for what Phil and his colleagues have accomplished in transforming DCT into a premier industrial company. In our view, DCT's assets today along with Prologis' represent 2 of the highest quality portfolios in the top logistics markets in the U. S. The complementary nature of our holdings make for a profitable and highly strategic combination.
Over the past decade, the DCT team has created significant value through thoughtful market realignment, strong real estate operations and smart development. At the same time, Prologis has built a high quality of significant scale and efficiency with unique platform capabilities and an enviable cost of capital. This combination allows DCT shareholders to capture an attractive premium above NAV upfront, while allowing all continuing shareholders to benefit from significant cost and revenue synergies, as well as increased customer mind share going forward. With that, let me now turn it over to Phil for his remarks.
Thanks, Amit, and good morning, everyone. This is an important time for DCT. Yesterday, our Board voted unanimously to merge DCT into Prologis. We've competed against Prologis now for many years and it's always been apparent to us that their approach to operating, investing and developing is very consistent with our own. As a result, the overlap between our respective companies markets and portfolio quality is remarkable.
And through that competition, we've gained a great deal of respect for the leadership team and their company. The economics of the transaction were obviously an important consideration as well. Using Friday's closing prices, our investors will receive a 15.6% premium on their shares as well as a 36% increase in their dividends per DCT share. Considering these economics, we asked ourselves if over the next few years, can we outperform the premium that our shareholders can receive today? And our answer was maybe, but we felt that we would have a much better opportunity to create value with Prologis because of the combined company's significant scale, cost of capital and platform advantages.
So in the end, while a momentous decision for us to make, we're convinced that agreeing to Emerge is a clear cut and compelling opportunity for our shareholders. While this is a great day for our shareholders, it will for sure be filled with many mixed emotions from me and my DCT colleagues. We built a great organization and our employees have done a phenomenal job creating tremendous value for DCT shareholders over the past 10 years by consistently delivering top tier results and exceeding expectations. And while today marks the beginning of the end for DCT and our value creation mission, we can all look back on our days as a company with pride and treasure the friendships that we built together. With that, let me turn the call over to Gene.
Thanks, Phil. At a high level, DCT's real estate assets are comprised of a 71,000,000 square foot operating portfolio, a 7,000,000 square foot development and value add program and over 400 acres of owned and controlled land. All of these assets are located in markets and submarkets that Prologis considers strategic and in which we have scale and operating presence. We're happy to discuss the portfolio in more detail in Q and A, but suffice it to say these assets are very similar to the Prologis U. S.
Assets in terms of customer profile, physical characteristics and locations. The most significant portfolio level difference is that DCT has a somewhat heavier weighting to Atlanta and a lighter weighting to New Jersey. We expect to trim $550,000,000 or about 7% of the portfolio through dispositions over the next 24 months. The complementary business strategies and portfolios allow us to capture $80,000,000 per year in immediate cost synergies comprised of $43,000,000 of financial savings, which Tom Olinger will cover later on $30,000,000 in redundant corporate overhead, which will be reflected as reduced SG and A and $7,000,000 in net property management revenue, which would be reflected as an increase in NOI. While there is significant efficiencies running the DCT portfolio on the PLD platform, we will hire a number of leasing and property management professionals to manage these assets.
And of course, we hope to attract some of the talented DCT personnel who operate this real estate and manage these customer relationships today. In addition, we have several current openings for development and construction roles at Prologis and look forward to discussing these opportunities with DCT team members. I want to turn to the outlook for operating performance before describing the revenue synergies. Over the last 5 years, the two companies have posted similar operating results and we believe the portfolios are today set up to continue this trend. Because of the domestic nature of this portfolio, the Prologis in place rent mark to market will increase.
I am very excited about the long term potential for revenue synergies here. We believe these will reach $40,000,000 per annum over time, dollars 15,000,000 from operating performance and $25,000,000 from development profitability. As leases roll in the DCT portfolio now as a part of the Prologis platform, the leasing teams will be working with deeper market knowledge and relationships, more flexibility, access to better information, bigger market share, ultimately with the ability to serve customers better and generate more revenue. The DCT assets will perform better on top of the Prologis platform and the Prologis assets will likewise benefit from the addition of DCT. We believe incremental annual NOI on just the DCT assets will ramp to $15,000,000 in about 5 years.
We also believe that we can capture and maintain about 50% of DCT's current annual development volume. This approximates about $25,000,000 in incremental development value creation per year. Finally, none of these synergy estimates include the potential benefits of procurement, ancillary revenue sources or our other platform initiatives currently underway. These are hard to measure, but no question the addition of this strategic portfolio enhances all of these efforts and ultimately all of our real estate. With that, I'll turn it over to Tom.
Thanks, Gene. I'll start with the transaction synergies, the majority of which will be recognized immediately upon closing. With the overlap of the portfolios and our operating leverage, we expect savings of approximately $37,000,000 from G and A and property management. Post transaction, our G and A as a percentage of AUM will drop by 12% to 43 basis points. Rounding out the Day 1 synergies are approximately $43,000,000 of mark to market adjustments.
These are comprised of $36,000,000 of interest expense savings driven by both mark to market as well as lower borrowing costs and $7,000,000 related to fair value lease adjustments and straight line rent reset. The transaction will increase annual core FFO by $0.06 to $0.08 per share or by 2% to 3%. We expect to maintain our current dividend, which implies $1.92 per share for 2018. As Gene mentioned, going forward, we have the potential to generate $40,000,000 in annual revenue synergies, which are not included in this accretion. Turning to the balance sheet.
Given the all stock structure, there will be no significant funder requirements day 1. This transaction will further strengthen our fortress balance sheet as we'll maintain strong coverage with combined leverage of 24%, debt to EBITDA of less than 4.5 times and fixed charge coverage of more than 7 times. Using our significant cost capital advantage, we will lower the weighted average interest rate on DCT's debt through refinancing activity. Normalizing leverage will continue to be a catalyst for future growth as every 100 basis points in additional leverage translates to about 1% of core FFO growth. And finally, given DCT's domestically focused portfolio, this transaction increases our U.
S. Dollar net equity to about 97%. In closing, we feel great about this highly strategic transaction. We are confident we will realize the synergies that we laid out and that we will drive further value upside from our platform initiatives. With that, thank you for your interest and I'll turn the call over to our operator, Dan, for your questions.
And we will now conduct our question and answer Your first question comes from the line of Jeremy Metz with BMO Capital Markets. Please go ahead.
Hey, good morning. Tom, I was wondering if you could talk about the $7,000,000 of straight line in lease mark to market and in particular how much of that $7,000,000 is a lease mark to market? PLD is frequently talked about the significant market it has on its U. S. Portfolio.
So, I would have expected this to be a little bit of a bigger component of the deal here.
It's a good question. You have to remember that if you look at the pure mark to market, it is higher, but you have to also back out DCT straight line rent and mark to market adjustments that are embedded in their revenue. So this number is net of both of those. And as Gene said, the mark to market of the portfolios is very similar in the U. S.
To ours.
Your next question of Ki Bin Kim with SunTrust. Please go ahead.
Thanks. Good morning, everyone. So I mean, can you help me understand this deal and the perspective of your customers and your business? So I get that there's synergies on the balance sheet, G and A, interest costs and things like that. But from a business perspective, what's the real accretion here?
Is it customer retention? Is it the ability to move customers around? So maybe you can help me understand that better.
Sure. A couple of things. First of all, let me just start off by saying that we're paying you a very full price for this portfolio. And by no means are we like stealing the portfolio or anything. So it's an appropriate price for a very high quality portfolio.
Secondly, let me just say that the market in my view under appreciates the quality differences between a DCT on prologist like portfolio and other more commodity like industrial portfolios that may be out there. And the band of cap rates that people use to value assets is overly narrow given the differential and growth potential for different buildings. So that's a backdrop. Now when you're putting these 2 high growth portfolios together, that's not synergies. That's just what these portfolios would have done on their own.
The question is, what do you do that makes 1 plus 1 something greater than 2? And that is market share in the key submarkets. And obviously, we're in the same markets, cities, but we're in the same submarkets. In many cases, we're actually in the same park. Having that kind of market share and market presence and the ability to move tenants around and the ability to understand tenants' the but we believe fully that we will realize to be in excess of the numbers that we've included here.
So tough to prove. We've seen it with the KTR transaction that we've done. We saw it with the AMB Prologis merger and we're pretty confident we'll see it in this instance.
And your next question comes from the line of Manny Korchman with Citi. Please go
ahead. Hey, good morning. It's Michael Bilerman here with Manny. Hamid, I was wondering if you could delve a little bit deeper into sort of pricing and how you thought about issuing your stock at these levels relative to DCT. A couple of comments I picked up from you, I think you said above NAV in the opening comments and in the most recent response you said, we're paying the full price, we're not stealing it.
So maybe you can just go through some of the dynamics on pricing, implied price of 68, Street had NAV of 54, The Street's got an NAV on PLD of 64. So can you just walk through some of the math that got you comfortable paying the price you did?
Sure. Let me just make all of this simple because there are 20 some odd analysts that follow us. There are all kinds of different numbers out there and all that. On Pro Licenses numbers, and I think speaking don't want to speak for Phil, but we pretty much see the economics the same way. The DCT cap rate on that portfolio based on this price is a 4.4% cap rate.
If you look at the Prologis U. S. Portfolio, it's a 4.6% cap rate. So there is you could say that we are paying 20 basis points lower cap rate for this portfolio than the currency that we're using to buy this portfolio. But we think not we think, we know that we will make up more than that day 1 in synergies.
And beyond day 1, as we talked about, there are lots of opportunities to gain more than that through all these revenue synergies and the platform initiatives. So that's the way we looked at the transaction. To think about this as a cash NAV transaction, I just think misses the point. And so that's the way we look at the economics. Hey, would I love to buy this at the published NAV that's on the Street?
Yes, I don't think the portfolio would have been available in that. And frankly, we wouldn't have spent the cash to do it because we couldn't. So, this is a stock transaction and that's the way we looked at it.
Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets. Please go ahead.
Thank you. Good morning. It's Jordan Sadler here. First, I guess I'm curious what you pick up in this portfolio, in the DCT portfolio that you didn't already have within the PLD platform and portfolio? And then second, just the accretion on a leverage neutral basis, if you have it, Tom.
Sure. What we pick up is 71,000,000 square feet of irreplaceable real estate and we're keeping 93% of it. By the way, this is not our first rodeo here. When we did AMB ProLogistix merger, we didn't have to go through $14,000,000,000 of dispositions to get the portfolio to where we want it to be. When we went through the KTR transaction, we have disposed between, I think, 18% 20% of the portfolio to get it to where we want it to be.
In this portfolio, because of its high level of fit, we're talking about 7% dispositions, which is very much consistent with the way we look at our own portfolio today. So the quality and the locations and the ability to aggregate this size of a portfolio of this quality is really unique. And it would have taken us years years to be able to do this in this market. So as I said in the beginning, the market underappreciates differences in growth profile and quality of portfolios. Pretty much everybody goes around and within a very narrow band, maybe 50 basis points applied to different cap rates to different companies.
I think we'll just have to see. You're going to have to wait and see the numbers come through. But I think the growth potential that we're going to get on this portfolio and the savings that we're going to get on the G and A side and on the cost side are going to come through immediately and this will prove to be another really great transaction.
And the accretion on your question about leverage neutral, this is a leverage neutral transaction. The leverage is staying spot on the same. So the accretion you see is leverage neutral.
By the way, there's an important other point embedded in Tom's comment there too. You already know that the ProLogistix target leverage over time is higher than where we are today. You also know that for every increase, 1% increase in leverage towards our long term target, there's an additional percent of growth rate in our earnings, while we're getting the same economics in effect on another $8,400,000,000 of assets. So the fact that we're both under leveraged means there's a lot of dry powder for growth.
Your next question comes from the line of Steve Sakwa with Evercore ISI. Please go ahead.
Thanks. Good morning. Hameen, I guess I was wondering if you could maybe draw upon your experience at KTR kind of being the most recent and maybe somewhat similar transaction and maybe talk about some of the synergies that you got post the deal here. It's obviously clear that on a cash kind of AFFO basis, it's kind of neutral day 1. But what were some of the things that you got out of KTR?
How quickly did those come through? And how much more today maybe exceed your expectations?
I would say on the KTR synergies, we exceeded the run rate synergies within 2 quarters. And I would say today, 3 years after the transaction, we're probably 10% to 15% ahead of what we expected in terms of synergies of operating the 2 portfolios together. I think in KTR, we missed it a little bit on the level of dispositions. Originally, we went into it thinking that about 10% of it would be disposed and we ended up disposing more of it. But in terms of the economics that we dropped to the bottom line, I would say faster and bigger than we talked to you guys about.
Your next question comes from the line of John Guinee with Stifel. Please go ahead.
Great. Hey, Phil Hawkins, are you still there?
I am.
All right. 15% premium to recent close, 36% increase in the dividend, dollars 120 a foot, low-four implied cap rate. Could any other Board of any other publicly traded REIT acting as a fiduciary for their shareholders, which is a big if, not take a deal of this magnitude and of this sort of economics?
Are you leading the witness?
I've got some comments on that. I think it's a great deal for DCT shareholders. Given that it's all stock transaction, we spent a lot of time over the last few weeks really better understanding Prologis under the hood. And we became very comfortable not only is it a great deal for our shareholders on a standalone basis, but also it's a great deal for both company shareholders going forward. I guess it's a very unique combination that couldn't happen very often.
There aren't a lot of there aren't that many companies out there that have this high quality and this compatible. The hardest part for me and our Board was not about the fiduciary responsibility to our shareholders. That was easy and I think our Board demonstrated their commitment to do the right thing for shareholders. The hard part about this transaction, as you might imagine, is the people side of it. We've got a great company and a great team that I've become very proud of and also consider almost all of them as friends.
And to see that come to an end as we know it anyway has been very difficult for me, more emotionally traumatic than I might have even imagined. And I knew it was going to be tough. But I also am confident that those who joined PLD will do great and also those who pursue other directions in their career for whatever reason will also do great. The adjustment and the finality of it is what we're dealing with. But thanks for the comments.
Your next question comes from the line of Nick Yulico with UBS. Please go ahead.
Thanks. I just want to go back to the comment about $25,000,000 for the future revenue synergies related to development profitability. Is that just related to the in place DCT development pipeline underway today? And then how did you think about, on the ProLogistix, ascribing value to DCT's development pipeline and platform since DCT doesn't own that much land? Just some thoughts on that would be helpful.
Yes, Nick, this is Gene. Let me take that. So the $25,000,000 is a pretty simple equation. We are just factoring and assuming that we will capture about 50% of the historical volume that DCT has done over time. So we're just assuming that into the future, the rest of the market takes one half and we take the other half.
We hope that ends up being conservative and you put a 15% margin on that and you get 25 $1,000,000 So that's pretty straightforward. In terms of valuing the platform, obviously, we've looked very carefully at all the land bank and the CIP and that's part of our overall valuation. And by the way, we're very, very happy with that. Every single piece of land and development project underway is just as synergistic with our portfolio as the rest of the portfolio. But we did not take and put a separate valuation, so to speak, on the development platform.
As I said earlier in my remarks, we hope to bring on board some development and construction talent because there are some fantastic people at DCT.
Nick, I think the implicit thing in your question was did we take the pro form a development profits out of the DCT portfolio and ascribe a multiple to them and the answer is no. If your question was do we take the profitability in the existing portfolio and with the actual margins that we think we're going to get in that business and value it that way as a one time asset purchase, the answer is yes. So no ongoing platform value for development.
Your next question comes from the line of Vincent Zhou with Deutsche Bank. Please go ahead.
Hey, good morning, everyone. I just want to go back to the $0.06 to $0.08 of accretion there. I just want to be clear on the $550,000,000 of expected dispositions, is that baked into that $0.06 to $0.08 And then in terms of the interest expense, the $36,000,000 is listed as debt mark to market. And I was just curious how much of any you can get out sooner to make that more of a cash mark to market as opposed to an accounting?
This is Tom. I'll take both of those questions. On your first question, the dispositions, yes, that's implicit in our guidance in that forecast accretion because of just the way we recycle capital. So that's embedded in there. On your question about the interest savings, about day 1, so the $36,000,000 of debt mark to market, almost half of that we will realize in cash savings going forward day 1.
We're going to probably refinance roughly half the debt stack. The remaining portion we think we're going to get after very quickly, I would say by no later than the end of the year, but we're going to get after that right away. I would expect it to be much sooner than And most of that incremental is going to be cash savings. A simple way to look at it is DCT's debt stack of $1,800,000,000 4.4 interest rate average. Prologis today, 2.8%.
That delta on $1,800,000,000 is about $30,000,000 So that is the opportunity for us from a cash interest savings standpoint and we think we're going to get after it. Half of it comes day 1, the other half is going to very soon be after it.
Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.
Yes, thanks. Hamid, does this deal change your expectation what's the right long term annual development start volume of $2,000,000,000 to $3,000,000,000 Do you expect to stay within that long term range even after this deal?
Not significantly, because remember, our development program is a global program and actually we do more development outside the U. S. Than in the U. S. So this will be a pretty significant volume of development that won't be affected by this transaction.
But I would if I were going to pick a number, the number would be about $150,000,000 a year of incremental development. And to be honest with you, that gets lost in the $2,000,000,000 to $3,000,000,000 number. I can't be that precise about things.
Your next question comes from the line of Eric Frankel with Green Street Advisors. Please go ahead.
Thank you. Tom, first, in regards to the interest savings, can you bucket how much that $36,000,000 would have been earned by DCT anyway by just refinancing their debt over time, dipping their lower cost of borrowing? And then the second question, can someone just remark on the potential revenue synergies going forward? I noticed in your letter to your employees that you remarked on this 5 d initiative. So can you just talk about how your platform aside from just having properties close by and tenants that you can move around, how you might be able to create some more revenue synergies over time?
Thank you.
Eric, on the first question, I don't have the precise numbers. I'm here with Matt. But certainly DCT with their balance sheet and their operating performance could have and would have realized interest savings over time. But the magnitude by which we can realize those, both the magnitude and the time is dramatically different.
Well, one easy way of thinking about it is that eventually on a leverage neutral basis, dollars 1,800,000,000 of debt would get refinanced, forget the interim timing. But if you look at the run rate, I mean, our cost of capital, our cost of borrowing, regardless of where you are in the maturity curve, is about 60, 65 basis points lower than there just because of our liquidity and larger size of the balance sheet. So that over time would be a pretty significant run rate interest rate savings, which exceeds the numbers we've been talking about here. Eventually, we'll get to that. The entire debt effect.
It might take us time. So that was one. On the revenue synergies, synergies, Eric, I'm not sure I understand your question because I think there were 2 prior questions on this that we went through. Is there an aspect of it that you want to focus on or we didn't explain fully, happy to do that a little bit later.
Your next question comes from the line of Vikram Malhotra with Morgan Stanley. Please go
ahead. Thanks. Hamid, maybe you can talk about this transaction in context of maybe other opportunity, specifically in other geographies like Europe? What does this mean for your appetite for Europe and how do you think about the opportunities there?
Look, there have been some pretty significant transactions in Europe. And in every case, we've been present, we've analyzed it, we've thoroughly torn it apart and put it back together again, and we've elected not to proceed with those transactions. You can assume that with our platform, pretty much everything that happens in the Industrial business, we have the opportunity to look at and analyze, and we act on very few of those opportunities. In fact, in my career, going back to the AMD days, we've acted this would be the 3rd company opportunity we've acted on. That's kind of 1 a decade if you divide it by 35 years.
So it's not we're out there buying every deal that comes up. It was the ProLogistix transaction, it was the KTR transaction and now it's DCT. And the common theme between all of them is quality location, which really matters in this business.
Your next question comes from the line of Jon Petersen with Jefferies. Please go ahead.
Great. Thanks. I just wonder if there's any consideration in terms of moving some of the DTT properties over into funds and to get some AUM there. Was there any thought into structuring it that way? Or could eventually that be an end game for some of the properties in the DCT portfolio?
Not specifically for that reason at all because again as I said, the currency used in this transaction is our equity. And if we were to use the funds, it would be cash and that would be a different set of economics altogether. So there's no current plan to do that. We may want to use some of the DCT assets at some point to fulfill some of our ongoing 1031 requirements with respect to our normal asset recycling program. But if we did that, it would be a very small part of this transaction overall.
Your next question comes from the line of Bill Crow from Raymond James. Please go ahead.
Thanks. Good morning. Phil, a 2 parter from you. Did DCT seek or receive any other bids in this process? And do you have a non compete?
Or is it possible we could see you and Matt back in the business again?
We did not market the company. We were on a very focused mission to continue to execute the way you've seen us do for quite a while. The conversations with Hamed and Gene and others led to the opportunity that we felt we needed to pursue, but we did not initiate it. And so that's that. I have a non compete for 1 year.
I'm joining the Prologis Board and gratefully so and enthusiastically so. So it's not my expectation you'll see me back in the industrial space.
Yes.
Your next question?
The only thing that changes is that I'm going to be working for him going
My question has been answered. Thank you.
My question has been answered. Thank you.
And your next question comes from the line of Manny Korchman with Citi. Please go ahead.
Yes. Just Michael Bilerman. I have 2 quick follow ups. One was just, Phil, you talked that you didn't market and there's basically a window period in the merger agreement. So I assume you didn't during the last few weeks, it was an exclusive transaction where you didn't reach out to any other party.
So if you can just confirm that. And then the second question, just Tom, on all the debt, DCT has got a pretty long dated debt maturity profile. And so I assume you're going to have to prepay and there's a fair amount of cost in doing that. So if you can just outline total sort of cost in this transaction from debt breakage, bankers, lawyers and all of that just as we think about adding that to the debt stack what you want to accomplish on the interest rate savings?
Michael, yes, I'll confirm. We did not reach out to anyone, hence the window shop provision that you've seen in the merger agreement.
And Michael, we're going to look at all the debt and look at the liability management piece of that. And if it makes economic sense for us to do that, you're familiar with how we look economically to make sure we do a mass maturity NPV calculation to make sure we're getting the economics to take out debt. And right now based on what we've seen it looks very favorable. So I'm confident we'll be able to get that after that debt in a very economic way including all associated costs to do that.
Your next question comes from the line of Steve Sakwa with Evercore ISI. Please go ahead.
Yes, thanks. I guess Michael really asked my question about the kind of overall transaction costs severance and the like. I guess that will be disclosed in the proxy. But is there any sort of range or broad sort of set of numbers you could provide us today?
Yes. Steve, this is Tom. It's roughly about 1% of transaction costs for about $85,000,000 and the components of that will be broken out in the proxy.
Your next question comes from the line of Eric Frankel with Green Street Advisors. Please go ahead.
Thank you. Hamid, I'll try to be more specific with the revenue synergy question. I think that's more related to some of the technological investments you've made over the last couple of years and the group you've formed there. So maybe you can remark on that and how perhaps a tenant is going to be willing to pay a little more rental revenue to be in your portfolio versus a generic landlord? And then Phil and Matt, just wanted to separately congratulate you both.
You've done a terrific job running your company over the last about 13 years now. Thank you.
Great. Eric, so I would categorically break down the revenue synergies into 2 buckets. There are things that we can do to the real estate by virtue of these two portfolios being together, which is deeper market presence, better market knowledge, sort of the clustering effect of knowing what's going on in your market because you own it now. And those are all things that Gene talked about already. So I won't repeat those.
The second category is what you clarified just now, which are what are the platform initiatives and what are the areas that we're working on. And I would say in terms of relevance to this transaction and this opportunity, there are 4 that you should think about. And let me just touch on them and probably this is not the place to dwell on them. But one is customer experience. We are spending a lot of time reengineering the way we interact with the customers, the value proposition, the way we do everything from the clear lease, which is the gross lease approach to them, simplifying their life, doing a lot of the maintenance work that we usually put on them, doing it on scale more efficiently ourselves, enhancing the move in process and all the things that gets them up to business right away instead of having to wait to get up to speed, etcetera, etcetera.
There are actually 16 things alone under customer experience that we're doing that are paying pretty big dividends on our own portfolio right now. And of course, we'll do that on this increased portfolio. The second initiative is what we call PARS, PARS, which is procurement and ancillary revenues. The procurement part of it has to do with the way we buy CapEx, the way we buy development and the way we do our operating expenses that previously were done by our tenants that we can perform for them on scale on a more efficient basis. We have roughly between development, CapEx and OpEx about a $3,000,000,000 annual run rate just as Prologis without taking into account the DCT platform.
Look, I don't want to be too optimistic, but we think there's a 5% opportunity to take cost out of that by virtue of doing these things in bulk. That's a huge number. That's a $150,000,000 number. Now, I don't want to get a call on every call going forward. Is it $150,000,000 or $140,000,000 or 100 and $60,000,000 but it's on order of magnitude, it's 100 of 1,000,000 of dollars of opportunities.
The ARS part of that, which is ancillary revenues, have to do with all the things other than 4 walls and a roof that you can collect rent on. These would be billboards, this would be signage, that would be roof signage, that would be places that you can install cellular antennas, 5 gs rollout. There's a lot of other stuff that you can do, solar, renewable energy on the roofs and the like. So again, very significant opportunity. The 3rd category is data.
And this one we're very early on. So this is going to take some time to come. But data is becoming an increasingly important commodity to our customers because really we're in the business of helping them serve their customers. Real estate is just one component of that. Data is another component of that.
As you know, about 2% of the global GDP goes through our buildings. We published that study about 6 months ago. There's a lot you can learn by being a little more attentive to 2% of the global economy going through your buildings. And I think some of that can be very helpful to our customers. On this one, we're a couple of years away.
Finally, the one that's immediate and we've already gotten a lot of benefits on is continuous improvement. We are doing things like doing real time budgeting. So we don't do budgeting anymore real time. Every time we sign a lease, our entire portfolio is updated. We're running we basically took on the KTR portfolio with no incremental revenue.
And I think we can take on $20,000,000,000 $30,000,000,000 $40,000,000,000 more real estate with systems investments that we've done. This is below the line, not at the property level, at the SG and A level, because we've invested in technology. We've invested over $100,000,000 in technology since the merger. These are not numbers that normal real estate companies can afford to do. So I've probably taken more time than I should have to discuss this already.
I'm happy to talk about it offline with any one of you. But over time, this business is about doing things so that $1 of NAV becomes $1 something of cash flow to your shareholders. And you need scale to do that. And we got to get out of this mentality of NAV because that basically means management and scale can add any value. And we just frankly don't believe in that.
And I don't think Phil does either.
Your next question comes from the line of Tom Catherwood with BTIG. Please go ahead.
Thank you and good morning. For the past few years, you've been rightsizing your U. S. Portfolio, increasing holdings on the coasts and reducing exposure in certain central region markets. It seems like with this deal, even after the $550,000,000 of sales, it will increase your weighting in the central region.
So the questions are kind of first, is that the case? And second, if that's so, how are the DCT assets different from those that you sold or contributed in the middle of the country over the past few years?
Okay. So, let's talk about the DCT assets as everything other than the $550,000,000 okay, that we're thinking about selling. So the vast majority, dollars 8,000,000,000 of the DCT assets are exactly like the assets that we have kept in our portfolio, okay? So the only part of it that is non strategic in our view is about 7% of it or about $550,000,000 So that's a very small part of this deal. Secondly, since the AMB Prologis merger, we have disposed of $12,000,000,000 of real estate.
That's with a B. That's a tremendous amount of real estate that we've recycled. By the way, we've bought about $10,000,000,000 and we've developed about $7,000,000,000 or $8,000,000,000 in the process of doing that. So there's been a tremendous reshuffling of our portfolio as well. It's just that it's so big that by percentage, it doesn't look that big, but by absolute numbers, it's actually a couple of companies combined.
So we're pretty confident that we can get through the $550,000,000 in the normal course of business. There is no urgency to doing that. And we'll tap those resources when we need the capital. And we don't need a lot of capital right now. So we're not in a big hurry to dispose of those.
They're fine. In most other portfolios, they would actually be considered really good assets. It's just that we have a pretty high bar.
And your last question today comes from the line of Manny Korchman with Citi. Please go ahead.
Hey, it's actually Manny here with Michael. Just appreciate the laugh. In terms of just thinking about your exposure to global markets, we spent a whole lot of time last year talking about Europe as a growth driver. We spent a few days on the ground there. Here you go with a big U.
S. Portfolio deal that increases your U. S. Exposure as a proportion of shrinks to Europe. How do you think about that?
Are we reading too much into that, especially with some of these comments on European deals being hard to close?
So, good question. We just found that the European opportunities have been significantly mispriced in
terms of our view,
obviously properly priced in the eyes of the people that pursued those transactions. We've looked at them. We analyzed them. And we like Europe. We think Europe is going to have pretty significant growth in 2019 2020 and onwards.
It's behind the U. S. In terms of cycle, but that doesn't mean there are assets in the U. S. That there are some assets in the U.
S. That we really like and DCT would be on top of that list. So you got to act on these opportunities when the moment is right because you can't pick your shots on your own timing. This opportunity is an opportunity of a decade. It's taken Phil and his team to really recycle this portfolio and get it to this condition.
To be perfectly honest with you, we would have had 0 interest in buying the DCT portfolio a decade ago, 0, nada. So it's a lot of pain and agony that the team has gone through to get the portfolio this condition and this is why we like it. Pretty hard to do.
And your last question comes from the line of Sumit Sharma with VR Investments.
This is Sumit. Thanks for taking the question. I guess following up on Tom Catherwood's question, how does this change your focus of market thesis? You had, I guess, 5 submarkets in the recent presentation. And I think Gene mentioned that this ticks up the mark to market across the portfolio a bit.
Is there a number that you'd like to share? And secondly, are there any other portfolios of similar size floating around the market? Just trying to get a sense of the transaction activity.
I'm not aware of any portfolio of this size and this quality that's floating around out there. I would say even a portfolio of much smaller size and this quality, I can't say so. The answer to your second question would be no. The answer to your first question is, we're active in global and regional markets that we have very clearly explained and they're in our supplemental and that's where our focus has been. There are 5 of those markets that really stand out because of their size and scale.
There is zero difference between the DCT portfolio and the presence that we'd like to have. There's perfect alignment. The only difference of any note is that they're slightly underweighted compared to our portfolio. I wouldn't say slightly, they're underweighted with respect to our portfolio in New Jersey and they are slightly over weighted compared to our portfolio in Atlanta. And both of those two markets are big markets.
But with respect to LA, with respect to Bay Area, with respect to Chicago, Dallas, all the other important markets, Seattle, we're in perfect alignment, not just by market, by the way. You've got to be really careful about this too. I mean, I've seen people talk about the Bay Area and their assets are in Sacramento. So I don't mean that. I mean literally submarket by submarket.
I think in the material that you have, you even see some of the parks that we have common buildings in. So there is perfect alignment, not just by market, but also submarket and we like this portfolio a lot. Okay. Since that was the last question from Sameet, thank you very much. I'm sure we're going to be talking to most of you over the course of the next couple of weeks.
I look forward to that.
I also before I want to also echo thanks to Haneet and Phil and his team for joining the call. I want to thank everybody who's been on this call investors and analysts. I've known many of you for many years and appreciate that friendship and relationship and look forward to speaking with you more. I also want to thank our employees, many of whom I'm sure are listening as well. We've done a great job together.
I'm very grateful for what you've done to create value for our shareholders. We be proud of that. And thank you. Good day.