Welcome to the
Prologis Q2 Earnings Conference Call. My name is Chris, 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.
Session.
Also note this conference is being recorded. I'd now like to turn the call over to Tracy Ward. Tracy, you may begin.
Thank you, Chris. Good morning, everyone. Welcome to Prologis' Q2 earnings call. If you have not yet downloaded the press release, it's available on Prologis' website at prologis.com under Investor Relations. This morning, you'll hear from Tom O'Hanger, our Chief Financial Officer and Gene Reilly, Prologis' Chief Investment Officer.
Also joining us today for the call is Hamid Moghadhan, Gary Anderson, Chris Caton, Mike Curless, Ed Nekritz and Colleen McEwen. 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 the beliefs and assumptions of management. Some of these factors are referred to in Prologis' 10 ks or SEC filings. Additional factors that could cause actual results to differ include, but are not limited to, the expected timing and likelihood of the completion of the transaction with IPT, including the ability to attain the approval of their stockholders and the risk that the conditions of the closing of the transaction may not be satisfied.
Overlooking statements are not guarantees of performance and the actual operating results may differ. Finally, this call will contain measures such as FFO, EBITDA that are non GAAP measures. And in accordance with Reg G, the company has provided a reconciliation to those measures and our earnings package. With that, I will turn the call over to Tom. Tom, will you please begin?
Thanks, Tracy. Good morning and thank you for joining us today. We had another excellent quarter. Our proprietary operating metrics continue to reflect strong demand. Showings, average deal gestation and conversion rates remain either in line or better than last quarter as our customers further build out their supply chain capabilities in the face of market conditions in the U.
S. Continue to be very healthy, demand is diverse and overall supply is disciplined. Starts in the U. S. Are concentrated in low barrier markets, while supply in the high barrier markets is not keeping pace with GDP growth, let alone demand for logistics facilities closer to the endpoint of consumption.
Continental Europe remains strong and we expect rent growth this year to be the highest in more than a decade. In Japan, despite moderating economic growth, business is quite good. Demand continues to be boosted by e commerce, while supply is being steadily absorbed. With the improvement we are seeing in the Osaka market, we are removing it from our market watch list. We are raising our 2019 global rent growth estimate by approximately 100 basis points to over 5.5 percent as low vacancies and rising replacement costs continue to push market rents higher.
Looking to the quarter, we leased 37,000,000 square feet, including 5,000,000 square feet in our development portfolio. Period end occupancy was flat sequentially. Rent change on roll continues to be outstanding with our share at over 25 percent and led by the U. S. At 30%.
We expect rent change to trend higher in the back half of the year. Our share of cash same store NOI growth was 4.6%. Notably, Europe was 5.3% driven by rent growth, which we have anticipated. Core FFO was $0.77 per share for the 2nd quarter. G and A in the quarter was higher than expected, driven by stock based compensation resulting from the increase in our share price.
This impact was mostly offset by higher than forecasted promoter. For deployment, starts were $324,000,000 in the quarter. The pace of starts will increase meaningfully in the second half of the year. In fact, we've already started $250,000,000 of build to suits in the 1st 2 weeks of July. We completed over $600,000,000 of dispositions and contributions, resulting in $200,000,000 of realized gains in the quarter.
Now for 2019 guidance highlights, which are on an R share basis. And note that our guidance does not include the impact from the IPT acquisition. We are increasing and narrowing our cash same store NOI guidance to a range of 4.5% to 5%. We're holding the top end of our range as we continue to prioritize rents over occupancy. We're raising the midpoint for both development starts and contributions by $100,000,000 and realized development gains by $50,000,000 We still expect about $400,000,000 of net uses, which we plan to fund with free cash flow and a modest increase in leverage.
Net promote income for the full year is now expected to be 0 point
$2 from our prior guidance. Effectively, all
of the remaining net promote income will
be earned in the Q3.
For the full year, we are increasing our 2019 core FFO guidance midpoint by $0.05 and narrowing the range to between $3.26 $3.30 per share. At our revised midpoint, growth in core FFO per share excluding promotes is 9.5% higher than last year. Over the past 5 years, our growth has clearly been exceptional with a CAGR of almost 12% while delevering by 800 basis points. As I mentioned, this guidance does not include IPT. The acquisition of this high quality portfolio, which Gene will cover in more detail, captures significant cost and revenue synergies, delivering shareholder value on day 1.
We plan to hold the portfolio through 1 or both of our U. S. Private vehicles and expect the transaction to close no later than the Q1 of 2020. Depending on the ultimate allocation, our investment via the ventures is likely the range between $1,000,000,000 $1,400,000,000 which we will fund with cash and debt. The resulting annual core FFO accretion is expected to range between $0.05 $0.06 per share on a stabilized basis.
This transaction will have a minimal impact on leverage with loan to value rising about 150 basis points upon the completion of the nonstrategic asset sales to approximately 21%. We do not plan to add any corporate overhead in connection with this acquisition and as a result expect G and A as a percentage of AUMs decrease by 4%. I fielded several questions lately about how we will continue to grow given our size. We think about growth in 3 components. The first is organic and based on the quality and strength of our portfolio.
This is by far the most important and sustainable driver of growth. It also deserves the highest multiple. The second is the value creation from development and the build out of our land bank. The third component is arbitraging the pricing between public and private markets. This is episodic, out of the hands of management and not sustainable over the long term.
We focus on the first two components, which have been the driver of our superior performance and will continue to be the foundation of our long term growth. To sum up, the second quarter was a continuation what has already been a very good year. I have never felt better about our growth outlook. And with that, I'll turn it over to Gene.
Thanks, Tom. I'm pleased to share the details about our merger agreement to buy IPT. Portfolio comprises 37,500,000 Square Feet in 24 U. S. Markets, 22 of which are ProLogist target markets.
The assets are located in submarkets we consider strategic and where we already have the benefit of scale and a proven operating presence. The portfolio is slightly younger than the balance of our existing U. S. Assets and otherwise very similar in terms of customer profile and physical characteristics. Over the normal course of business, we anticipate a disposition program approximately $800,000,000 or 20 percent of the portfolio.
The $4,000,000,000 price works out to a 4.5% stabilized cap rate and a cap rate of just under 4 point 9% using current market rents. And at $106 a square foot, we believe we are purchasing the portfolio at a small discount to replacement cost. We are not purchasing the IPT operating platform and therefore our incremental hiring activity will be limited to leasing and property management personnel necessary to manage the portfolio. As IPT leases roll over time, the Prologis teams will have the benefit of deeper market knowledge and relationships, greater flexibility, access to better information, bigger market share and ultimately the ability to provide the best service to our customers and generate more revenue. The $0.05 to $0.06 of accretion that Tom mentioned does not include the potential benefits of procurement, ancillary revenue sources or our other platform initiatives currently underway.
During the past 8 years, we've integrated over $45,000,000,000 in very large portfolio transactions including the AMB Prologis transaction, KTR and DCT. In each case, we outperformed our synergy forecast. We expect to do so here. So in short, we're highly confident in our ability to integrate these assets into our portfolio. And with that, I'll turn the call over to the operator for questions.
Your first question comes from Jeremy Metz with BMO. Your line is open.
Hey, good morning guys. Hey, Tom, you mentioned your allocation to IPT will be in the 25% to 35% range of your share. Even though in the past you have a queue of investors waiting to get into the funds, you've talked about wanting to bring your stake there down to the 15% level, give or take over time. So was there a thought to take even less of this deal initially? And then sticking with that, maybe you can talk about promote opportunity and how much of that $0.05 to $0.06 of accretion is fee driven?
Thanks.
Thanks, Jeremy. A couple of things. So the way to think about our incremental investment, if you if we split the portfolio equally between the two funds, our ownership is 41% and USLV, it does not use equity, USLV USLF does. So we would think about 50% leverage targets to fund this deal from a USLF transaction. So think about $3,000,000,000 of equity that needs to come to the table.
Our 40% of that is $1,200,000,000 When you think about the accretion, the accretion is primarily the vast majority of the accretion is operating efficiencies. So the $0.05 to 0 point 0 $6 is 0.0 3.5 dollars of operating efficiencies, between $0.015 to 0 point 0 $0.02 of incremental leverage and about 0 point 0 $0.005 or less of actual 0.0 $0.035 I talked about, and that's roughly $0.02
Yes. At the beginning of that, Tom mentioned it won't require any equity. He meant it doesn't require any debt.
Thank you.
Your next question comes from Manny Korchman with Citi. Your line is open.
Hey, it's Michael Bilerman here with Manny. I guess if you step back from it, if there's such a strong amount of NOI potential within this portfolio, why not own the whole thing? And clearly, you have the ability to finance at lower rates, whether it's in Europe or in Asia, which would provide you even more accretion buying a U. S. Portfolio and owning $4,000,000,000 of assets and getting all of the 40 basis points of upside in the market rents would all flow to the bottom line versus the trade off of the incremental fees you're getting.
And
your equity stock
certainly is there to be able to do it too, right? At north of $80 you certainly could issue equity and arm that a little bit as well.
Sure. This is Hamid, Michael. We don't really view our strategic capital business as where we put our bad deals or the ones that are not accretive. It is an integral part of our business and it is a part of our strategy going forward. And that's the vehicle those are the vehicles that we've established exactly for doing those sort of things.
So we're sticking to that business plan and it's not like the good ones go to the balance sheet and the bad ones go to the funds. It's we all do it the same way. Also, the return on equity in the funds is obviously greater because of the leverage through the asset management fees and the like. So that's the strategy. It's been the strategy and it will remain the strategy.
Michael, on your debt question about U. S. Versus
non U. S.
Debt, we only would do that to the extent we're matching foreign assets with foreign debt. About 79% of our debt stack today is non dollar. We have not assumed in our accretion that we would use any non dollar financing here. It's all U. S.
Dollar financing. Do we have the ability to do a little more non dollar financing? Sure. But none of that's baked into these numbers.
Your next question comes from Derek Johnston with Deutsche Bank. Your line is open.
Hi, everyone. I guess switching to Europe, certainly a strong contributor in 2Q. And this is while EU and global consensus gross debt smits were falling. Is there a lag that we should be concerned about filtering through to the back half of 'nineteen leasing metrics? And is there any further update on the outlook for rent growth or the healthy absorption rates that we've seen in the EU post 2Q?
Yes, this is Gene. I'll start with the answer, and I think Chris Ketan will pile on as well. So we just don't see headwinds in the operating environment in Europe. You've got basically 3% vacancy rates across the continent. You get steady demand.
You get demand in excess of very low economic growth, but you have steady demand. And we just don't we don't see trade concerns, we don't see Brexit coming up in any customer dialogue. So things look pretty good right now. And we also don't see excess of supply other than in some very isolated individual markets.
Yes. Gene, spot on. The market is this is Chris. The market is unfolding a lot like we anticipated at the beginning of the year. That's low 3% vacancy rates.
That's rental rates on a net effective basis that are on pace to rise. More than 6% on the continent, rents are up, call it, more than 3% in the first half of the year. So there's really good momentum, and we feel confident looking forward.
Yes. But on the other side of that, the U. K. Has slowed down a bit and the continent is stronger than we thought. So I don't think Brexit not having any effect is right.
I think definitely the U. K. Has slowed down some, particularly in the midlands.
Your next question comes from Caitlin Burrows with Goldman Sachs. Your line is open.
Hi, good morning. Maybe back to the IPT acquisition, I was just wondering if you could comment on what the interest level like or was like or the competition from other potential acquirers and what do you think differentiated Prologis either in your assumptions financing or something else allowing you to ultimately win this deal?
Well, ultimately, I can't tell you who did on the portfolio. I can tell you it was a competitive process. And as I think everybody knows on this call, there is plenty of capital interested in this kind of real estate. As for our competitive advantage, I don't think it's any of the items you listed, but I do think certainty of close, particularly for a vehicle like this, a publicly held vehicle was critical. And so I think their confidence in our ability to negotiate, complete this transaction smoothly was important.
Yes. Also the proxy will have plenty of the details from what they looked at on the other side. So we'll both find out.
Your next question is from Steve Sakwa with Evercore ISI. Your line is open.
Thanks. Good morning. I just wanted to see if you could comment a little bit on the NOI guidance, Tom. You did about 5% in the first half of the year. The high end you kind of kept unchanged at 5%.
So that sort of assumes kind of flattish growth in the back half. At the low end kind of assumes 4%. I realize you're facing some tougher occupancy comps in the back half of the year. But just kind of can you help us think through kind of the low and the high end given where we sit here today and kind of what drives you to kind of both of those two points?
Yes. Steve, you nailed it on the it's really occupancy impact. We are continuing to push rents. We are seeing occupancies dip a little bit. I think we certainly have room to push rents more.
If you just look at our retention, you look at our occupancy, you look at our rent growth. As I mentioned in my prepared remarks, I think we're going to see we will see rent change on roll accelerate in the second half. We talked about rents growth increasing. Now why aren't we taking the top end up is because of occupancy. We're going to push rents and we don't have a lot of roll in the second half, but this is really setting up for just longer durable runway for same store growth.
Our mark to market is holding at over 15% even with rolling 25% in the quarter. And if you really look at same store, think about as we've said in the last couple of calls, 2019 is a transitional year for same store in that we have lower occupancy. So that's been a headwind this year. But if you think about the drill driver of your same store rent change on roll, it's been accelerating. Our trailing 4 quarter rent change on roll is up over 300 basis points in the last 4 quarters.
It is going to go higher going forward. So the fundamental driver of same store is intact and it is growing and it will grow. The one thing on retention, we're seeing retention is very high on the larger spaces and we're pushing rents across the board. I think we have an opportunity to push rents across all of our space sizes.
Your next question comes from Jamie Feldman with Bank of America Merrill Lynch. Your line is open.
Great. Thank you. I know you had said that you expect your development starts to ramp up in the back half of the year. Can you just talk about what both build to suit and spec pipeline looks like today? And as we think ahead to next year, do you think that we're hearing across a lot of markets that there's an expectation that pipelines may actually shrink given less available land and even maybe less capital to put to work.
I just want to get your thoughts on how you think things are shaping up over the next 12 months or so in terms of the supply demand story and your ability to keep putting capital to work?
Jamie, it's Mike Kirls. So I'll hit the build to suit and then I'll flip it to Gene on the spec. Certainly seeing a lot of you've seen some public announcements from some of our larger customers with major plans for significant rollout. So I'd say there's definitely an up arrow on the requirements and the demand. It is more challenging to deliver build to suits these days with zoning and land availability in some of the more global markets, but we're certainly working through that.
Our build to suit percentage was in the 27% range this quarter, that's very lumpy as
you know, Jamie. I think you
got to look at it across 4 quarters and I fully expect a very robust quarter coming up as we speak right now, as Tom mentioned, with $250,000,000
to build to suit starts
already underway. And I'd look towards our build to suit percentage to be in the range in the high 30s, largely driven by some significant national rollouts.
By the increased build to suit activity Mike talked about. So I'd say there's a very modest increase in spec, but I don't we don't we see opportunities. As you know, we have a robust land bank, so we have the ability to start buildings. We're not going to do it unless we see market opportunity and we do. So basically the answer to your question is we're going to have a modest increase based on our prior guidance throughout the rest of this year.
Your next question comes from Vikram Malhotra with Morgan Stanley. Your line is open.
Thanks for taking the question. So just wanted to clarify, I think you said mark to market across the whole portfolio was holding at 15%. Can you break that between the U. S. And Europe?
And also just clarify what the mark to market is on IPT?
Yes. I'll take the first piece. So in our portfolio today, Prowazis, U. S. Is around 17% and Europe is around 11%.
So our blended is about 15.5%.
Right. ITT is pretty much in line with the rest of our U. S. Assets.
Your next question comes from Craig Mailman with KeyBanc Capital Markets. Your line is open.
Hey, guys. A quick question for you. Just looking I know you guys didn't buy the whole IPT portfolio relative to kind of the numbers that they had in their financials, but it looked like in 2017 2018, they were kind of trending below 2% same store growth. And I'm just curious, I know you guys have some operational efficiencies kind of baked in, but as you guys look at your legacy PLD portfolio growth profile versus what you're ultimately going to bring into the portfolio, will this ultimately be accretive to your growth portfolio or kind of in line or dilutive from your perspective?
Think slightly accretive. And I mean to be frank, we have not
studied their historical operating performance.
What we have studied is that location and quality of the assets, which we like. We bolt them onto our platform. I'd say it's a marginal increase.
Your next question comes from Ki Bin Kim with SunTrust. Your line is open.
Thanks. Just a couple of
questions on the IBT portfolio. First, can you just talk a little bit about what prompted this deal? What was the thinking behind it? I don't think it's scale, you have enough of it. And even the financial accretion of 0 point $0.06 it seems like that by itself wouldn't prompt the deal of this size.
So can you maybe talk about the other points that we haven't covered?
Yes Ki Bin, this is Hamid. I think the level and the availability of high quality portfolios is dwindling. And these portfolios are going into capital sources that are permanent. And I think there's a limited supply of this stuff in the really good market. So whenever there is an opportunity to pick up some of those assets in scale, you'll see us competing for those opportunities.
And because of the clustering effect around our own portfolio, which is also focused on the same markets, we can really squeeze a lot more juice out of those oranges.
Your next question comes from Nick Yulico with Scotiabank. Your line is open. Nick Yulico, if you're on mute, your line is open.
Hi, can you hear me? Sorry. For IPT, I think you said 20% of the portfolio is a sale candidate, non strategic assets. Can you just talk about why they're non strategic and how you underwrote those assets from a how we should think about a cap rate on a sale of those assets?
Could you repeat the first part of your question, excuse me?
So, I think you said this I
think I answered it since I heard it. The for sale portfolio, which is 20%, a small portion of it is 2 markets, Memphis and Salt Lake City, which we're not present in. So that's about 5% of it. And the balance of it is the pruning of the markets where we have a presence, but we don't really see a fit between that portion and our assets that portion of the portfolio and our existing assets. So it's a combination of market exits in those two cases and pruning in the case of the rest.
I just want to pile on that a bit. These disposition assets are good assets. They're not assets that are consistent with our strategy, but I think these assets will be relatively easy to dispose of as compared to some of the prior activities.
Yes. One other data point for you. This is not the first time we've gone through cleanup of assets. We sold about $14,000,000,000 of assets in the last 5 or 6 years. And you might be interested that on average, we've exceeded our expectations by about 6% on the sales prices.
So we're pretty comfortable that we can exit these assets at the premium.
Your next question is from Dave Rodgers with Baird. Your line is open.
I don't have time for Tom
or Hamid, just maybe talk about the construction pipeline just nationally or maybe even internationally. You said you took Osaka off the watch list for as kind of a market. Have you added any? And where do you see the most competition today? I think Tom you referenced the supply in your comment.
Yes, it's Gene. I'll start and I think Chris will finish the answer. But if we look at the globe as compared to last quarter, there really aren't very many differences. As you heard us say over the past 4 or 5 years frankly, certain markets in South Dallas and certain markets in Atlanta, I-eighty in Chicago, Central Pennsylvania, once in a while Inland Empire East in the U. S.
Come on and come off the list. And what's interesting is that in prior cycles, markets never came off the list. They just kept overbuilding them until you're in a crisis. So that picture really hasn't changed internationally. The one note that we had was Osaka.
Osaka's vacancy was very elevated. It's now I think 9% or 10%. So it may come back on the list, but at this point we're pretty comfortable. A lot of reduction in that vacancy rate. Chris, I'm not sure.
Yes, Gene, you're spot on. I'd add, in fact, there have been no additions this year. And you have to look back to last year for the additions to this list. And as Sameet mentioned, in the Midlands is the market and then also Houston were additions late last year. So no additions this year and one subtraction.
Your next question is from Jon Petersen with Jefferies. Your line is open.
Great. Thanks. Probably a question for Gene or maybe Chris Caton. I think with the DCT transaction, you talked about how when you get a certain concentration in submarkets, you're able to push rents a bit harder. I forget exactly how you frame that.
But I'm curious with the IPT transaction, if you call out any submarkets that you now have a dominant market position that you didn't have before? And then second one probably for Tom, just to clarify, this transaction won't require any new common equity for Prologis, right?
I'll take the second one, absolutely not. No equity.
Got it. So the way we look at asset clusters and that's one way we describe this is if we're adding assets in a market that let's say we have 20 buildings, 25 buildings and call that 3000000 or 4000000 square feet, there is a clustering effect that we have tracked and we have tested. And there is question you get incremental NOI. I'm not going to go into any specific details on that. But you have a situation where you're adding to a cluster or you're adding enough to a smaller concentration than we already own that you've then created a cluster.
And in this case, we have one market that you for sure have created a cluster that would be Portland is a pretty good concentration here in Portland. PA and Baltimore also sort of fall in that category. And otherwise, we're just adding on to very, very concentrations. And Chris, I don't know if you'd add anything to that.
I think that was perfect.
Well, the only thing I would add is that the benefit doesn't just accrue to the newly acquired portfolio. It also accrues to the existing portfolio, which is by far the more important of the two pieces.
Your next question is from John Guinee with Stifel. Your line is open.
Great, great. Amit, first, congratulations. As I recall, you acquired DCT at about $118 a foot and a 4.2 in place cap rate. Talk a little bit about the quality difference between IPT and DCT, which obviously had the same initial investment and strategy in the initial routes.
Yes. So we bought DCT at the 4.6% cap rate and it was a stock for stock deal. So it was more of a relative valuation exercise than an absolute valuation exercise. So I don't think you can conclude much about market cap rates based on looking at that. But this one in terms of quality, I would say if you look at the hold portion, DCT was 95% hold.
This is 80% hold, 20% sell. So in that sense, I would mark the DCT portfolio as better because it had less to dispose. But if you look at the 80% and the 95%, I would say they were comparable.
Your next question is from Eric Frankel with Green Street Advisors. Your line is open.
Thank you. Just to go back to the pricing of the IPT deal, the 4.5% cap rate you quoted, that's based on your definition of stabilization. So maybe the cap rate would be a little bit higher if you're based on current in place occupancy. And then second, do you guys believe that you paid some sort of maybe aggregation premium rather than if you bought this entire portfolio on a one off basis? And then finally, based on where interest rates have gone in the last few months, do you cap rates in general have declined for good quality industrial assets?
Thank you.
So Eric, a couple of comments on the cap rate. I mean, cap rates are really difficult things to talk about because all kinds of people use different approaches to them. Just to be clear, the way we call something a cap rate is that it's the purchase price plus all the closing costs plus the CapEx required to get it to stabilize occupancy if necessary and includes a vacancy allowance, which is critical because if the portfolio is over at least 95%, we adjusted back down to 95%. So our cap rates, oftentimes, we shake our heads to the reported cap rates that we see in the marketplace because that's certainly not the cap rates that we underwrote. And you can imagine that we look at pretty much every deal.
So that's one commentary on methodology. With respect to the direction of cap rates, I will tell you that this was since DCT the 3rd significant portfolio that we looked at and competed for. And obviously, in the other two cases, we were not successful. Our pricing did not change as to the whole portion of those portfolios at all, pretty consistent. I'm not smart enough to tell you whether there was a portfolio or not, but we did not attribute one to the portfolio on this one or any of the other ones.
But on the other ones, we weren't successful and on this one, we were successful. So who knows?
Eric, just one more thing on the cost side of that equation. We also mark any debt to market. And I think often people leave that out of the equation if they're going to and you have to, you have to factor
it. And in this one, there wasn't any of that, but on others, there have actually been significant
mark to markets.
Your next question is from Michael Carroll with RBC Capital Markets. Your line is open.
Yes. Can you provide a quick update? I know you included some conservatism in your prior guidance ranges. Did you remove that conservatism in the updated range? And has the logistic real estate market remained largely insulated from the headline trade fears that we continue to hear about?
So I'll start. No more conservatism in our guidance. And I would just tell you from what we see from a customer perspective, as I mentioned in my opening remarks, we're seeing very consistent sequential quarter activity as it relates to showings, gestation, conversion rates, all that's holding or slightly better. So from what we see in our pipeline, it continues to be quite good.
Yes. This is Mike. From a customer perspective, no meaningful impact other than perhaps a little blip of some increased inventory and some spot examples, but nothing significant.
Yes. I think you may be referring to the commentary on the Q4 call where we were just coming off of a significant stock market sell off and things were a little wobbly generally with the overall economy That's all gone. We That's all gone. We're back on track. So if you're referring to that, you can ignore all that.
Your next question is from Michael Mueller with JPMorgan. Your line is open.
Yes. Hi. Excuse me. What's the timeframe to dispose of the remaining IPT sale assets? Will it all be done in 2020?
Michael, this is Gene. We tend not to put hard deadlines on that. In the current environment, I would tell you, I think we can do it fairly quickly in that time frame. But we do it on the normal course of business. It has to be consistent with everything else we're doing.
Then we have to see where the demand patterns are. Sometimes you can aggregate a portfolio and move quickly. Other cases, maximizing value means a one off. So, by that timeframe, within 2020 is probably reasonable.
Got it. Okay. Thanks.
And our last question comes from Manny Korchman with Citi. Your line is open.
Hey, it's Michael Bilerman. I had a few more. I don't know if you can address them one at a time, but just in terms of
No, Michael, you can go continuously because we you're the last one.
So you can go out and do it.
How much time do you have?
Don't get carried away.
So just in terms of the upside potential squeezing more juice out of these oranges in this portfolio, You talked about, I think Gene mentioned the 4.5% stabilized and 4.9% cap rate assuming current market rents. But then when another analyst asked about the mark to market, you mentioned the Prologis portfolio was 17%, but these assets were similar. But the difference in cap rate 4.5% to 4.9% is only about 8% upside of market rents. So I didn't know what the difference was or what may be dragging down the yield. It just the numbers didn't match up.
It's cash versus
Effective GAAP.
Yes. So the 4.5 to 4.9 is a cash. So your mark to market on a cash basis in the Prologis portfolio would be 8%, 9 percent also? That 17% is
a GAAP number? It's about 10%.
Yes. So the 4.5% and the 4.9% are not precise numbers either obviously. So we were going to take it out 4 decimals and then Amit didn't like that.
Michael, the other thing is that there's a difference between the whole portfolio and the
sell portfolio. So the whole
portfolio has a bigger mark to market because those are stronger markets by and large and they've had more rent appreciations. But the primary difference is the cash versus GAAP number, which is about 5 points.
And then just to go through actually on the whole portfolio, is the plan to warehouse that $800,000,000 of assets on Prologis' balance sheet? Or is the entirety of the $4,000,000,000 going into 1 or the 2 funds and those assets will be sold out of the funds? I'm just trying to understand the dynamics going on?
It's the latter, Michael. It's the latter.
The assets will be going to the funds. Any sale assets will be sold by the funds.
By the funds. And that will just reduce your effective ownership or your contribution in those funds?
Not really, Michael, because we just we have a revolve line of credit that we pull up and down. So we're probably not going to pull capital out of it, out of the fund. We'll just leave it in there for future growth.
Okay. And then just I wanted to come back to my original question about doing this wholly owned versus in the funds. And I recognize DCT was a stock for stock transaction, but that didn't alleviate you from having the ability to sell DCT assets to the funds, if you chose to. So I'm just really trying to understand these 2 larger scale M and A transactions. One, yes, it was stock for stock.
This one is a cash deal with a non traded public REIT that you're doing for all cash. I guess why was DCT all balance sheet and why was IPT a fund asset?
Good question. First of all, the choice of currency is not always ours. Sometimes the seller demands different kinds of currencies. But yes, stock deals we do on balance sheet. And to then buy a deal and then sell it to the fund, there's just too much frictional costs associated with that.
And oftentimes, the structuring of the transaction prevents that for some period of time. So it gets complicated to do that. In terms of cash transactions or cash portion of certain transactions, we're committed to those deals as I mentioned to you in the funds. I mean that's our business model and we'll continue to do that. These are, by the way, now very, very significant funds.
I mean, you look at where USLF will be at the end of this deal, it's going to be north of $12,000,000,000 You look at where our European fund, PELF, is it's about an $11,000,000,000 vehicle. I mean these on a standalone basis could be some of the largest REITs out there. So they have ongoing needs. They're very successful vehicles. And we like the fact that we have the ability to use cash and currency to address a range of opportunities.
Just last one just in terms of Asia and the macro environment. At least coming out of Citi's earnings yesterday, there was a slowdown in loan activity out of our Asia client base. In particular, everything is happening with China and U. S, just the Chinese corporates borrowing less money given the uncertainty going on between the two countries. Is there anything that you're finding at least locally in Asia?
I know what's happening in the U. S, but anything in Asia that you've seen that would indicate any sort of slowdown on the industrial side?
Okay. This is going to be your last question because somebody jumped in the meeting. But look, China is definitely slower, but the overall slower than it has been for some time, and we see that on the ground. But the dynamics of the industrial real estate market in China are much more driven by availability of land from the one seller that has land, the government. And they've been always reluctant to supply the market with what it needs in terms of industrial land.
And the reason for that is that industrial users don't generate taxes. And there is no property tax system in China. So they get their tax revenue based on registered capital and people don't usually register their capital where their warehouses are. So there is always a shortage of land in the key markets in China. So even with a more modest economic growth, there is just not enough supply of product in a lot of these markets.
So the strength of the industrial market is driven by domestic consumption and a shortage of industrial land. Consumption for the first time slowed from the mid teens to the high single digit. So that's really important to keep in mind. And by the way, my commentary about the shortage of land applies to the Tier 1, 1.5 type markets in which we operate. Some of the outlying areas, you can get more land, but that's not relevant to our business.
And remember, the tailwind of e commerce in all these different places where the consumption takes more space than normal consumption would have a decade ago.
Our last question comes from Vikram Malhotra with Morgan Stanley. Your line is open.
Thanks for taking the follow-up. Sorry for the background noise. Just one quick question, sorry if I missed this. Did you change the disclosure of the same store NOI calculation? I believe you used to provide same store revenue and expense separately.
Could you give us those 2 components?
Yes. We'll be giving those components. If you look in the back of our sup, you can see the detail in order for you to calculate same store owned and managed. The SEC did their annual review of our K. We had one comment.
Their one comment was that they asked us to modify our owned advantage NOI disclosure that actually approved our disclosure quite a few years back. But in light of their view around pro rata financial information, they asked us to modify the disclosure because they took a view that this was pro rata and they just asked us to modify it. So we can't show you the percentage, but if you look at our footnote and back this up, you can calculate the percentage.
Great. Thank you, everybody. Look forward to seeing you next quarter, if not soon. Take care.
This concludes today's conference call. You may now disconnect.