Greetings, welcome to the STAG Industrial, Inc. First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matts Pinard, Senior Vice President of Investor Relations. Thank you. You may begin.
Thank you. Welcome to STAG Industrial's conference call covering the first quarter 2020 results. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental information presentation on the company's website at stagindustrial.com under the investor relations section. On today's call, the company's prepared remarks in the interest of your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include statements relating to earning trends, G&A amounts, acquisition and disposition volumes, retention rates, debt capacity, dividend rates, industry and economic trends, and other matters.
We encourage all of our listeners to review the more detailed discussions related to these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental informational package available on the company's website. As a reminder, forward-looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements. On today's call, you will hear from Ben Butcher, our Chief Executive Officer, and Bill Crooker, our Chief Financial Officer. I will now turn the call over to Ben.
Thank you, Matts. Good morning, everybody, and welcome to the first quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our first quarter results. Presenting today, in addition to myself, will be Bill Crooker, our Chief Financial Officer, who'll be discussing the bulk of our financial and operational data. Also with me today are Steve Mecke, our Chief Operating Officer, and Dave King, our Director of Real Estate Operations. They will be available to answer questions specific to their areas of focus. First and foremost, I hope and trust that you and your families are all staying safe and healthy during these unprecedented times. I'm happy to report that despite the ongoing pandemic, STAG employees remain safe and healthy.
We've put a considerable amount of time and energy over the past few years creating a strong culture of bright, talented, and engaged employees. Our team has been working remotely for some time, and the company continues to function at a high level. The investments made over the years in processes of improvement, data collection, storage, and analytics are all paying dividends as we continue to navigate the current environment. The near-term impact on the industrial real estate sector due to the novel COVID-19 virus continues to be fluid. Virtually all GDP growth projections for Q2 are decidedly negative. The disruptions in both the domestic and global economy will continue to dampen consumption through the current shutdowns and likely beyond. This is putting considerable strain on a broad spectrum of tenants and industries. The government has responded with large and varied policy initiatives intended to inject liquidity into the economy.
The size and scale of these initiatives is unprecedented. The long-term impact of these government actions is yet to be determined. However, we believe that the longer-term impact on the industrial sector will be net positive. Companies are reevaluating global supply chains and our reliance on China and other low-cost manufacturing countries. Establishing more supply chain redundancy will also provide better defenses against future large global disruptions. Nearshoring and onshoring has begun, and this trend will grow. All of these trends are expected to directly benefit our portfolio. There will be permanent changes to supply chain strategies across all industries. Perhaps the biggest impact of the virus will be a permanent acceleration of the trend towards e-commerce. Having a viable e-commerce business plan will no longer be a luxury for retailers. Collectively, these factors should provide increased demand for industrial space post-crisis.
These positive effects for industrial real estate demand will likely manifest themselves later this year. Speaking to the current investment market conditions, the real estate asset transaction market has generally paused as market participants work to understand the current pricing environment. Brokers are recommending to sellers who can wait that new transaction offerings be delayed until summer. Renewal leasing activity remains steady. Most corporate growth initiatives are on hold, eliminating much of the warehouse consolidation traditionally seen as a result of M&A activity or supply chain rationalization. New leasing has slowed, and the duration of negotiations is widely expected to increase. We expect that new supply will also decrease materially due to developer and lender uncertainty, construction moratoriums, and permitting delays. In the medium term, we expect modestly increasing demand and decreased supply generally for the industrial sector.
In response to the market disruption, we placed our acquisition efforts on pause. In mid-March, as the level of market disruption increased, we terminated several transactions that were under contract and LOI. These were deals that involved tenants and/or industries likely to face elevated levels of disruption during the crisis. On the remaining transactions we had under agreement, we requested a 60-day extension of any contract period. Where the seller would not agree to this concession, we terminated our pursuit of the deal. We continue to monitor the market to determine when and how our acquisition efforts will resume. We continue to see demand for our space in the current environment, as evidenced by our healthy operating metrics for the first quarter, both strong retention and leasing spreads. This has continued even after the period of shutdown started. We've remained active on the leasing front during this time.
From the third week in March through today, we've executed 13 leases for 1.4 million sq ft. We have seen increased demand from tenants in the logistics, retailer, food products, and pharmaceutical industries. Tenants remain interested in available space, with 28 tenants representing 5 million sq ft of requirements interested in our marketed space, similar to normal levels during more normal environments. Credit underwriting and monitoring has been an integral part of our business since day one, and our dedicated team has a deep understanding of our tenancies, operations, and financial conditions. This understanding is vital to our operating under these operations and financial conditions. This understanding is vital to operating under current conditions. The credit team, in conjunction with our asset management and customer solution team, our balance sheet strategy was positioned to endure times like this.
Incorporating our January equity offering and forward equity proceeds, our leverage sits at four times debt to EBITDA, which is considerably less than the low end of our recently stated leverage bands. Our liquidity stands at $597 million, but we're taking into account the forward equity proceeds available with a large portion of that in cash on our balance sheet. It is a testament to the business we have built and the strength of our portfolio that we were able to recently complete the refinancing of $300 million of term loan debt in these market conditions. This refinancing activity effectively extends all our debt maturities until 2022 and beyond. Our company is well positioned to operate in the current environment.
The benefit of not maintaining a development component is the ability to readily hit pause on capital deployment when the market dislocates, and the ability to quickly re-engage to capture the opportunities we expect to uncover as recovery begins. Our balance sheet and liquidity levels will allow us to be opportunistic when the time is right. We very much look forward to that day. The market remains volatile and it is difficult to predict both the time and the slope of the recovery. We have updated guidance knowing that a heightened level of uncertainty exists in the world. We have incorporated what we know now and what might reasonably be expected to occur based on our various scenario analyses across multiple inputs. Bill will discuss in detail our updated 2020 guidance in his remarks.
We will continue to update the market as appropriate as we all move forward through this unprecedented time. How 2020 plays out is uncertain for all market participants. The industrial sector has benefited from historical tailwinds and continues to display strong fundamentals even as we endure today's current conditions. STAG has positioned its portfolio and balance sheet to withstand and eventually benefit from today's environment and during the recovery that follows. With that, I'll turn it over to Bill, who will discuss our first quarter operational results and our updated 2020 guidance.
Thank you, Ben. Good morning, everyone. Core FFO was $0.47 for the quarter, an increase of 4.4% compared to the first quarter of 2019. Leverage is below the low end of our guidance as a result of our January equity offering and reduced acquisition activity in response to the current pandemic. Net debt to run rate adjusted EBITDA is 4.4x prior to factoring in the outstanding forward equity proceeds, and 4.0x when those proceeds are included. Acquisition volume for the first quarter totaled $119 million with stabilized cash and straight line cap rates of 6.7% and 7.2% respectively. Our last acquisition closed on March 9th with no acquisition activity since then. Disposition volume for the first quarter totaled $102 million, which includes both the previously discussed Camarillo, California disposition and additional disposition at the end of March. Portfolio operating results were strong for the quarter.
Same store cash NOI grew 2.5% for the first quarter. Same store cash NOI growth was driven by a retention rate of 87.5% and cash leasing spreads of 3.3%. Straight line leasing spreads continue to be strong, coming in at 11.2% for the quarter. As of April 30th, we have collected 90% of our April base rental billing. An additional 2% of April base rental billings yet to be received relates to four investment-grade tenants who we expect to remit payment in the next week or two, bringing the total of collections to 92%. The timing of these expected payments is consistent with past practices. Providing a further breakdown of the remaining 8% of uncollected base rental billings for April, 5% of those are associated with well-capitalized tenants and tenants working through logistical issues related to payment.
The remaining 3% currently outstanding is associated with smaller tenants that have been impacted by the pandemic. We are evaluating the future collection of these rental payments and have updated our credit loss guidance accordingly. To date, we have received rent relief inquiries totaling 4.1% of annualized base rent, or $16 million. Of that $16 million of rent relief requested, we expect to initially grant rent relief of approximately $1.5 million, equating to 38 basis points of ABR. The general framework includes a period of rent deferral as opposed to abatement, with the deferred amounts to be paid within the next 12 months. Moving to the capital market activity, on January 13th, we completed an equity offering at $31.40 per share, which resulted in aggregate net proceeds of approximately $311 million.
Net proceeds of $173 million were received in January, with the remaining proceeds to be settled in the future at our option. In late March, we drew the remaining $100 million of our delayed draw term loan F and drew $200 million of our revolving credit facility. This resulted in a cash balance of $325 million at quarter end. When incorporating the remaining undrawn balance available on our revolving credit facility and the $136 million of forward equity proceeds available to us at our option, liquidity today stands at $733 million with a material amount of that liquidity in cash. Subsequent to quarter end on April 17th, we refinanced our two upcoming term loan maturities. Term loans B and C, totaling $300 million, were combined and now mature on April 16th, 2021.
STAG, at its sole discretion, has the option to execute two one-year extension periods, which, if both exercised, would result in an outside maturity date of April of 2023. The term loan is fully swapped with an all-in fixed rate of 1.78% through April 2023. As a result of this transaction, we have no debt maturing until March of 2022 if we're to exercise our right to extend. Our initial 2020 guidance was set prior to the onset of the current pandemic and did not assume the severe disruption seen today. We've updated our guidance to incorporate the heightened uncertainty related to the health of the economy and capital markets to the best of our ability as of today. Note that we will continue to update the market as warranted.
Components of our updated 2020 guidance are as follows: We expect acquisition volume to be between $300 million-$600 million for 2020, with acquisition volume restarting in the second half of this year. We expect all acquisitions to be stabilized assets with expected cash cap rate range of 6.25%-6.75%. We continue to expect disposition volume to be between $150 million-$250 million for 2020. We expect the 2020 annual same-store pools cash NOI growth to be between zero and 100 basis points for the year. This range includes a credit loss range of 100-150 basis points on the same-store pool. 2020 G&A is expected to be between $39 million-$41 million for the year. The reduction is due to the pause in originally planned hiring, a reduction in corporate travel, and other corporate expenses.
We expect to run leverage between 4.5 and 5.5 times for the year, reflecting lower leverage compared to recent levels. Capital expenditure per average per foot is still expected to be between $0.27 and $0.31 for the year. The above changes to our guidance result in a new core portfolio per share range of $1.80- $1.88 per share. I will now turn it back over to Ben.
Thanks, Bill. In summary, I just want to reiterate that we, as a company and as a team, are in a good place as we endure the effects of the crisis and look forward to what may lie beyond. I hope and trust that you and your families are all staying safe and healthy during these unprecedented times. We thank you for your time this morning and for your continued support of our company. I will now turn it over to the operator to open up the call for questions.
Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Manny Korchman from Citi. Please proceed with your question.
Hi, this is Katy McConnell from Citi. Can you provide a little more color on the increased acquisition cap rate guidance for your underwriting for deals now? How do you think that your cost of capital and underwriting risk in general is different today?
The higher cap rates are a reflection, obviously, of the cap rate that we experienced in the first quarter for 6/7, as well as our expectation from the information we received anecdotally in the market of lower prices, higher cap rates coming out of the crisis. Our cost of capital, we tend to think of sort of on an instant basis, and we're looking at our current equity pricing for the equity component of cost of capital. As we look at getting back into the market, we will likely use slightly higher return requirements as we feel our way into what the new pricing regimen may be.
Okay, thanks. Could you also provide an update on the large top tenant move-outs you are expecting from GSA and Solo Cup? To address those vacancies-
Yeah.
What are the process there?
I'm sorry. I should let you finish. Please finish your question.
No, go ahead. I was just going to say, what are you still thinking about re-tenanting or marketing the assets?
Yeah. Obviously those 2 million square foot vacancies are far from monetized. We can report that there's lots of equity, a fair amount of equity on the books, but a number with at least two buildings interest in Solo Cup, which currently, and the asset, the GSA asset in Berlin, New Jersey we still think has many options that would be positive for the company including ongoing inquiries about some potential buyers about buying the sort of basket of opportunities that's there, not only the existing building but the development component that's there. That market remains very strong. We feel, I would say, moderately better about those opportunities in those situations.
Okay, great. Thanks.
Our next question comes from the line of Sheila McGrath from Evercore ISI. Please proceed with your question.
Yes, good morning. I was wondering, Ben, if you could provide an update on your development project in New Jersey. Any leasing activity at this point on that building?
Good morning, Sheila. I hope that we'll all be on the golf course soon, but until then I'm going to let the guy who has been responsible for that project, Dave King respond with our successes there. Dave?
Sure. Hi, Sheila. We are currently trading some lease documentation and hope to have some positive news to report to you on that, some final news to report to you on that fairly soon. We have a full building user in lease negotiation for that building, an e-commerce tenant.
Okay, great. The yield on that project will be significantly higher than your acquisition yields, I'm assuming?
Yes.
Okay. Just on your same-store NOI guidance, you mentioned a higher credit loss as a factor in lowering that. I'm just wondering if that's like a big-picture macro observation, or did you experience credit loss in first quarter or your watchlist kind of What's driving that?
It's not from recent default experience. It's more our underwriting on a granular basis, looking at all of our tenants and trying to understand that. I'll turn it over to Bill to give you some more color.
Hey, Sheila. We did not experience any credit loss in Q1. The change in our same-store guidance was primarily driven by the increased anticipated credit loss due to the pandemic of 100 to 150 basis points.
Okay, great. One last quick one. On that recent debt deal that you did, if you could give us some insight on how the pricing compared to what you would have expected kind of pre-COVID-19, because I think you just priced that.
Sure. Bill, why don't you take that, too?
Pre-COVID, that deal probably would've looked like a five-year term loan with 100 basis point spread, and no LIBOR floor. This one was a one-one-one, which effectively is a three-year term loan. We have the option to extend each year with the payment of fees. The spread on that was 150 basis points with a LIBOR floor of 25 basis points. With that being said, the swap rate was a lot lower. All in, we were 178 for three-year paper. We would've been a little north of that for five-year paper, call it 2%. Net net, not too dissimilar, except we just have to extend each year for the next couple of years.
Got it. Thank you.
You're welcome. Thank you.
Our next question comes from the line of Jamie Feldman with Bank of America. Please proceed with your question.
Good morning, gentlemen. This is Elvis Rodriguez here, on for Jamie. Can you give us an update sort of on your exposure to the auto sector and specialty retail and apparel tenants? It's about 15% of your portfolio. How are they performing today? Are those assets open and operating? How are you thinking about those tenants going forward?
Well, obviously those are some of the industries that are affected. Our exposure to retail is about 5%, and our exposure to auto is a little more than 10%. I think that the breakdown of auto, Bill, do you have the breakdown of auto exposure?
Elvis, as we've said before, it's widely diversified. There's certainly some plant closures that have happened. The Big Three look like they're opening up here in the next few weeks. All of that is the various industries, both the positive industries and negative industries, are incorporated in our guidance of 100 to 150 basis points of credit loss for the year, because we try to take all of that into consideration, Elvis.
Some of those tenants are suppliers along the chain, and given sort of the disruption in the stay-at-home mandates from the government, how have those tenants been affected? Are those the ones that are asking for relief? I'm just trying to get a better understanding of what's happening with those tenants.
As we mentioned, there's a fair bit of tenants.
There's a fair-
Go ahead, Bill.
There's a fair bit of tenants that have asked for relief. Of those tenants that have asked for relief, we're anticipating granting about 40 basis points of relief, which will be in generally one to three months of relief and paid back over the next 12 months. Our portfolio consists of a lot of large tenants, those tenants, there's been some opportunistic requests. A lot of our auto tenants in particular are high-rated tenants. Even if their facilities are shut down or providing materials to the plant that's shut down, the credit ratings are still very strong.
Yeah. The other thing I would say, Elvis, is that none of the shutdowns that have occurred have been mandated. Logistics is deemed almost everywhere, I believe everywhere, as an essential business. The shutdowns have been corporate decisions generally related to either plant shutdowns or instances where it was elsewhere, it would be a worker safety issue. Really not a feature of our portfolio, the mandated shutdowns.
No, that's helpful. Thank you. Just one more big picture, Ben. As you think about sort of what's going on and your business, has your strategy changed at all? Have you thought about changing your strategy going forward given what's going on?
Yeah, Elvis. Our strategy has always been to seek to acquire and to manage buildings where we can identify relative value, where basically we can buy the building for less than we think it's worth based on its ability to produce cash flow going forward. That approach to the business is not going to change. We believe it's the correct strategy. It's the way to maximize value for our shareholders. What we don't know today is how much dislocation will be in the market. This is not a situation we've really been through before with the stimulus and the banking system being in relatively good shape. You're not going to have the normal sort of recession or credit crisis impact from lenders forcing distress on borrowers and therefore sellers. It's a different situation than we might normally see.
Our strategy will stand itself in good stead through this crisis and almost any other economic conditions that we encounter.
Thanks, guys.
Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed with your question.
Yeah, thanks. I wanted to dive into the rent collection trends, I guess, that you highlighted real quick. I believe that you're highlighting that there's about 3% of unpaid rents from smaller tenants that's being impacted by the pandemic. How should we think about that 3%? Should we expect more deferrals from that bucket?
Yeah. Thanks for the question, Mike. Good to talk to you, and I'll give this to Bill.
Thanks, Ben. I would say the majority of our deferrals will come out of that bucket. Those are tenants that are being impacted by the pandemic. I would say the biggest struggle we have with forecasting credit loss for the year is the stimulus and how that impacts our tenants. Early on, when this pandemic first hit, we had a couple tenants come to us for rent relief. Subsequently, two weeks later, contacted us and indicated they were able to receive some stimulus and they no longer need a rent relief. We're evaluating that bucket. We're evaluating all of our tenants that have requested rent relief and going through that process. As we mentioned on the prepared remarks, we expect about 40 basis points to grant rent relief, and that should be one to three months and paid back within the next 12 months.
Great. I'm not sure if you said this or if I missed this, Bill, did you give us a number of how many tenants within the portfolio have actually asked for rent relief to date?
It was 64 tenants who requested rent relief. Of that, as of today, we're expecting to grant rent relief to approximately eight tenants.
Mike, that's out of a 400+ tenant portfolio.
Okay, great. Just real quick on the GSA property. I know that you kind of highlighted this in the Q&A a little bit already. How should we think about that? It seems like it's vacant right now, so you're able to give tours, tenants can make decisions, but it also seems like a much more complex decision given all the options that you have at the potential site. Could we expect that to get resolved sooner rather than later in the beginning of 2021? Is it just too tough to say given all the options that could occur?
Well, Mike, the building actually is vacant, we're still getting rent on it. The GSA lease runs through July. It's still a part of our income stream. It's a little early to tell how quickly the I'm sorry, through the end of December. I get the million square footers mixed up. It's really not a 2020 issue in terms of income stream. We need the crisis to settle out a little bit for the full return of the interest in the development component of that. It is a very, very strong market. There continues to be development interest in and around that market. It connects with 6A of the Jersey Turnpike, which is very much a focal point for e-commerce activity in the Eastern Seaboard. We feel very good about that. Our expectations for the year is we'll continue to collect rent.
We have tenants that are interested in the building today. Those tenants, if they require occupancy before the end of the year, we can negotiate a buyout with the current tenant and get occupancy before then. We have lots of flexibility. We have a consistent income stream through the year. The options remain really positive. It's just less clear as to the timing of when we'll execute on those options.
Okay, then last thing for me on the two full building users interested in the Solo Cup space. How close are those leasing transactions? If one of those users want that space, when could they occupy it? Would this be something that could occur towards the end of this year, or would it be longer than that?
We would be hopeful that it would be this year. It depends on how much work has to be done to prepare the building for the specific tenant needs. We're very encouraged by the fact that two full building users have an interest in that property and a strong interest at the level of beginning to pass some paper around in terms of defining the requirement and the documentation. We're very encouraged about the level of interest on that building, and it's something that things always move slower during this time. I think it's highly likely that you would have a resolution of that building by year-end.
Okay, great. Thank you.
Our next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question.
Yeah, hi. In terms of 2020 guidance, I was wondering, can you walk through for your same-store NOI, the portfolio occupancy is I think 96.2 at quarter end. Where are you anticipating that ending the year?
Bill.
It really depends on I'm going to pass this to Dave in a second, but it really depends on what our default experience is. I think most of the variability in expected occupancy at this point is on unexpected vacancy due to default. We have a pretty good visibility as to renewals. Dave, would you like to add to that?
I would say that the spaces rolling in 2020 that we expect to renew, we're close to 90% through that documentation, so there's not a lot of mystery there. We expect positive results on the remainder. The question is really on new leasing, and the activity on the new leasing market remains strong. The logistics of showing space and getting things documented, it's going to be a hindrance in moving things along quickly. Really, the uncertainty is around the timing of new leasing. I would expect occupancy to erode a little bit, but not tremendously.
Got it. If you're looking at the low end of the range, do you have something in there? Would you say 100, 200 basis points at the low end or that sort of magnitude, or not that extreme?
I think our base case is not far off where we are now, and then we've got some scenario analysis around that doesn't get you very far off that.
Got it. Okay. That was it. Thank you.
Our next question comes from the line of Dave Rodgers with Robert W. Baird. Please proceed with your question.
Hey, guys. It's Nick on for Dave. The conversations you had on leasing to start first quarter, what has the tone been there, and what industry's been driving those? Where do those stand today?
I missed actually the first part of that question. My internet buzzed at the wrong point. Could you repeat the question, please?
The conversations you guys have had on the leasing front in first quarter, what has been the tone there? What industries are driving those discussions, and what are the status of those leases today or discussions?
We've already mentioned some of the areas in the script. We had some of the areas we're seeing strength in pharmaceutical, e-commerce, et cetera. There's sort of the poster children for who's going to do well during this period. The demand though is pretty widespread. Dave, do you want to add something to that?
I think the demand probably tends higher. A higher proportion of e-commerce tends today than we might see on a regular day. It is pretty widespread. We've got consumer staples, pharmaceuticals, et cetera, and even some auto uses. There is a wide range of demand.
Okay. Thanks. For the cap rates on the year-to-date sales, I don't know if you guys gave one, but can you update me on that? For the timing and cap rates for the remaining assets, are you guys assuming maybe the sale of that GSA building potentially in that?
The cap rates on acquisitions.
On dispositions.
six or seven? Oh, this is dispositions. Yeah. The preponderance of the dispositions were made of the two buildings in Camarillo that we sold. Those were a 4.9 cap rate on market rents. They were built or vacant at the time we sold them, but that would be a 4.9 cap rate on market rents. GSA is not currently in our disposition guidance for the year. Obviously, we have rent through the remainder of the year and a lot of options. We'll take some time to figure it out. The high end of our range, $250 million, probably would encompass the sale of one of those, either GSA or Solo Cup. At this point, we don't think those are likely to happen.
All right. Thanks. The last one from me. You guys talked last quarter about scaling G&A this year, but due to the current circumstances, around what portion of the cutbacks you guys made in the updated guidance would you say was cutting back on that scaling?
Bill gave some of the components of what the cutback was. I think the scaling of staff is certainly a big part of it, as well as reduction in corporate travel. The staff will almost certainly probably come back as the markets come back. I think most of the corporate travel may be diminished for a more significant period of time. Those are the two big components.
Okay. you'd see maybe more of like a step up again in 2021 versus-
Yeah. Something like that. Maybe get back to our normal business. There'll be more travel as we get more actively involved in acquisitions.
Okay. Sounds good. That was it for me. Thanks, guys.
Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
Hey, good morning, guys. A couple of questions. What percent of your occupied properties are not open? I know we touched on the subject, I just wanted to get a percentage.
Bill, I'm surprised that you didn't start with a na-na-na-na-na-na about Brady and Gronkowski. I'll let you slide on that.
Let's at least get one game winner, guys.
The buildings that we alluded to before, the buildings that are closed because of the auto plant shutdowns, and then a couple buildings because of worker safety concerns. I believe it's 18 buildings in total, out of our 425.
What percentage of your rent abatement requests are represented by those 18 buildings?
Dave, can you give some
There's actually not a very high correlation between the two. Obviously, we've got some smaller tenants with quasi-retail component. Those are all shut as well as looking for relief. In general, the ones related to auto is the biggest factor. They're just trying to work through plans to change operations to ensure worker safety. They're large organizations that aren't particularly seeking rent relief.
Got you. Okay, thanks. Final from me. Ben, a lot of people are talking about how this event, this COVID-19, will hasten the move to e-commerce. I'm just wondering, how does that play into your thoughts on what assets you might divest, additional headwinds on buying assets where the tenants might be old line economy tenants? How does it change your perception on a portfolio management basis?
I mean, obviously, we're looking to call from the portfolio assets that we believe do not operate in the current environment. The biggest example of that has been some buildings we bought 10+ years ago, prior to being a public company, in the call center area, which that's certainly not an area. Most of our buildings are fungible. A vast preponderance of buildings are fungible distribution buildings located around population centers. We think that those buildings will remain an active part of the supply chain and indeed would be advantaged by the fact that these supply chains are fattening or redundancy being established in those supply chains. I don't think that necessarily there's a change in strategy inherent in sort of what the new normal may look like.
Having said that, as the new normal plays out, our markets team will be assessing the potential for rental rate increases specific to the markets and sub-markets and the aspects of the buildings we're looking at. I think that not only our strategy, but our execution style allows us to adapt to the new normal and be fluid in finding opportunities as we move forward.
Great. Thanks for your time.
Thanks, Bill.
Our next question comes from the line of Chris Lucas with Capital One Securities. Please proceed with your question.
Good morning, guys. A couple quick questions for you. On the tenant retention guidance decline, is there anything specific that drove that, or was it more just sort of general feel?
I mean, I'll turn that over to Dave. I think it's a small sample variance.
I think the major move there is that we're now not projecting to sell the Hampstead asset. That's 1 million feet that could've been sold and would've dropped out of the retention statistic. Now we're going to endure the non-retention event there, though we're pretty pleased with the activity to date.
Okay. With the operating expenses, does the current environment change your outlook for any of the non-reimbursed operating expenses? Cleaning costs, utilities, whatever.
Yeah. Obviously, that's specific to our vacancy. We're triple net leases. We're not impacted directly except on our vacancy. Dave, do you have anything to add to that?
No. I mean, our exposure to the operating costs are fairly low, as Ben mentioned. 95% of our properties are occupied, or 96%, but we don't really have much exposure at all.
Okay, great. Thank you. The last question. Ben, just bigger picture, kind of where we sit today, has your acquisition bias changed at all in terms of either the line of business exposure, geography, lease duration, or credit quality?
Chris, that's a great question. I think what we're looking for, and have always looked for, is trying to find the places where we can get the, on a betting parlance, we can get the most open overbuy. We get paid the most for whatever risk we're taking. We're obviously not buying 50-year leases to the federal government. We're buying some combination of tenant credit, lease term, location, building quality, building condition. We're trying to make sure that by analyzing that, we get overpaid for the risks we're taking. If the entire market rushes back in and says, "We only want to buy 15-year leases to investment-grade credits in five or six markets," pretty clearly, we're not going to be buying those assets because we believe they'll be mispriced to the high side. We remain fluid.
If the opposite is true, and people rush back in and say the secondary market's in shorter term leases where we need to be, well, you'll see a pricing dislocation to the upside there, and maybe we'll be operating in the longer term leases. We just have to remain, again, fluid in response to the opportunity and continue to have a very broad level of inquiry as to where that opportunity might eventuate.
Great. Thank you. That's all I had this morning.
Thank you, Chris.
As a reminder, ladies and gentlemen, it is star one to ask a question. Our next question comes from the line of Brendan Finn with Wells Fargo. Please proceed with your question.
Thanks for taking my questions. I guess when you guys are able to start back up with your acquisition activities, I guess, what changes are you expecting to see from the seller pool? Would you expect to see more mom-and-pop type sellers as opposed to institutional sellers that may have been forced to sell some assets as a result of the crisis?
Well, I alluded to this a little bit earlier. It's not 100% certain, as it would have been during the credit crisis or some other recession, where the distress is going to come from. Forced selling or heightened attempts to sell, it's not as clear where that's coming from or where the opportunities might be. I do think that the more likely among smaller sellers, either the ability to wait or the predilection to wait, the desire to wait, will be smaller there. Our normal activity, which is largely focused on small sellers, will likely continue that way.
Got you. That's helpful. I apologize if I missed this, but in the press release, you talked about a small portion of tenants that are working through logistical payment issues. Could you just clarify what those issues are, and then if you anticipate they'll be resolved for May payments?
Yeah. Let me turn that over to Bill.
Thanks, Brendan. The logistical issues are twofold. Some of them are just companies getting in and sending out checks. The other one was we implemented a new payment software. Interesting enough, we implemented it going live with April rents, and that's FreshPay. That has created some logistical payment issues with some of our well-capitalized tenants that we would have otherwise expected rent payments. We're working through those issues. As of today, we're expecting to collect those rents in May. Those are the two types of logistical issues we're hearing from our tenants.
Great. Thanks, guys.
Thank you.
Thank you.
There are no further questions in the queue. I'd like to hand it back to Ben Butcher for closing remarks.
Thank you very much, operator. Thank you all for joining us today. This goes without saying, but it's been said many times, we're in very much unprecedented times. STAG is extremely well-positioned to survive, and perhaps thrive following these times as we get back into whatever type of recovery we have. Obviously, things remain fluid, but we have a very strong tenant base and a very strong team to manage it. We're very encouraged as to the potential for the company going forward. We thank you for your time this morning. We look forward to conversing with you in the coming months. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.