Welcome to the Prologis Conference Call relating to the proposed merger of Prologis and Liberty Property Trust. My name is Jack, 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 that this conference is being recorded. I'd now like to turn the call over to Tracy Ward. Tracy, you may begin.
Thanks, Jack. Good morning, everyone. 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 Liberty's website at libertyindustrialunderinvestors. This morning, you'll hear from Hamid Moghadam, our Investment Officer and Tom Olinger, our Chief Financial Officer.
Also joining us for the call from Prologis is Ed Nekritz and Chris Caton. 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 and estimates and projections about the market and the industry in which the companies operate as well as beliefs and assumptions of management of both companies. Some of these factors are referred to in Prologis' and Liberty's 10 ks and other SEC filings. Additional factors that could cause actual results to differ include, but are not limited to the potential benefit of the proposed merger, the expected timing and likelihood of completion of the transaction, including the ability to obtain the requisite approval of Liberty Shareholders and the risk that conditions to the closing of the transaction may not be satisfied.
Forward looking statements are not guarantees of performance and actual operating results may differ. Finally, this call will contain financial measures such as FFO and adjusted EBITDA that are non GAAP measures. We do not use these measures as nor should they be alternatives to net earnings computed under GAAP as indicators of our operating performance as alternatives to cash from operating activities computed under GAAP or as indicated of our ability to fund our cash needs. With that, I'll turn the call over to Hamid. Will you please begin?
Thank you, Tracy, and good morning, everyone. We're here to discuss the transaction that we announced last evening. Liberty is a company we've admired for quite some time. They have high quality assets in many of our target markets. We have a great deal of respect for Bill Hankowski and his team.
They've done an excellent job of focusing the business on high quality industrial markets, a strategic direction that we look to complete. Significant synergies exist that will be accretive in the short term to earnings and neutral on NAV. There's also significant customer overlap between the two businesses. Gene Riley will shortly talk about the operational and real estate aspects of this transaction and he'll turn it over to Tom to discuss the financial aspects. We look forward to addressing your questions at the end of those two presentations.
Thank you.
Thanks, Smedes, and good morning, everybody. I'm going to cover the transaction overview very quickly as
you all have the details
and then describe the attributes and integration of the Liberty assets we will hold in the plans for disposition. This stock for stock transaction implies a price of $12,600,000,000 There will be no changes to the management or Board of Prologis, yet we hope to retain a number of Liberty's team for property management, leasing, development and other open positions today at Prologis. The deal is highly accretive and Tom will cover those details in a minute. Liberty is comprised primarily of a logistics real estate business, including 107,000,000 square foot stabilized portfolio, primarily in the U. S, Over 5,000,000 square feet of development and progress in a very well positioned 1600 Acre Land Bank.
Liberty also owns mixed use assets in the U. S. And the UK and we have a disposition plan for these assets and certain selected logistics assets. But before I address that, I want to discuss the attributes of the assets we intend to hold. Hold assets totaled 73,000,000 square feet, which has 100% overlap with our portfolio.
Notable additions are to the Lehigh Valley, Houston, Chicago, New Jersey and the Southern California markets. The physical characteristics of the assets are exceptional and the average age is about 7 years younger than the Prologis portfolio. We will complete stabilize and hold virtually all of the 5,000,000 square feet of construction and progress. This is about $465,000,000 in value. We will hold about 1,000 acres of the land bank with a build out of approximately 12,000,000 square feet.
About half of this is in the Lehigh Valley and about 20% in South Florida. There is also land in Southern California that is under contract and will likely close prior to the closing of this transaction that is also significant for us. This portfolio expands our connections with 180 existing customers and introduces 325 new relationships, but there will be no material change to our top 25 customer list. After closing this and the previously announced IPT transaction, Prologis will have 9 markets in the U. S.
With more than 20,000,000 square feet and over $2,000,000,000 of assets. Our platform is reached to scale that creates synergies beyond individual asset operations, meaning that our teams have a depth of market knowledge and insight, operational flexibility and local relationships that create unique customer service and collaboration opportunities, which we believe will ultimately drive revenue synergies that should grow over time. The most important aspect
of this
portfolio perhaps is its submarket fit with Prologis. 90% of the whole portfolio is within 5 miles of the Prologis asset. We've been trying to grow our presence in the Lehigh Valley for years and the fact is that Liberty has led this market from its inception. The combined portfolio going forward in the Lehigh Valley totals 26,000,000 square feet with additional land to build 4,000,000 square feet in the future. These properties are extremely well located in the submarket and mostly in master plan parks that Liberty has built over the years.
While Central PA has generally experienced oversupply recently, Liberty's assets are located primarily in the core of Lehigh Valley, which today has a vacancy rate of under 4% and is much more constrained in terms of future supply. Turning to Houston, which is the other big asset concentration. We love this market's long term prospects. It's a top 10 logistics market globally and it has the highest pace of population growth of all of them. The combined Houston portfolio includes 193 buildings and 31,000,000 square feet of the best products in the market.
I should note that there will be a short term dampening of same store NOI with the acquisition of this portfolio given the market mix. And Tom will speak about this in detail. But over the long term, we believe these assets are the assets that we want to own in these markets for the future and for the long term. As separate portfolios, Prologis, Liberty and IPT have a total of 324,000,000 square feet in clusters, which essentially means that they are the assets that are in close proximity to one another. Together, they will have a total of 387,000,000 square feet in clusters.
This is an increase of 64,000,000 square feet, which drags $250,000,000 of annual NOI with it. We believe asset clusters can achieve a 2% premium or $6,000,000 in annual increase NOI in aggregate in this case. Turning to execution. In the past 8 years, we've integrated over $61,000,000,000 of assets in very large portfolio transactions, including the AMB Prologis merger, the KTR and DCT acquisitions and several medium sized deals. In each case, we outperformed our synergy forecast and in each case, our teams on the ground and in corporate functions emerged stronger than ever.
We have identified approximately $3,500,000,000 of non strategic assets for disposition, dollars 700,000,000 of office, of which over $300,000,000 is currently under contract or being marketed. Of the 26 percent of sales in the logistics sector, 10% of this is in exit markets. There are 4 markets in the U. S. That we will exit entirely.
One market Tampa, this will be the 4th time we've actually exited that market. And then 16% is normal calling of the portfolio in our target markets. As a reminder, in the past 8 years, we've sold $15,000,000,000 of assets over 250,000,000 square feet, 1600 properties in 108 markets. So I'm very confident in our team's ability to sell these assets over the next couple of years. The tremendous adjacencies of the portfolio have benefits for revenue synergies going forward, but they also have benefits to the management and integration of the portfolio.
Our people on the ground know the Liberty team very well. They know these assets extremely well. And frankly, they cannot wait to get after the effort to integrate these assets, as well as IPT's assets. And we look forward to discussing the future, as I mentioned earlier, with Liberty employees. So I'm very confident in our ability to manage the creation.
Thanks, Gene. I'll start by reviewing the implied cap rate of the transaction. For the total portfolio, we view the cap rate at 4.7% and the hold portfolio at 4.25%. We would view this hold cap rate as identical to ours on a mix adjusted basis. The synergies associated with the transaction are significant at $120,000,000 First, given our scale and operating leverage, we expect cash savings of approximately $60,000,000 from G and A, property management and leasing.
These savings will be realized on day 1. Another way to think about these cash savings is that the $60,000,000 represents over 80 basis points of additional yield on the hold assets. We continue to scale as post transaction RG and A as a percentage of AUM will drop by 15% to 38 basis points. 2nd, there's approximately $60,000,000 of mark to market adjustments. This consists of $35,000,000 of interest expense savings given our cost of capital advantage.
We are still evaluating our plan for handling Liberty's debt on day 1, but we expect to realize refinancing activity. The remainder of the mark to market is $25,000,000 related to fair value lease adjustments and straight line rent reset. The transaction is expected to close in the Q1 of 2020. From an accretion standpoint, we expect the acquisition to increase core FFO per share in the 1st full year by $0.10 to $0.12 Upon stabilization of the acquired development assets, completion of the planned non strategic asset sales and redeployment of the proceeds, annual core FFO accretion is expected to grow to a total of $0.14 to $0.16 per share from this transaction. Turning to the balance sheet, given the all stock structure, there will be no significant funding requirements on day 1.
This transaction reinforces the strength of our balance sheet while also creating significant incremental capital from the sale of non strategic assets, adding to our substantial investment capacity. We expect to retain our current credit ratings as we will maintain our low leverage and strong coverage metrics. In closing, we feel great about this transaction and are confident we'll realize the synergies that we laid out. With that, thank you for your interest and I'll turn it over to Jack for your
questions. Certainly. Time allowing. Craig Mailman with KeyBanc Capital Markets, your line is open.
Hey, guys. I think Gene touched on the Liberty acquisition could weigh on kind of same store here out of the gate when you guys put it in the portfolio. Could you talk a little bit about how you weighed that dilution from kind of a core growth quality perspective versus the long term?
Yes, I guess there are a couple of ways to look at that. 1 in terms of how we value this business. As Tom mentioned, you look through this, it's about a 4.25 percent. That on a market adjusted basis is right on top of where we are today. So we think these assets are valued the right way.
In terms of the short term growth, there are different profiles between markets and I think that's reflected. From a long term perspective, there is a slight dilution. I'll probably ask Tom to speak to that. But long term, it's a minor.
Yes, it's a minimal impact long term. The same store pool so Liberty will make up roughly 12% of post transaction NOI. So the impact is minimal. It's circa 10 bps.
Yes. Let me also suggest another way of looking at this, which I find interesting. And that is, if you look at the $60,000,000 of cash savings, which are realized day 1 on synergies, on roughly $360,000,000 of their NOI, that's about 83 basis points. So the cap rates are interesting, but we are also, remember, in effect selling real estate at the same cap rate as we are buying. So there is the absolute numbers are interesting, but the relative numbers are what's important.
On top of that, we have 83 basis points of accretion from the synergy savings, which is a very significant and represents 4 or 5 years of same store NOI growth. And certainly, we're going to be able to clean up the portfolio in a much shorter period of time than that. And by definition, the remainder of the portfolio is going to be identical to our growth rates, particularly when you dilute it across what will be about a 900,000,000 square foot portfolio.
Jeremy Metz with BMO. Your line is open.
Hey, good morning. I guess, Sumeet, I was wondering if you could talk a little bit about the process here. I know we'll get the details in the proxy, but hopefully you could share a little color who approached who when first contact was made. And then Tom on the balance sheet, leverage goes up a tick here with the deal. You've spoken in the past about taking leverage up some over time.
Just how comfortable are you ratcheting it up even a little further from here as you take on more deals?
Yes, Jeremy, you know I can't talk about the details of that, but I think I will give you a general answer that hopefully will apply to every one of these calls that we have and has in the past, which is you can be assured that we look at every single transaction in this space that is out there, whether it's on the market or not on the market and interesting to us. So we're constantly in dialogue with people exploring ways of growing our business and we'll continue to do so. Tom, you want to take the second part?
Yes. On the debt capacity leverage standpoint, you're right, we have substantial room for incremental leverage. We have significant liquidity. This transaction alone with the non strategic asset sales, which will generate more significant capital. I don't see our leverage moving materially from where it is just given our normal cash free cash flow, I wouldn't expect it to do much from here.
Yes. It actually sort of extends the delevering up process anyway because it frees up roughly $3,500,000,000 of cash from the sales. So whatever runway we had to be reaching whatever target leverage we had, it just got it extended by $3,500,000,000 which is couple of years of deployment.
Ki Bin Kim with SunTrust. Your line is open.
Thanks. Good morning out there. Congrats on the deal. So if I look at the reported stats from Liberty's results, their GAAP leasing spreads were up 16%, same store NOI flat. And then compared to your results, GAAP leasing spreads of 37% up, same store NOI 4%.
And then I put this deal in perspective to the IPT portfolio that you purchased at about a 4.6% cap rate, DCT at a 4.4% cap rate. Those assets had, I would say, much more of a coastal high growth presence versus Liberty. It just feels like this deal is a little bit different type of flavor. And you said the whole portfolio was at 4.25. So I was wondering if you could just implicitly in that thinking in this deal, maybe you can provide one more color.
And are you implicitly thinking that Liberty's assets will eventually produce the same type of growth that we've been used to from PLD?
Yes. What's it's interesting again, as I said before, to talk about the cap rate for the transaction. But remember, this is a merger. So we're in effect trading our stock for their stock. And in the case of DCT, don't hold me to these numbers, but I think they're pretty close.
I think the two numbers were 4.6%, 4.7%, and at that time we discussed a lot about whether 4.6% or 4.7% was the appropriate cap rate. And I reminded everyone that we're selling at 4.6% and we're buying at 4.6%. Here, once you get beyond the higher yielding assets that we will be selling, the non strategic assets, what remains is going to be a 4.25 percent cap rate on the portfolio, which is again very similar to what we are selling our currency So again, relative valuation is what matters and then there is 83 basis points of immediate synergies that dropped to the bottom line. So one really simplistic way of looking at it is that we are paying for this transaction with roughly 4.25% cap rate assets and we're buying synergy adjusted assets for roughly 5% and change percentage. And that's not counting any of the revenue synergies that we discussed nor is it counting by the way any of the additional development value creation that we can generate on that land bank and additional incremental development capacity.
So we feel really good about this. And it's neutral on our balance sheet. And this is the advantage of scale, but scale alone is not sufficient. Quality scale is what matters. You can generate scale by going out there and buying all kinds of properties.
And unfortunately, in our sector, it seems that people just focus on the cap rate as opposed to the growth rate. And frankly, we like that because that allows other people to do things that are not quite as much of an interest to us, but it also allows us to acquire portfolios that are very attractive to us because of our long term growth profile. For sure, the Liberty portfolio is today is in markets that have a lower same store NOI growth rate than ProLogistix for sure. But it's also in markets that have significantly higher cap rates on the non strategic assets. So the extra yield from those non strategic assets will make up for the lower growth in the short term.
And in the long term, once we've sold those non strategic assets, we're pretty much back on the same growth curve, mix adjusted, going forward. So it actually works out really well in the short term and in the really long term. Now if you want to really be precise about what is the impact on the long term same store NOI growth, for sure this portfolio has higher concentration in Pennsylvania and Houston than our existing portfolio. But look at the numbers. On the numbers, Pennsylvania goes from under 2%.
Our share of Pennsylvania goes from under 2% to 3.5%. Our share of Houston goes from 2% to 3%. So there are 2 points of additional exposure, if you will, to those 2 markets. I don't think 2% additional exposure to somewhat slower growing markets is going to mean anything on a portfolio of our size. But if you want to put a number to it, it could dilute our long term growth rate by call it 10 basis points, 12 basis points, something like that.
So we think it's a pretty attractive way of growing our portfolio.
Steve Sakwa with Evercore ISI. Your line is open.
Thanks. I realize given that this is a a merger using stock, the funds couldn't really come into play, but how do you sort of envision the U. S. Funds maybe participating in this transaction once everything is closed?
Yes, Steve, I don't expect them to do that. I mean, on the IPT transaction, the funds were the sole recipient of those assets. Obviously, we're pretty significant investor in the funds. So indirectly, we're getting our share of that. But all the assets will go into 2 of our vehicles in the U.
S. Here, all the assets go into the balance sheet, not because of any allocation reasons, but because of
the past.
Derek Johnson with Deutsche Bank. Your line is open.
Hi, good morning. Thank you. I was just wondering, I think I recall that Houston was one of the markets that was possibly challenged somewhat by a lower rent roll. So I was just wondering why the outsized exposure there is exciting and also equally what's so exciting about the Lehigh Valley? Thank you.
Well, let me address Houston and just to compound your question and remind you our call out for the weak markets included Houston. They also included Central Pennsylvania and there's some assets here in Central Pennsylvania. So let me anticipate another question and address both of those together. In terms of being on our list of 4 or 5 markets, that is a relative list, but all of these markets have significantly stronger market characteristics than other points in the cycle. But compared to a national market, which is 4.5%, 5 percent vacant in the relevant submarket, they are more oversupplied.
And we expect that to have a dampening effect on rental growth rates in the next year or 2. And that's why we talked about the dampening effect on same store NOI growth in the short term. And that's when the non strategic assets and their higher yields sort of contribute to the growth of the company. In the long term, all these markets go through cycles. And we expect those two markets will normalize.
They're not going to be overbuilt forever. And by that time, we think the growth characteristics are going to be indistinguishable from other markets like them. They're not going to be as dynamic as Los Angeles or Bay Area or Seattle because there are fewer supply constraints, but they're going to be pretty interesting growth rates. And every day, entitlements are getting more difficult even in Pennsylvania and Houston. And every day construction costs are going up and every day replacement cost rents are going up.
Not as much as the coastal markets, but they're going up. So we do expect those markets to be back on track within a year or 2. Gene, do you want to add to that?
Yes. You mentioned what's the point of view on Pennsylvania. One thing I don't know that some of the disposition assets that we described earlier actually are in Pennsylvania. Virtually nothing in the Lehigh Valley, But in Central Pennsylvania, we will sell about 3,500,000 square feet of the Liberty Portfolio, which by the way is about 26,000,000 feet in Pennsylvania in general. So there are some assets and they're all pretty much in Central PA, which is a little more challenged.
But remember, you have a 3.8% vacancy rate in the Lehigh Valley, not so bad. And this is irreplaceable product that you're just you're not going to build much more space in the Lehigh Valley going forward. You go west, yes, there are going to be supply concerns, but we feel great about it. And as I said, we've been looking for growth there forever.
Manny Korchman with Citi. Your line is open.
Hey, it's Michael Bilerman here with Manny. Hamid, I was wondering if you can talk about 2 things. One is, as we think about when you buy portfolios or companies, sort of the overlap. And I think back to the DCT deal last year, I think you had like 94% overlap. A lot of it was hold.
In this case, only 70% of the company is on hold. Obviously, part of that is the office assets, but a much lower percentage. And so just talk sort of generally about how much are you willing to take on in terms of asset sales, because 70% is pretty low relative to what you've done in the past? And then the second part is, if I think back to the DCT deal, Phil had come on and talked about the process from the DCT perspective. He also joins your Board.
Liberty Management is absent from this call. So can you just talk a little bit about those dynamics as well?
Sure. Let me take the Board dynamics first. Look, we would have been delighted to have Bill Hankowsky on our Board. He's the caliber of an individual and professional that could be very accretive to our governance, etcetera. Our Board is just getting too big.
We are still too big from the AMV Prologis merger days. And so we grew it by 1 because right around that time we had 2 retirements. So but we can't keep going in of adding people to our Board. I mean, it's just going to get unwieldy. So this is not in any way a reflection on Bill or his qualifications to be on our Board.
He's certainly qualified. So no problem with that. With respect to percentages of properties, let me just go back and remind you. On the KTR transaction, we sold about 15% of the portfolio. BCT was the most aligned portfolio.
In that case, I think it was 5% 29% disposition. I got to tell you the number of portfolios that have significant overlap with our strategy is getting smaller and smaller every day. And by definition, every single one that's done later is going to be less synergistic with our portfolio. There is no absolute lower bound, on how far we would go, but I would think it would get pretty uninteresting to us if the portfolio is less than 50 percent strategic with our business. By the way, Tracy reminds me, I didn't mention IPT.
IPT is 80% hold, 20% So I don't know, use 50% for just discussion purposes for now. But also remember that the company today before this transaction is almost $110,000,000,000 of assets. And after this, it will be, call it, dollars 125,000,000,000 in transactions. A large portfolio out there would be a $10,000,000,000 portfolio, right? There aren't too many of those left.
So even at 50%, that's $5,000,000,000 of dispositions on what would then be $135,000,000,000 portfolio. So it's a 3% sale of the total asset base. We can handle that in our sleep, I think, pretty much. So we've been selling during the AMB Prologis time after the merger, about $500,000,000 of properties per quarter. So we can work through these portfolios in adequate time and we're not in a hurry to sell anything.
I mean, we can these are good assets and whether we sell them today or a year from now or 2 years from now, I think we'll sell them when we can maximize value. So we're very comfortable taking on things that are at least 50% consistent with our portfolio.
Caitlin Burrows with Goldman Sachs. Your line is open.
Hi, good morning. I guess maybe just in terms of the large scale acquisitions, it does seem like with DCT last year and now IPT and Liberty that you guys have been increasing the portfolio type acquisitions, but you did just talk about how it is hard to find those. So I guess going forward, do you expect portfolio acquisitions to continue being a driver of earnings growth? Or do you think that becomes more limited just because there's less out there?
Good question. Let me just make a categorical point. We have never, never ever in our history provided guidance that includes external growth or inorganic growth. The most important source of growth and people forget this at good parts of the cycle is internal growth. Anybody can convert a multiple advantage by buying portfolios if they can capture the synergies.
That's not what's important. Generating reliable same store growth over time through real estate operations and then customer activities and all the other initiatives that we have going on, squeezing more juice out of that orange is really what this is all about and we're excited about that. So we're not serial acquirers. We don't guide to it, etcetera, etcetera. And by the way, there are a lot of transactions that we pursue that we don't we're not the successful buyer on.
We've done some of those this year, pretty significant ones. So I think we're pretty disciplined about the way we approach things. And I think our track record so far of being able to deliver on our promises on now 3 or 4 acquisitions of scale that we've done has been pretty good and we expect it another aspect to your question that I don't think so. Okay, great. Thank you.
Eric Frankel with Green Street. Your line is open.
Thank you. Congrats everyone on the deal for putting in probably a lot of work over the last few months. Could you provide I'm not sure if you actually did, could you provide an actual timeframe of all the asset sales you want to execute? 1, 2nd, the land bank that you quoted in the press release and the presentation, I think with 20,000,000 total square feet including JVs, you want to get that down to 12,000,000 dollars Does that include any options? I'm certainly aware that Liberty, that's kind of part of their repertoire in the Lehigh Valley to put a lot of land on their options.
And then what are the plans for JVs going forward? Thank you.
Okay. So let me handle the JV question. We obviously haven't had the opportunity to talk to the JV partners yet. And there are a number of different kinds of JVs. There are obviously JVs in Comcast or JVs with financial players.
Some of those financial players are the existing partners of ours. So in the due course of things, we'll get around to talking to the JV partners and depending on their preferences and all that, we'll craft something that works for everybody. With respect to the timeframe on dispositions, I will tell you the very last asset will not be sold sooner than 2 years. And I would be very surprised if the very last asset was still around in 5 years. So if you want a range, I got to put a pretty wide range on it.
It's just not it's not something that's keeping us up at night to do it. So execution quality is more important than any particular timeframe. Gene, do you want to?
Yes. So Eric, with respect to the land, the numbers do not include any options. And the only material change that you might see in the future is this piece of land that's under contract in Southern California. This is a piece of land in South Ontario that is adjacent to land we already own and it is highly strategic for us. And frankly, one off, it's a great piece of land.
But that hasn't closed yet. And when there's more news on that, we'll let you know.
And it's actually right in the middle of 2 parcels. It's not just adjacent, but it's basically the only missing of the assemblage.
Alexander Goldfarb with Sandler O'Neill. Your line is open.
Hey, good morning and thank you. It doesn't sound like anyone from Liberty is on the call. So I guess I'll ask just for you guys specifically. A lot of filings were out this morning and maybe I missed it, but is there any collar or floor that's part of the consideration such that depending on there's a minimum price that Liberty expects or sort of if your stock drops below a certain point the ratio changes?
No, we don't have any ratchets or any colors on the pricing. It's a free floating exchange ratio.
John Peterson with Jefferies. Your line is open.
Great. Thanks. Tom, I was hoping you could help
me with the math and I'll preface this, I think I might be thinking about it the wrong way. But you have the total day 1 synergies at 120,000,000 dollars and the pro form a share count should be about $164,000,000 So that gets me to about $0.16 versus the $0.10 to $0.12 you guys outlined there. So just maybe help me with that math a little bit. And then on the interest expense, I know with DCT you financed a decent amount of it with foreign denominated debt. I wonder if you might do the same here with Liberty.
Yes, John, thanks. So the $0.10 to $0.12 going from the $0.16 it's really around deployment timing and selling assets and the drag on redeploying those assets. That's the main difference. Regarding and development lease up of their portfolio, those would be the 2 components. The second thing on your second question on interest expense, the accretion here reflects any debt refinancing on a U.
S. Dollar basis. We have not underwritten any non dollar offerings, the debt offerings. That being said, I think we certainly will have some capacity to do that and we'll consider that as we finalize our plans. But again, that would be upside to the numbers that you're seeing here.
Yes. And philosophically, we don't go around minimizing interest rates around the world. We actually manage currency. So our strategy of borrowing and borrowing currency is only there to the extent that we have foreign assets that we need to hedge. The idea of buying borrowing in one currency and owning assets in a different currency that's mismatched is not a good recipe for success.
So the timing of some of the financings after DCT may have made it look like those two things were related, but they weren't.
Nick Yulico with Scotiabank. Your line is open.
Thanks. I guess I just want
to go back to the cap rate commentary. I think you said it's a you looked at the deal and it was a 4.25 cap rate on all the assets you plan to keep at Liberty. And I guess I'm just wondering how you kind of got comfortable with that cap rate if you're building up across their markets, kind of bottom up cap rates for their portfolio. And you
guys have been active with M and A
in the last year, Blackstone has as well. It kind of feels like we're seeing a new paradigm with pricing where cap rates are going lower. And I guess I'm just wondering how much that affected your decision making here as well about the trajectory of where cap rates have gone in industrial in the last year?
So we're not smart enough to know where cap rates are going. And in fact, I've been on many calls been asked as to do I think cap rate compression is going to continue and I've said no in the last 3 years and I've been dead wrong. So you don't want to listen to anything I have to say about direction of cap rates. All I know is what the implied cap rate is for Prologis on any given day and because I can look it up on the stock code and I can tell what we can buy with that currency. So we're swapping currencies here again.
And on a mix adjusted basis, the currencies are priced exactly the same way, including the premium that we're paying for Liberty. And on top of that, as I've said, I think a couple of times, we are generating immediate synergies that you can think of as another 80 3 basis points in cap rates without counting any of the revenue synergies. So I think if you can buy a quality portfolio and after synergies come out 83 basis points ahead day 1 and you're swapping currencies on the same valuation basis, that is a great transaction on a real estate basis alone. Once you look at all the things we're doing on our platform to these real estate assets in terms of additional products and services that we can sell to our customers and the additional juice that we can get out of that orange, then it becomes an even more attractive transaction. So we don't spend a lot of time actually looking at the absolute cap rate because we're not smart enough to know where those things are going.
John Guinee with Stifel, your line is open.
Great. Thank you. Nice job guys. 2 curiosity questions. Is it harder to convince a seller in the case of DCT, your stock was about $64 now it's about $88 Is it harder to convince a seller to take your stock at $64 versus $88 And then why should FAS 141 accounting be considered a synergy?
It's not. We have not at all looked at the FAS or whatever it is as synergies. We were talking about cash synergies so far. The $120,000,000 by the way includes it. But if you notice, I didn't talk about the $120,000,000 I talked about the 60 dollars cash in this entire conversation, which is really the only one that I'm counting.
So all the discussion so far has been $60,000,000 of cash synergies synergies day 1 plus revenue synergies that we're very sure about that we'll get in the future plus the G and A and by the way, the $60,000,000 is coming just off of G and A. It's pretty straightforward. With respect to convincing sellers, look, yes, our stock was I think 63, 64 at the time of DCP, but DCP was also at 4.6%, 4.7% cap rate. So again, we are swapping currency. So if the target believes that in a certain cap rate for their own security by definition, they should believe in the same cap rate in our implied valuation as well.
And so they're really getting the same type of currencies, just they're getting a pretty good portfolio. And the net winner are the shareholders of both companies that benefit from the synergies and the additional growth. So I think everybody wins on these kinds of transactions. And by the way, maybe real estate people get all excited about these things, because there's not been a great history of a lot of read M and A. I think if you are disciplined and the portfolios are consistent and the markets are consistent, 1 plus 1 can become 3.
If you're just going around growing your business by buying everything in sight, I think and not trying to get synergies, then that's a different business and not one that we want to engage in.
Dave Rodgers with Baird. Your line is open.
Yes, good morning. Maybe Gene and Tom can fill in any gaps. You talked about 325 new tenants added to the portfolio. Can you kind of discuss maybe some of the exposures that see in the hold portfolio? How that might change some of those?
Maybe Tom can add a little bit more on tenant credit and average size tenant and the whole portfolio, how that impacts the PLD portfolio all pro form a?
The only thing that really stands out, Amazon is a, I think, 7% NOI of Liberty. So they're a big component. But blended in with the rest of our customer roster, as I said, there's really no material change. There's some Sears exposure, but we've kind of cranked through that. And again, I think, if you're looking at the actual impact of Prologis, it's immaterial really across the board.
Blaine Heck with Wells Fargo. Your line is open.
Thanks. Good morning. Sorry if I missed this, but Tom, what's the actual magnitude of the drag on same store NOI you guys are expecting
in the near term? And then
can you give us any sense of what you're expecting on a cap rate basis on the non strategic asset sales?
I'll let Gene handle the second one. I don't want to listen, I don't think the drag number 1, you're not going to see the same store until 2022. But let's talk real economics, right? This deal closes in Q1 of 2020. It's a 2022 same store discussion.
But let's talk about the NOI over that in 2020 when this deal closes and beyond. I think I'm not I don't want to give get into guidance for 2020 yet. You'll get same store guidance here next week at our Investor Forum. But again, I think it's going to be minimal. Remember, they're 12% post of our portfolio NOI basis.
And while there will be a short term drag, I certainly expect that our revenue synergies will help, tamping that drag down. So long term, we just don't think this is a big impact. And I think, short term, you're not going to see much of an impact in reality, just given the magnitude and the revenue synergies I think we're going to deliver that aren't in those numbers.
Right. And the non strategic asset sales, probably that's in the low 6s in terms of the exit cap rates. But I'd be a little bit careful with that. There's a huge range of product and markets. You have markets like Richmond, Tampa, some unconstrained Carolinas.
That's the number, but it's a pretty big range.
Manny Korchman with Citi. Your line is open.
Hey, it's Michael Bilerman again. Just in terms of timing, I guess, had you had an offer on the table prior to Liberty issuing equity on September 5th in low 50s net in the high 40s after transaction costs or did this come about post that equity deal?
Hey, you got to watch Star Wars 8 or whatever it is. You can't go from the episodes 1 to 8 all at once. We can't talk about that, you know that. And we'll be talking about all those things in great detail, I'm sure, when the proxy comes up.
Steve Sakwa with Evercore ISI. Your line is open.
Yes. I just wanted to circle back on sort of the revenue synergies. And as you think about maybe the rent differential between kind of where your leases and rents are versus Liberty's and then where your leases were versus say DCTs in the same markets, How do you sort of think about that uplift? I know in the DCT deal, you felt like there was a lot of uplift when those assets came on to your platform.
And do you sort of feel the same way or even
stronger about the Liberty platform. And do you sort of feel the same way or even stronger about the Liberty assets?
Yes, interesting question and a really good one, one we've spent a lot of time on. The in place to market spread on the Prologis portfolio is about 15.5%, you know that. On the LPT portfolio with its current mix, it's about 11%. So a little bit less lift, but if you adjust that in place to market by the market mix, given their lower exposure to coastal and greater exposure to the markets we talked about, they're identical. So very, very similar characteristics.
There's nothing really unusual going on with the portfolio, which gives us a great deal of comfort. And we haven't again talked about any of these additional products and services that we can generate on this portfolio. We have not talked about any of the revenue management opportunities that we can generate out of this. Give us a few months to get our arms around this and I think you'll be pleasantly surprised with our progress.
Mike Mueller with JPMorgan. Your line is open.
Thanks. Hi. I know it's not a big number in the grand scheme of things, but have the Comcast cost overrun issues been resolved? And if not, how are you thinking about that risk?
Yes. I think we've got our arms around that. There isn't resolution, but we've got our arms around it. It's not a problem.
Yes. And obviously, there's only so much we can talk about that dispute. Michael's question was the last one. So I want to thank you for spending your time with us this morning. The good news is that we have an investor conference coming out next Tuesday.
So I want to put a plug in for that November 5 in New York. And the best news is that instead of getting one guidance early, you're going to get guidance on 2 companies early. So I really encourage you to attend. Thank you.
This concludes the Prologis conference call. We thank you for your participation. You may now disconnect.