Ladies and gentlemen, thank you for standing by, and welcome to the Prologis Business Update Conference Call. My name is David, and I will be your operator for today's call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Tracy Ward. Thank you. Please go ahead.
Thanks, David, and good morning, everyone. Welcome to our April 6, 2020 business update conference call. I'd like to state that this conference call will contain forward looking statements under federal securities laws. These statements are based on current expectations, estimates and projections about the market and the industry in which Prologis operates as well as management's beliefs and assumptions. Forward looking statements are not guarantees of performance and actual operating results may be affected by a variety of factors.
For a list of those factors, please refer to the forward looking statement notice in our 10 ks or SEC filings. This call will focus on our operating performance and our view of the industry. The company will not provide comments related to Q1 results or 20 20 guidance beyond what is included in our prepared remarks. We will cover those items within our normal course and during our first quarter conference call on April 21, 2020. This morning, we'll hear from Hamid Moghaddam, our Chairman and CEO and Gene Riley, our Chief Investment Officer.
With that, I'll turn the call over to Hamid, and we'll get started. Hamid, will you please begin?
Thanks, Tracy, and good morning, everyone. Thank you for joining us on this business update call. Before we start, I wanted to wish you and all your loved ones all the best of health in these challenging times. That's by far the most important thing and everything else will take care of itself. While we're usually the first company to report our quarterly results, we thought it'd be important to give you an even earlier view into our operational metrics in this fast changing environment.
We'll still hold our normal earnings call in its previously scheduled date of April 21, where we'll discuss financial results and any updates to our guidance. The purpose of this meeting is to focus on what's happening in our portfolio that spans almost 1,000,000,000 square feet of space around the globe. We're able to do this because of significant investments we've made in our systems, technology and data infrastructure. Our intent is to focus on actual facts on the ground and to stay away from speculating about the future, although we'll be happy to offer our thoughts in that regard in response to your specific questions. Please don't ask us about earnings or guidance as we are not in a position to talk about those just yet.
I'm joined today from different locations by the entire Portlogis Executive Committee as well as Tracy Ward and Chris Kaden. With that, I'll turn the call over to Gene Riley, who will talk about the substance of this call.
Thanks, Anit. Good morning, and thanks to all of you for being with us today. I join Hamid in wishing you and yours the best. Since early March, CoreLogic's leadership has organized our planning and actions around 4 categories: employees, customers, investors and communities. Starting with our people.
As a global company, Prologis has been dealing with COVID-nineteen since January when our employees in China started working remotely. While most of our employees elsewhere have been working from home since mid March, our property level teams continue to make exterior property inspections under protocols to keep them and our customers safe while continuing to serve. Business continuity and communication plans are in place, allowing all functions of the business to work smoothly. We've invested heavily in technology and support over the years, allowing our teams to grow accustomed to running the business and communicating with colleagues remotely. Fortunately, we are not dealing with layoffs and have extended financial assistance to employees in need due to a spouse, partner or family member having lost their jobs.
Our executive committee now meets every morning. We release leadership videos Monday Friday, and we have redesigned our Internet to educate and equip our employees for working and serving customers remotely and effectively. Our commitment to enhance internal communication is really helping morale, and our people are working together like I've never seen before. So here's what we're seeing with our customers since the COVID-nineteen battle began. E Commerce is the clear driver of activity with nearly 40% of the new leases in March having some flavor of direct to customer profile.
Typically, this is 23%. By industry segment, those who serve essential daily needs and the work from home economy are most active, including general retailers, food, medical supplies and electronics, along with supporting industries such as paper, packaging and transportation. Conversely, those customers serving the hospitality, brick and mortar retail and event management businesses are understandably quiet. So here's a summary of other leasing data from just the month of March. Too early for conclusions, but there are interesting patterns forming.
In March, we signed 209 leases amounting to 18,500,000 square feet, a 42% year over year increase and a 16% increase when adjusted for our portfolio size. And the foregoing year over year percentages, by the way, are all also size adjusted. 64% of this March leasing took place in the second half of the month. And within this total, our normal lease term leases were up 12% year over year and our short term leasing, meaning less than a year, was up 44%. Looking to leading indicators, lease proposals were up 13% year over year in the month of March and up 29% year over year during the last 10 business days.
And this is March 23 through last Friday, April 3. Lease negotiation gestation periods were unchanged year over year at 50 days. And April move outs so far imply a mid-80s retention versus high-70s, which is our 3 year average. Rent change for the quarter was 25.1 percent, flat year over year. But interestingly, March rent change was up 640 basis points at 31.2%.
So looking at actual rent payments, We've received over 94% of March rent, which is actually up year over year but basically in line with expectations. And rent payments in April to date are also in line. So observations. Short term surge in demand is real. How durable this will be remains to be seen.
Our standard term leasing volume was also up late in March, frankly, a pleasant surprise to us. And the low early April move outs do imply higher retention. So these factors of short term leasing demand and near term retention growth are important because they may offset general occupancy erosion caused by the market environment. Rent release is an important topic these days, and we are managing these requests with the same detailed process used in the past. After receipt of an inquiry, we take the following steps.
1st, for applicable customers, we provide an SBA financing toolkit or its alternative outside of the U. S. 2nd, we ask customers to explain the reason for the request and submit current financial statements. We then review applications carefully and prepare assistance packages for a subset of the applicants. The assistance we do provide comes in the form of rent deferral, whereby a portion of the customer's rent is deferred in the form of a loan to be repaid in the future.
We're methodical about this exercise as our aim is to help those customers who really need it and will be able to repay the deferred loan. We have received several opportunistic relief requests from large financially sound customers, frankly not the audience we are targeting with this support. Deferrals granted for legitimate cases may also include adjustments for the existing lease terms, such as the elimination of purchase, fixed rent or extension options or securing the deferral loans with leasehold interests, other real estate or financial assets. I'm going to describe what we have seen so far in detail as this will not be the last time we talk about this subject. So to date, we have received some form of rent relief requests from 24% of our customers as measured by gross rent.
These requests relate to certain spaces for certain periods of time, adding up to 69 days of gross rent on 16.6 percent of our portfolio. We expect to grant roughly a quarter of these requests, implying deferral loan amounts equal to about 1% of gross annual rent. Too early to speculate on loan default rates now. But for perspective, our default rates overall increased from a 21 basis point average to 56 basis points during the global financial crisis. In this particular crisis, default rates may actually approach 100 basis points.
It is also worth pointing out a few mitigation conditions or mitigating conditions, excuse me, that did not exist during the previous financial downturns. First, there are certain industries today that actually need more space either temporarily to deal with the surge of certain products or permanently to deal with secular changes coming out of this crisis, mainly accelerated transition to e commerce and inventory growth related to safety stock expansion. 2nd, banks are in a much better position to help businesses bridge their operations through this crisis. 3rd, the public financial support alternatives are unprecedented in nature and scale, and we are helping our smaller customers navigate this process as noted. And 4th, today our in place rents are 15% below market.
Now turning to our investors. Another important topic for REIT in recent weeks has been liquidity. Conservative balance sheet management has Prologis in a fortunate position in this regard. At quarter end, we had approximately $4,600,000,000 of cash in line capacity. We also demonstrated our ability to access capital markets during the quarter by refinancing $5,100,000,000 of debt with average term and rate of 13 years and 1.9%, respectively, clearing almost all debt expiring through the end of 2021.
Turning to the Strategic Capital business. Our open ended funds in Europe, China and the U. S. Have over $3,600,000,000 in cash, line capacity and equity queues on top of leverage estimated at just 21%. The combined investment capacity of Prologis and our fund vehicles, assuming leverage in line with current credit ratings for all, is well over $10,000,000,000 And now to give you some insight into recent private investor activity, our open ended funds, which have equity in place of about $25,000,000,000 received 6 redemption requests totaling 880,000,000 dollars 15 new capital commitments for approximately $625,000,000 during the quarter.
There are also several $100,000,000 of potential commitments in due diligence. In Japan and Mexico, our publicly held JREIT and FEBR vehicles completed successful equity raises of $259,000,000 $360,000,000 in late February March 4, respectively. Chris Catan and his team are keeping you all up to date on our thinking with 3 research published research reports published to date on COVID-nineteen effects. Activity as measured by our IBI is down sharply from 60 to 42, yet utility utilization rates are down only slightly from a near record 86% to 84.5%. Longer term, we expect the following: inventory levels to rise along with the growing importance of SAFE's key stock, e commerce adoption to accelerate, and we believe there will actually be a step change here and the onshoring of manufacturing will certainly increase.
All of these changes, we believe, benefit the logistics real estate asset class. Now I'll turn to our capital deployment strategy. We have stopped all new speculative development and have halted construction on several speculative projects that had recently started. We are working very closely with customers and municipalities on our 30 build to suit projects around the world. We continue construction on 22 of these projects, with 8 of them having been halted by local authorities.
We expect a few more projects to be stopped and then for construction to resume gradually later in the year. None of these build to suit customers have indicated they want to stop any of the projects. New acquisitions and new dispositions are assessed case by case, but we have a bias to be patient at the moment. Based on these changes, we now estimate the cost to complete our share of the development portfolio, which is 38% leased, to be approximately $1,900,000,000 over the next 12 months. And now let me turn to our communities.
As you know, Prologis takes an active role in bettering the communities in which we operate. In these troubled times, we're enhancing these efforts to provide assistance across the globe in the form of direct cash grants, supplies and the donation of space at our properties through our Space for Good program. When the COVID-nineteen pandemic started in January, we donated medical supplies to local hospitals, the Red Cross and the Public Welfare Foundation in Wuhan, China. As the coronavirus has spread, we've offered unoccupied buildings and yard space for relief efforts to local, state and federal agencies in the U. S.
And to hospitals and other relief organizations throughout the world. To date, we've donated approximately 450,000 square feet in 6 spaces in 5 different markets with 8 more donations pending in 5 additional markets. The Prologis Foundation has allocated $5,000,000 to COVID-nineteen relief to organizations all over the world with an emphasis on feeding those in need and in assisting the medical communities that have been impacted so drastically. Finally, we are signatory to the Stop the Spread campaign, pledging bold action to prevent the spread of coronavirus with a financial commitment and creative solutions to provide relief in local communities. Thankfully, we entered this period with the healthiest logistics real estate market fundamentals on record with very few exceptions.
We also entered this period with the highest quality portfolio and the strongest balance sheet we have ever had. We are prepared to make opportunistic investments in this environment, but we'll be patient in doing so, and we continue to prioritize our people, customers, investors and communities at this moment. The insights we can draw from analyzing our data given the scale of the operations may be the most valuable aspect of the Prologis franchise as we work through this environment. We're happy to take your questions. And Tracy, I'll turn it back to you to manage Q and A.
Gene, thank you. David, if you could compile the Q and A roster, we'll begin. Certainly.
Your first question comes from the line of Steve Sakwa with Evercore ISI. Your line is open.
Thank you for hosting this. I guess, Gene, could you maybe just go back to your comment about April payments? I think you said they were in line, but I don't think you really provide any quantification around that. I realize, excuse me, we're only about 4 or 5 days into the period for payments. But just could you be a little bit more specific on that?
And what do you expect for the balance of the month?
Hey, Steve, this is Tom Winger. Steve, we've gotten about 2 thirds of our cash payments in for the quarter at a pretty normal pace. So that's where we stand at this point.
Your next question comes from the line of Jeremy Metz with BMO. Your line is
open. Hey, good morning. Amit, Gene, you guys talked about some of the differences in the environment today versus the financial crisis. As we think about your scale today along with that, how do you think about the opportunity to better control rents and pricing in the market? And then as supply chains and inventories are being stressed today, maybe, Hamed, you can comment how you're thinking about the need for some of your customers to rethink traditional just in time inventory management systems and the potential implications here that it would seem to potentially point to more facilities, more locations possibly in secondary markets, maybe a change in demand size, push for smaller buildings?
Just curious how you're thinking about those two dynamics. Thanks.
Jeremy, I'm an old man. I'm not sure I'm going to remember all of that, but let me take a stab at it and I'll turn it over to Gene. And I think Chris might have some pretty useful comments about this as well. So I would just simply say that for the last 20 years or so, supply chains have been really structured for efficiency. And people have been squeezing more and more inventory out of the system.
The supply chains have been longer and longer. And so they're very vulnerable to disruption, whether those disruptions are earthquakes in Japan or the COVID crisis, they're very vulnerable to that. I think going forward, once this thing is through, people will operate with a higher level of inventories altogether, because the advantage of resilience in the supply chain, it's becoming pretty obvious. So I would say whatever the inventory levels are today, or would have been in the future, they're going to be 5%, 10% higher once this thing is over. And that's substantial because this business is at 1%, 1.5% grower per year.
So if you have 5% or 10% more inventory, you could almost double the growth rate for 4 or 5 years at the other end of this thing. So that's probably the most important comment I can make. The second one is that the growth rate of various industries is going to change. And Chris probably can give you a better color on that. So let me stop there, turn it over to Gene and then we'll go to Chris.
Yes. I guess the other factor is what is the origin of the goods. So it will take a fairly long period of time, but for sure, more goods are going to be manufactured in the United States or at least in the Americas, maybe Canada, maybe Mexico. Ultimately, that doesn't change the destination of the goods. So probably not a significant impact for us, but that is going to be, I think, taking place over time.
So why don't I kick it over to you, Chris?
Yes, sure. Let me build
a little bit on some
of the industry commentary Hameed was sharing. Thought about it three ways, Jeremy. First, activity during the coronavirus outbreak. Customers essential to daily life and the work from home economy are growing, for example, food, medical and consumer products. These industries represent 53 percent of rent.
And by contrast, 29% of customers by industry will be challenged, for example, the furniture and construction industries. The net difference between the resilient and growing industries versus the challenged ones is a positive 24%. Now second, what will happen to trend growth as a complexion of economic activity changes? Now for our business, roughly 3 quarters of industries should have a higher trend growth rate driven by e commerce adoption and reshoring. Food and beverage is the best example with its step change higher in online shopping.
There'll be some industries that will be challenged, perhaps auto, but I only estimate that at 7%. And that difference between industries with a higher trend and a lower trend is positive 69%. Now 3rd, between these two time periods of today and the recovery, many industries will be challenged either due to the economy or for those that had a pull forward of demand for disaster relief. During this temporary phase, 58% of industries will be challenged, whereas 20% will be resilient, translating to a net difference of negative 38%. Now while there's a chance demand for industry declines in a quarter or 2 later this year, I expect net absorption to remain positive in 2020 in total.
And I've walked you through a lot of detail what's important. First, a majority of our customer industries are resilient or growing during the coronavirus outbreak. 2nd, the consequences of the recession will lead to lower demand for our industry, but it will be temporary and last perhaps 6 months. And 3rd, expect a step change higher in trend growth due to the complexion of economic activity. In addition, all customers will tune their supply chains for resiliency versus efficiency.
5% to 10% more inventories will translate to real demand for logistics real estate.
Your next question comes from the line of Jamie Feldman with Bank of America. Your line is open.
Great. Thank you. I guess, 2 follow-up questions. One is, any meaningful difference across markets, whether it's coastal near ports or inland, where you're seeing a difference in activity and health? And then also in terms of tenant size, anything any early trends to see there?
Yes. Jamie, it's Gene. Let me take that and Mike might have some color. We really don't at this point. And what we're trying to do is take a look at fairly short small windows of time.
So if you look at
the last couple of weeks, the biggest difference we see is a significant spike in short term demand. And we see that pretty much across the board. It is likely that there's probably more activity on the coast. But generally, we see that across the board. And Mike,
I don't
know if you'd add anything to it. But at this point, it's hard to I would be hesitant, Jamie, to point out geographic differences this far in.
Jamie, it's Mike here. Not surprisingly, we're seeing increased activity from our larger customers who are focused with e commerce, particularly distributing products are the essential nature, not a surprise there. And then less less activity, not surprising with our smaller single site customers as they tend to have more local stresses going on. But that's I would differentiate the 2 in that way. We'll have more details in the next couple of weeks.
Hey, Jamie, the only thing I have to add to this is that Houston is obviously soft more because of oil than the COVID situation. So that's the one market that I would say is weaker than it would normally be if it were just COVID.
Your next question comes from the line of Sumit Sharma with Scotiabank. Your line is open.
Hi, there. Thank you for taking my question.
Just wondering about the strategic capital. You mentioned your queues are pretty deep. I guess, Do you still have the higher cost of capital than your investors? Are there, let's say, investors out there that may not have the cost of capital advantage? Are you seeing some redemptions?
Any color on the kind of money that's actually exiting? And what do you have in place to sort of take its spot?
Yes. So Sumit, it's Gary. With respect to our fund business again, liquidity is not the issue. Price discovery is going to be our guiding principle as we take a look at making sure that both incoming and outgoing investors are treated fairly. There were 6 redemptions as Gene noted, totaling $880,000,000 about $440,000,000 in Europe and about $440,000,000 in the U.
S. Those redemptions came 85% from public pension funds and 12% from funded funds. So fairly large companies. Again, with respect to our ex or investors rather, with respect to our equity cues, they're large. I mean, we've got $2,100,000,000 in our equity queues.
And those are well represented as well. 33% are public and corporate pensions, 23% are funded funds, 13% foundations. But again, these businesses are well capitalized today.
Yes. And I would add a couple of things. First of all, of our redemptions, about half of it is one investor who had actually declared a strategy to redeem for their own internal reasons over a year ago, and they had been redeeming over time. So I would take that half just out because it was a previously announced strategy. On top of that, some normal level of redemption happens in good times and bad times because of just portfolio rebalancing.
So I would say the amount of redemption requests is way less than new commitment if you look at the ones that are due to this COVID situation. That's number 1. Number 2, going forward, for sure, there's going to be a denominator effect because as people stock and bond portfolios become less valuable, the percentage allocated to real estate will get smaller. And as a result, there could be some money that comes out of real estate. But if you really think through where that money is going to come through, it's not going to come out of industrial, it's not going to come out of data centers.
You can probably have a pretty good guess where it's going to come out. So we think at the other end of this, not just because of lower interest rates, which are now going to be lower for longer, but also because of the weight of the capital and further allocations to industrial way on the other side of this, whenever that may be, I think cap rates for industrial are going to continue to go down.
Your next question comes from the line of Manny Korchman with Citi. Your line is open.
Hey, it's Michael Bilerman here with Manny. Tameet, I want to sort of expand on sort of the capital deployment and sort of your confidence on both the stepped up demand curve that's going to come out of this, but also your comment that cap rates will likely go down. Recognizing that you always need 2 to tango, how do you sort of look at given the liquidity that you have? You have an under leveraged balance sheet,
you have significant private capital. How are you thinking about perhaps
environment given all the uncertainty and going out and setting the price discovery, both from a purchasing of portfolios, companies, assets, but also perhaps activating more of your construction pipeline rather than curtailing it if you have such confidence in the future? Thank you for doing the call.
Yes, of course. So Michael, that's a really good question. The good news is that we're not building 50 storey office buildings. So these are not binary decisions that are $1,000,000,000 decisions. We're building the 5th or 6th or the 12th building in a park And the supply comes on very incrementally.
So as we see how our properties lease, then we decide whether we're going to activate the next development in the same park and add incremental into space. So we don't have to make that judgment and see whether we are right or not. We just can observe the market and proceed that way. We have the entitlements, we have the land, we have the balance sheet, and I think we'll find the contractors is in this environment. So I think we can the development side is not going to be a problem.
I think with respect to opportunities to deploy capital and acquisitions, as you know, we're very focused on replacement costs, because we are not just acquirers, we are developers. We can make it or we can buy it. So we're very, very familiar with and very focused on replacement costs. And if we see situations where we can buy attractive properties as discounts to replacement costs, we're going to start that discovery process really early. Now let me make a prediction.
I think the market is a lot less levered than it was in the last cycle. I think people have managed their maturities. I think real estate is in more institutional hands. So I'm not expecting a ton of really cheap opportunities in industrial there. Some more leveraged buyers may come under pressure, but I think for every one of those, there will be others that want to add to their real estate.
So I'm not really saying that there's going to be blood in the streets. I'm just saying that this is a strong asset class. It's going to be even more desirable and hard time to predict exactly where the bottom is in terms of price discovery. But if I were betting, I would say, by the end of Q3, beginning of Q4 this year, we're going to have transactions that will tell us exactly where the price is and where it's going. I'm pretty confident with that.
Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets. Your line is open.
Hey, everyone. Just want to circle back on the rent relief with a couple of clarifications. So Tom, I think you said you guys have gotten 2 thirds of your rents in for April. Just curious on the remaining 1 third kind of when is the grace period over on getting those in before you guys would consider those in default? And then separately, just curious any patterns you're seeing whether it's the moratorium in California?
Are tenants taking advantage of that to not pay rent higher numbers? Or just the size, guys are seeing between larger tenants and smaller tenants?
Craig, I'll start out. This is Tom. So payment terms globally vary from the 1st of the month all the way out into the second half of the month. So it just varies on market practice when those payments are due. And so far things look normal.
And surprised given the work from home environment that most of our customers are operating under just like we are. So, so far so good. But we'll know more in the next, call it, 10 business days. And when we get back on the call on 21st, we'll be able to give you an update.
Yes. Couple of things
I would add,
I mean, this is actually important to know. For example, in Japan, rents aren't due until the second half of the month. So you don't expect those to come in. In the U. S, rents are due usually at the beginning of the month, but there's a 10 day grace period.
So people usually wait till that day 10 to send them the rent check or the electronic payment. So the practices are all over the place. And the reason we say we're not seeing any different patterns is that because we've literally taken the number of business days from last time, compare them to the number of business days from this time and the numbers are right on top of each other. In fact, a little bit higher for this year compared to last year, tiny bit. I wouldn't read much more about that.
So for April, just like March, the trends are pretty normal. On the size of tenants, I will tell you that smaller, weaker, less well capitalized tenants are more likely to have problems with their rent payments and they're going to be the bulk of the legitimate, if you will, request for rent relief. The big guys, a lot of the big guys and I don't want to mention names, but they're the same people that are adding employees that you read about in the paper. There are 5 or 6 of them that are have a much higher and more voracious appetite for space than they had before, because their business is just booming and they can't keep up with the demand that's happening. So, look, I don't want to paint a rosy picture.
And as Chris mentioned, there is going to be a surge of this stuff and then there's going to be a lull of this stuff and then it's going to stabilize at the higher level because of penetration of e comm and more safety stock. So we will get to that low in the middle, where more people are likely to be leaving less space than more space. But that's not what we're seeing in this initial surge space surge space, sorry.
Your next question comes from the line of John Guinee with Stifel. Your line is open.
Great. Thank you. Going to the effort to do this call, very, very helpful. Let me just compare back to the great financial crisis first. I think I heard you say, Gene, you over the course of your normal business, you have about a 21 bp default rate, 56 basis points during the great financial crisis, but you expect maybe as much as 100 basis points now.
Both 56 basis points and 100 basis points seem a little bit low. So if you could elaborate on that? And then second, you have a well publicized 15% mark to market. But during the great financial crisis, I remember you doing some $1,000,000 $2,000,000 $3, dollars 1 in the 1st year, dollars 2 in the 2nd year, dollars 3 in the 3rd year leases. What do you think is the ability to maintain that 15% mark to market?
Yes. So John, I'll take the second one first. Well, first of all, we need some we need rent discovery as well. The only point I'm making is that you did you had nowhere near that in place to market gap going into the last situation. So I think it's expanded from where it was.
And we look, we're just way too early to be speculating whether we're going to do $1, 2 dollars $3 And we'll stay in touch with you on that, but I think it's just it's way too early. And with respect to your first question, remind me, John, what was your first half of the question?
Your default rate during the great financial crisis was stunningly low at only 56 basis points.
Yes, yes. So look, the 100 basis points I threw out, take that only as follows. I think and we think that default rates are going to be higher for a period of time in this crisis than they were in the great financial crisis, okay? I wouldn't read anything more into it than that. And none of us know where they're going to go, but we think it's probably going to be worse.
Great.
Hey, John, what
are the differences between Sorry.
John, 2 big differences between now and global financial crisis. Global financial crisis, we went into it with a lower utilization and an 8 plus percent vacancy rate that stabilized at about, I think, 13% or 14%. We're going into this market with 4.5% vacancy rate. And there is no countervailing surge in demand in the global financial crisis. Everything went down.
Now because of all this surge of e commerce and all that people, at least there is a group of people in the beginning of this that are running out and leasing some space and driving that 4.5% possibly lower. So you're starting off at a very, very different place than the last global financial crisis. I'm not saying it won't get that bad. In fact, we are saying that it might get worse than that, just to be conservative, but there are good reasons to believe that it's different. Also, if you're a customer and let's say your business is failing, let's take the ultimate example of a failing business.
The only thing that's left in your business is your inventory. You might give up your retail space, your office space, but we're going to put all your stuff that your creditors are going to want to liquidate. You got to put it in the warehouse. So I think we're a bit of a lagging indicator in that regard. People don't lease warehouse space because they want to.
They lease warehouse space because they have to.
Great. Thank you. Wonderful job.
Your next question comes from the line of Dave Rodgers with Baird. Your line is open.
Yes, good morning out there. Thanks for doing the call. Maybe along the topics of liquidity and price discovery, and I know it's early, so I'll use the term could. But maybe first for Tom, as you think about your ex U. S.
Assets and any potential revaluation risk, is there a risk because of that that they're more highly levered to the liquidity position of the the gains the gains and the dividend coverage along with that. Can you just kind of provide any kind of guidance or thoughts around that before guidance comes out?
Yes.
This is Tom. So just on our liquidity, our liquidity is rock solid. As Gene mentioned, we've got $3,800,000,000 of liquidity, dollars 800,000,000 of that is cash, dollars 3,800,000,000 line, so $4,600,000,000 of liquidity. We've got over $10,000,000,000 of borrowing capacity across the stack. So we are incredibly well positioned from a liquidity standpoint.
Just taking that all the way out to the dividend, our dividend is again, we're not updating guidance here, but if you go back to what we talked about on the Q4 call, our AFFO implied in our guidance at that point in time was about 63% dividend coverage ratio. That is a 1.6x dividend coverage. So payout ratio of 63% a dividend coverage of 1 point six times and cash flow after dividend of over $1,000,000,000 And then on your FX question, don't have any concerns about FX whatsoever. If you look at our earnings and cash flows from an FX standpoint all the way out through 2021, 99% of our U. S.
Of our earnings and cash flow are in U. S. Dollars either naturally or through forward hedges. So again, 99% of our cash flow through 2021 is in dollars or hedged back to dollars. And then even looking out further into 2022, it's 95%.
So no concerns at all about FX having any impact on our earnings.
And then lastly, on our
Your next question comes from the line of Michael Carroll with RBC. Your line is open.
Yes, thanks. Gene or Tom, can you provide some additional color on the deferral request to date? I believe you said there's about 24% of rents have requested a deferral. Did they pay their April rent yet? And then I also believe that you said there is what roughly 2.5 months of rent they asked.
Is that enough of the deferral or do we have enough knowledge to date to know if that's enough for them to survive or for you to actually provide that for them?
So I'll start on that. So we certainly can't say that we know for sure that 69 days of deferral will do the trick. We can't say that. But could I ask who
there is
a lot of noise.
Whoever is
asking the questions needs to go on mute, please, because there is background noise. Thank you.
Yes. So, of course, we can't guarantee it will be enough. But what we can tell you, we've given you very specific information on what has been asked of us at this point in time. And we try to quantify that and bring it right back to what might it do to our rents. And maybe a simple way of thinking about this, if this crisis extends beyond a couple of months, 3 months, then this number will grow for sure.
But I think I can't give you any more color and we're not going to tie these requests to who's actually paid rent. But we've given you exactly what we've seen so far.
Look, a substantial amount of that 24% are Fortune 100 Companies. And somebody in their legal department probably said, send a letter to all your landlords and ask for a rent deferral, why not? We're not going to give those people. I mean, I think people should not use this market condition opportunistically. I think that's really a bad thing to do.
I think people should do the right thing. We should be here helping the people that really need help as opposed to trying to extract an economic advantage. We're just not going to stand for that. They're valued customers, but they need to behave themselves. We're not going to take money out of our shareholders' pockets and put in other major companies' shareholder pockets just because they ask for it.
Mike, is there any more color on that that you want to speak about?
Yes. I would just emphasize for our larger customers,
ones with a solid balance sheet, we're expecting them
to pay their rent, that's what we expect to happen. But we are addressing a handful of non rental issues with them to make sure they stay on offense and continue to be able to take care of their customers, whether it's short term leasing or flexible terms. So that's where our efforts are with the big customers. Our deferral discussions are with the smaller customers that we've confirmed actually need it.
Your next question comes from the line of Sarah Tan with JPMorgan. Your line is open.
Hi, it's Mike. I was just wondering, can you comment on what you're seeing specifically from the retail segment, just given there have been a lot of high profile retailers talking about not paying rent?
Yes. This is Mike. We have seen a higher percentage of retail customers either sending a letter or having inquiries. I think they've grouped some habits dealing with their retail landlords over time. But we're trading them exactly in the same way I just described.
Big successful well capitalized companies are not the folks we're spending our time on these incremental smaller rent deferral discussions. So there is
an uptick on the rental
on the retail, but I would say those are associated with e comm and those are in a much stronger subset.
Got it. Thank you.
Your next question comes from the line of Manny Korchman with Citi. Your line is open.
Hey, guys. Again, thanks for doing the call and coming back to me. If we dive into the leasing discussions a little bit further, over the last few months quarters, we've spoken about optimizing retention for the occupancy benefits and the fact that sort of rent increases came with that. When you're having those conversations today on leases that are naturally rolling, are you getting any pushback on the rents going up? Are you seeing anyone asking for shorter term deals just so they can figure out their businesses before committing to something longer term?
Just dive into sort of how you've told your teams to handle leasing discussions right now, that would be helpful. Thanks.
Yes. Let me start that and then pitch it over to James. Yes. In terms of if I'm understanding your question correctly, is that the we shifted from a bias towards rent growth to a bias towards occupancy, I would say around the end of February. So we're not doing yield management or anything like that.
We are trying to meet the market and then this way where the market is going because in a period of uncertainty, yield management works both ways. It works in strong markets and not so strong markets. And we just don't know. So we're erring on the side of being more conservative in that regard. Gene, do you want to get into the specifics of that a bit?
Yes. And your other question was related to how are customers responding relative to rents? And it's interesting, we have not seen much pushback on rent. Now as Hamid pointed out, we are not pushing rent as hard as we have been had been previously, But we don't have much pushback the other way. Now it's early in this and that's likely to come.
But so far, it's really a question of do we need the space or do we not need the space? And if there's much negotiation, it's really all around the short term space that people desperately need. And all of them have sort of different time frames and they want to be sharp with that and not be pushed. If somebody wants 4 months right now, they want 4 months, not a year. But otherwise, haven't had a lot of pushback, but we stay tuned.
Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets. Your line is open.
Hey, guys. Thanks for the follow-up. Maybe this one's for Chris. Just curious as you kind of put out the projection for still having net absorption in goes into goes into your thought process about construction kind of pulling back more generally than just the uptick in e commerce on the higher utilization of those tenants versus your traditional kind of industrial tenant?
Yes. A lot goes into it, Craig. First off, deliveries will likely slow down this year, as you're pointing out. So we had previously expected something in the high 200s, and I think it will be in the low 200s. We'll see a more appreciable slowdown in deliveries next year as projects are really getting deferred and delayed in the marketplace right now, and that will play out late this year, but mostly next year.
And then as it relates to demand, as you're discussing, for sure, we think about these higher growth rates. I think they will play out in 2021 2022 and thereafter. In the short term, what we're looking at is our proprietary data and the conversations we have with our customers. In addition to the historical cycles and how it played out. You may be surprised to know that the demand downturn in the global financial crisis and in the tech crash, so going back 2 cycles, was relatively shallow compared to the economic volatility.
And a lot of the vacancy that comes on in the marketplace are the deliveries of spec that take a little bit extra time to lease.
Okay, great. I think that was the last question. As you can tell, we are committed to getting the best information we can from this large portfolio and sharing it with you very clearly and directly. And you can continue to expect that from us. You'll be hearing from us in about 2 weeks, and I'm sure we'll have a lot more data at that point.
In the meantime, if you have any questions or we can help out in any way, please don't hesitate to reach out. We are all working pretty hard, but not at the office. Thank
you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.