Prologis Inc (PLD) — Q2 2019 Earnings Call Transcript

Thank you, Chris. Good morning, everyone. Welcome to Prologis second quarter earnings call. If you have not yet downloaded the press release, it is available on Prologis' website at prologis.com under Investor Relations. This morning, you'll hear from Tom Olinger, our Chief Financial Officer and Gene Reilly, Prologis's Chief Investment Officer. Also joining us today for the call is Hamid Moghadam, Gary Anderson, Chris Caton, Mike Curless, Ed Nekritz, and Colleen McKeown. 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 company operates, as well as the beliefs and assumptions of management. Some of these factors are referred to in Prologis' 10-K 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. Forward-looking statements are not guarantees of performance and actual operating results may differ. Finally, this call will contain financial 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 in 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 strength. 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 remained 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 estimates by approximately 100 basis points to over 5.5% as low vacancies and rising replacement costs continue to push market rents higher. Looking to the quarter. We leased 37 million square feet, including 5 million square feet in our development portfolio. Period-end occupancy was flat sequentially. Rent change on a roll continues to be outstanding, with our share over 25% and led by the U.S. at 30%. We expect the 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 at 5.3%, driven by rent growth which we have anticipated. Core FFO was $0.77 per share for the second quarter. G&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 promotional gains. For deployment, starts were $324 million in the quarter. The pace of starts will increase meaningfully in the second half of the year. In fact, we've already started $250 million of build-to-suits in the first two weeks of July. We completed over $600 million in dispositions and contributions, resulting in $200 million of realized gains in the quarter. Now, for 2019 guidance highlights which are on a per-share basis. Note that our guidance does not include the impacts 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 million, and realized development gains by $50 million. We still expect about $400 million net usage, 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 $0.16 per share, an increase of $0.02 from our prior guidance. Effectively, all of the remaining net promote income will be earned in the third quarter. For the full year, we are increasing our 2019 core FFO guidance midpoint by $0.05 and narrowing the range between $3.26 and $3.30 per share. Our revised midpoint growth in core FFO per share, excluding promotes, is 9.5% higher than last year. Over the past five years, our growth has clearly been exceptional with a CAGR of almost 12%, while de-levering 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 costs and revenue synergies, delivering shareholder value from day one. We planned a whole new portfolio through one or both of our U.S. private vehicles and expect the transaction to close no later than the first quarter of 2020. Depending on the ultimate allocation, our investment via the ventures is likely to range between $1 billion and $1.4 billion, which we will fund with cash and debt. The resulting annual core FFO accretion is expected to range between $0.05 and $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 non-strategic 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&A as a percentage to decrease by 4%. I feel that several questions lately about how we will continue to grow given our size. We think about growth in three 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 that 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 of 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 with IPT. The portfolio comprises 37.5 million square feet across 24 U.S. markets, 22 of which are the largest target markets. The assets are located in sub-markets 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 anticipated a disposition program of approximately $800 million or 20% of the portfolio. The $4 billion price works out to a 4.5% stabilized cap rate and a cap rate of just under 4.9% using current market rents. At $106 a square foot, we believe we are purchasing the portfolio at a small discount to replacement costs. 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 eight years, we've integrated over $45 billion in very large portfolio transactions, including the AMB Prologis transaction, KTR, and DCT. In each case, we outperformed our synergy forecast and 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.

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 given or take over time. So is there a thought to take even less of this deal initially and then sticking with that? Maybe you can talk about the Promote opportunity, and how much 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 split the portfolio equally between the two funds, our ownership is 41%. And USLV does not use equity; USLF does. So we would think about 50% leverage targets to fund this deal from a USLF transaction. So think about $3 billion of equity that needs to come to the table; our 40% of that is $1.2 billion. When you think about the accretion, the vast majority of the accretion is operating efficiencies. So the $0.05 to $0.06 is $0.035 of operating efficiencies, between $0.015 to $0.02 of incremental leverage, and about a half a penny or less of actual purchase gets to us. And so the accretion is quite strong. Most of that is cash. The fee components would be baked in to that $0.035 I talked about and that's roughly $0.02.

Yes, at the beginning of that, Tom mentioned you won't require any equity. You meant that doesn't require any debt…

That's right.

It's Michael Bilerman here with Manny. I guess if you step back from it, 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 in U.S. portfolio and owning $4 billion 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. Certainly, is there to be able to do it too, at north of $80, you certainly could issue equity and/or debt a little bit as well?

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 part of our strategy going forward. And that's the vehicle - those are the vehicles that we've established exactly for doing this thing. So we're sticking to that business plan and it's not like the good ones go to the balance sheets and the bad ones go to the fund. 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 today is non-dollar. We have not assumed in our accretion that we would use any non-dollar financing peers; all U.S. dollar financing. Do we have the ability to do a little more non-dollar financing? Sure, but none of that is baked into these numbers.

I guess switching to Europe. Certainly, a strong contributor in 2Q and this is while EU and global consensus gross estimates were falling. Is there a lag that we should be concerned about filtering through to the back half of '19 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?

This is Gene. I'll start with the answer and I think Chris Caton will pile on as well. So, we just don't see headwinds in the operating environment. And 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 see trade concerns; we don't see Brexit coming up in any customer dialog. So things look pretty good right now. And we also don't see excessive supply other than in some very isolated individual markets.

Yes, Gene is spot on. 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 call it, more than 3% in the first half of the year. So there's really good momentum and we feel confident looking forward.

But on the other side of that, the UK has slowed down a bit and the continent is stronger than we thought. So, I don't think Brexit is not having any effect; it’s right. I think definitely the UK has slowed down some, particularly in the midlands.

Maybe back to the IPT acquisition. I was just wondering if you could comment on what the interest level 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 bid 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 real estate. As for our competitive advantage, I don't think it's any of the items you've listed. But I do think certainty of close, particularly for a vehicle like this publicly held vehicle was critical. And so, I think their confidence in our ability to negotiate and 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.

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 kept unchanged at 5%. So that assumes flattish growth in the back half at the low end assumes 4%. And I realize you're facing some tougher occupancy comps in the back half of the year. But just can you help us think through the low and the high end, given where we sit here today and what drives you to both of those two points?

Yes, Steve, you are correct. The main factor is occupancy. We are continuing to increase rents, although we have noticed a slight decrease in occupancies. I believe we still have the potential to drive rents higher. If you examine our retention rates, occupancy levels, and rent growth, as I stated earlier, we expect rent changes to accelerate in the second half of the year. We discussed the increase in rent growth and the reason for adjusting the higher end is due to occupancy. We will continue to push rents, even though we don't have much renewal in the second half. This sets us up for a more sustainable growth trajectory in same-store results, where our mark-to-market is consistently over 15%, despite rolling 25% in the quarter. Regarding same-store performance, as mentioned in previous calls, 2019 is a transitional year with lower occupancy, which has posed challenges. However, the key driver of same-store rent change on renewals is gaining momentum. Our trailing fourth quarter rent change on renewals has increased by over 300 basis points in the past four quarters, and it is expected to rise further. The fundamental driver of same-store growth remains strong and is on an upward trend. Additionally, we have noticed that retention is very high for larger spaces, and we are pushing rents across all segments. I believe there is a significant opportunity to increase rents across all size categories.

I understand you mentioned that you anticipate an increase in your development starts in the latter part of the year. Could you discuss what the current build-to-suit and speculative pipeline looks like? Looking ahead to next year, there seems to be a widespread belief in many markets that pipelines could potentially decrease due to limited land availability and possibly less capital for investment. I would like to hear your perspective on how the supply and demand dynamics are evolving over the next year, as well as your capacity to continue deploying capital.

Jamie, it's Mike Curless. I'll start with build-to-suit and then hand it over to Gene for spec. We've seen several public announcements from some of our larger customers outlining significant plans for rollouts. There is definitely an increase in requirements and demand. However, delivering build-to-suits has become more challenging lately due to zoning issues, land availability, and conditions in global markets. We're working through these challenges. Our build-to-suit percentage was around 27% this quarter, which can be quite variable, and you should consider it over a four-quarter timeline. I anticipate a strong upcoming quarter, as Tom mentioned, with $250 million in build-to-suit starts already in progress. I expect our build-to-suit percentage to rise into the high 30s, primarily due to major national rollouts. Gene, how about the spec side?

So Jamie, we have removed the midpoint of $100 million. Some of that is reflected in the increased build-to-suit activity that Mike mentioned. I would say there's a slight increase in speculative projects. However, we will not proceed unless we identify a market opportunity, which we do. Essentially, to answer your question, we expect a modest increase based on our previous guidance for the remainder of this year.

So just wanted to clarify, I think you said mark-to-market across the four portfolios holding at 15%. Can you break that between the U.S. and Europe? And also, just clarify what the mark-to-market is in IPT?

I'll take the first piece. So in our portfolio today, Prologis U.S., is around 17% and Europe is around 11%. So our blended is about 15.5%.

IPT is pretty much in line with the rest of our U.S. assets.

I have a quick question for you. I know you didn't purchase the entire IPT portfolio based on their financials. However, it appeared that in 2017 and 2018, they were experiencing under 2% same-store growth. I understand you have some operational efficiencies in place, but as you assess your legacy PLD portfolio growth compared to what you plan to integrate into the portfolio, will this addition enhance your growth profile, remain consistent, or negatively impact it from your viewpoint?

I think slightly accretive. And to be frank, we have not studied their historical operating performance. What we have studied is the location and quality of the assets, which we like. We bought them onto our platform, I'd say, it's a marginal increase.

I guess a couple of questions on the IPT 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 scaled. Do you have enough of it? And even the financial accretion was quite a success it seems like that by and itself wouldn't prompt the deal of this size. So, can you maybe talk about the other points that we haven't covered?

I think that 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 and they're really good market. So whenever there is an opportunity to pick up some of those assets and 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 value out of those assets.

For IPT, I believe you mentioned that 20% of the portfolio consists of non-strategic assets that are candidates for sale. Could you explain why these assets are considered non-strategic and how you evaluated them in terms of the expected cap rate for their sale?

Could you repeat the first part of the question?

So, I think you said that…

For sale portfolio, which is 20%, a small portion of it is two 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.

And 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 compared to some of our prior activities.

Yes, one other data point for you. This is not the first time we've gone through cleanup of assets. We've sold about $14 billion of assets in the last five or six years. 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 a premium.

Yes, for Tom or Hamid, just maybe talking about the construction pipeline just nationally, or maybe even internationally. You said you took Osaka off the watch list for as a market. Have you added any and where do you see the most competition today? I think Tom you referenced the supply in your comments?

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've heard us say over the past four or five years, frankly, certain markets in South Dallas and certain markets in Atlanta, i.e. in Chicago, Central Pennsylvania, once in a while, Inland Empire East and in the U.S. come-on and come-off the list. What's interesting is that in prior cycles markets never came off the list; they just kept over-building them until you’re in a crisis. So that picture really hasn't changed internationally. The one note that we have is 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 with a lot of reduction in that vacancy rate recently. Chris, I don't know if you have…

Yes, Gene, you're spot on. I'd add, in fact there have been no additions this year. You have to look back to last year for the additions to this list. As we mentioned in Midland is a market and then also Houston were additions late last year, so no additions this year and one subtraction.

I have a question for Gene or maybe Chris Caton. Regarding the DCT transaction, you mentioned that when you achieve a certain concentration in sub-markets, it allows you to increase rents more effectively. I'm interested to know if, with the IPT transaction, there are specific sub-markets where you now hold a dominant position that you did not have previously. Additionally, for Tom, can you confirm that this transaction will not necessitate any new common equity for Prologis?

I'll take the second one, absolutely not, no equity.

So, the way we look at asset clusters, and that's one way we describe this, if we're adding assets to the market that, let's say, we have 20 buildings, 25 buildings and call that 3 million to 4 million square feet. There is a clustering effect that we have tracked and we have tested. There is no question you get incremental NOI. I'm not going to go into any specific details on that. But you have a situation when you're adding to a cluster, or you're adding enough to a smaller concentration that we already own. And you then create a cluster. And in this case we have one market that you for sure have created a cluster that will be Portland. There's a pretty good concentration here in Portland, PA and Baltimore also fall in that category. Otherwise, we're just adding on to very, very big concentrations. Chris, I don't know if you want to add anything to that.

I think that was perfect. The only thing I would add is that the benefit doesn't just accrue to the newly acquired portfolios; it also accrues to the existing portfolio, which is by far the more important of the two pieces.

Hamid, 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 has the same initial investment and strategy in the initial roots?

Yes, so we bought DCT at a 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 one. 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 whole portion, DCT was 95% hold, this is 80% hold and 20% sell. So in that sense, I would mark the DCT portfolio as better because it has less to dispose. But if you look at the 80% and the 95%, I would say they were comparable.

Just to go back to the price of the IPT deal, that's a 4.5% cap rate, you quoted that based on your definition of stabilization. So maybe the cap rate would be a little bit higher based on current input occupancy. And then second, do you guys believe that you paid some maybe aggregation premium rather than if you brought this entire portfolio on a one-off basis? And then finally, based on where interest rates have gone the last few months. Do you think cap rates, in general, have declined for good quality industrial assets? Thank you.

So a couple of comments on the cap rates. 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 it 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. It includes a vacancy allowance, which is critical because the portfolio is over leased 95%. We adjust it 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 third 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 related to the whole portion of those portfolios at all; it was pretty consistent. I'm not smart enough to tell you whether there was an aggregation premium or not, but we did not attribute one to the portfolio on this one or any of the other ones. On the other ones, we were unsuccessful, and on this one, we will be 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 and you have to factor it.

And in this one, there wasn't any of that. But on the others, there have actually been significant margins.

Can you provide a quick macro update? I know you included some conservatism in your prior guidance ranges. Did you remove that conservatism in the updated range? And how's the logistic real estate market remain largely inflated 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 our 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.

This is Mike. From a customer perspective, no meaningful impact other than perhaps a little blip with some increased inventories and spot examples, but nothing significant.

Yes, I think you may be referring to the commentary on the fourth quarter 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 in January. We talked about having in the most recent two weeks reduced our internal planning; that's all done. We're back on track. So, if you're referring to that, you can ignore all that.

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 our deadlines on that. In the current environment, I was telling, I think we need to do it fairly quickly in that timeframe. But we do it in the normal course of business. It has to be consistent with everything else we're doing. And then we have to see where the demand patterns on it. Sometimes you can aggregate a portfolio and move quickly; in other cases maximizing value means one-off. But that timeframe within 2020 is probably reasonable.

It's Michael Bilerman. I had a few more. I hope you can address one at a time. But just in terms of…

Michael, you can go continuously because you are the last one. So we can go on with…

How much time do you have?

Don't get carried away…

So, just in terms of upside potential, squeezing more juice out of these oranges in this portfolio. You talked about, I think, you mentioned the 4.5% stabilized and 4.9% cap rate. 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 on market rents. So, I didn't know what the difference was or what maybe driving down the yield; the numbers didn't match up.

It's cash, cash versus effective cap base…

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% also. That 17% is a GAAP number?

It's about 10%. So the 4.5% and 4.9% are not precise numbers either, obviously. So we were going to take out four decimals; Hamid didn’t like that, so…

Michael, the other thing is that there's a difference between the hold portfolio and the sell portfolio. So, the hold 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 million of assets on Prologis' balance sheet? Or is the entirety of the $4 billion going into one or the two 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 have a revolving line of credit that we pull up and down. So we're probably not going to pull capital out of the funds. We'll just leave it in there for future growth.

And then just I wanted to come back to my original question about doing this wholly owned versus in the funds. 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 two larger scale M&A transactions. One yes, it was stock for stock. This one is a cash deal, the 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, that deal we did on balance sheet. And to have them buy a deal and then sell it to the fund, there're just too much frictional cost associated with that. 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 doing those deals as I mentioned to the funds. I mean, that's our business model and we'll continue to do that. These are, by the way, now very significant funds. I mean, you'll look at where a USLF will be at the end of this deal, it's going to be north of $12 billion. You look at where our European fund PELF is. It's about an $11 billion 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 that's happening with China and the U.S., 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? And I know what's happening in the U.S. But anything in Asia that you've seen would indicate any slowdown on the industrial side?

This will be your final question since someone intervened. China is experiencing a slowdown, the most significant in a while, which we can observe directly. However, the industrial real estate market in China is largely influenced by the limited availability of land from the sole provider, the government. They have historically been hesitant to meet market demand for industrial land because these users do not generate tax revenue. In China, there is no property tax system; instead, the government collects taxes based on registered capital, which is often not tied to warehouse locations. Consequently, there is a constant shortage of land in key Chinese markets. Even with more modest economic growth, supply in many of these areas remains inadequate. The industrial market's strength is supported by domestic consumption and a scarcity of industrial land. Recently, consumption has decreased from mid-teens growth to high-single-digit growth, which is significant. It's also important to note that the land shortage primarily pertains to Tier 1 and 1.5 markets where we are active. While more land may be available in outlying areas, it isn't relevant to our business. Additionally, the rise of e-commerce is creating demand for more space than what was typical a decade ago.

Thanks for leaving 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 two components?

Yes, we'll be giving those components. If you look at the back of our sub, 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, and that one comment was that they asked us to modify our owned advantage NOI disclosure. That actually approved our disclosure quite a few years back. 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 sooner. Thank you.