Earnings Call: Q1 2020

May 1, 2020

Greetings and welcome to the STAG Industrial Inc. 1st 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt Kennard, Senior Vice President of Investor Relations. Thank you. You may begin. Thank you. Welcome to SAB Industrial's conference call covering the Q1 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 and answers to 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 earnings trends, G and 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 to 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. SAG 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, Mats. Good morning, and welcome to the Q1 earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our Q1 results. Presenting today in addition to myself will be Bill Crooker, our Chief Financial Officer, who will 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. 1st 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, SAGEN's employees remain safe and healthy. We spent 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 and process 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-nineteen 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 to 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 case of these initiatives is unprecedented. The long term impact of the government actions is yet to be determined. However, we believe that the longer term impact of the industrial sector Companies are reevaluating global pricing and our reliance on China and other low cost manufacturing countries. Establishing more supply and liquidity 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 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 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 and A activity or supply chain rationalization. New leasing has slowed and the duration of negotiations is widely expected increase. We expect that new supply will also decrease materially due to developer and lender uncertainty, construction moratoriums and permitting delays. So 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 who were under contract and LOI. These were deals that involve tenants and or industries likely to face elevated levels of disruption during the crisis. On the remaining transactions we had under arraignment, 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 Q1, both strong retention and leasing spreads. This has continued even after the period of shutdown started. We have remained active on the leasing front during this time. From the 3rd week in March through the day, we've executed 13 leases for 1,400,000 square feet. 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 5,000,000 square feet of requirements interested in our market space, similar to normal levels during more normal environments. Credit underwriting and monitoring has been an integral part of our business since day 1, and our dedicated team has a deep understanding of our tenancy's operations and financial conditions. This understanding is vital to our operating under our 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 4 times debt to EBITDA, which is considerably less than the low end of our recently stated leverage bands. Our liquidity stands at $597,000,000 before taking into account the 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 $300,000,000 of term loan debt in these market conditions. This refinancing activity effectively extends all our debt maturities until 2022 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 in capital deployment when the market dislocates and the ability to quickly be engaged 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 analysis 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 Q1 operational results and our updated 2020 guidance. Thank you, Ben, and good morning, everyone. Core FFO was $0.47 for the quarter, an increase of 4.4% compared to the Q1 of 2019. Leverage is below the loan 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 4.0 times when those proceeds are included. Acquisition volume for the Q1 totaled $119,000,000 with stabilized cash and straight line cap rates of 6.7% and 7.2% respectively. Our last acquisition closed on March 9 with no acquisition activity since then. Disposition volume for the Q1 totaled $102,000,000 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 percent for the Q1. 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 30, we have collected 90% of our April base rental billing. An additional 2% of April base rental billings yet to be received relates to 4 investment grade tenants who we expect to remit payment in the next week or 2, bringing the total of collections to 90 2%. The timing of these expected payments is consistent with past practices, providing a further breakdown of the remaining 8% of uncollect 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 updated our credit loss guidance accordingly. To date, we have received rent relief increase totaling 4.1 percent of annualized base rent or $16,000,000 Of that $16,000,000 of rent relief requested, we expect to initially grant rent relief of approximately $1,500,000 equating to 38 basis points of ABR. The general framework includes a period of rent deferral as opposed to abatement with the deferred amounts repaid within the next 12 months. Moving to the capital market activity. On January 13, we completed an equity offering at $31.40 per share, which resulted in aggregate net proceeds of approximately $311,000,000 Net proceeds of $173,000,000 were received in January with the remaining proceeds to be settled in the future at our auction. In late March, we drew the remaining $100,000,000 of our delayed draw of Term Loan F and drew $200,000,000 of our revolving credit facility. This resulted in a cash balance of $325,000,000 at quarter end. When incorporating the remaining undrawn balance available on our revolving credit facility and the $136,000,000 of forward equity proceeds available to our seller option, liquidity today stands at $733,000,000 with a material amount of that liquidity in cash. Subsequent to quarter end, on April 17, we refinanced our 2 upcoming term loan maturities. Term loan maturities. Term loans B and C totaling $300,000,000 were combined and now mature on April 16, 2020 DAG, at its sole discretion, has the option to execute 2 1 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 percent 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 expense. 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 $300,000,000 $69,000,000 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 percent to 6.75%. We continue to expect this position volume to be between $150,000,000 $250,000,000 for 2020. We expect the 2020 annual same store pool's cash NOI growth to be between 0 100 basis points for the year. This range includes a credit loss range of 100 to 150 basis points on the same store pool. 2020 G and A is expected to be between $39,000,000 $41,000,000 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 4.5x and 5.5x for the year, reflecting lower leverage compared to recent levels. Capital expenditure per average per foot is still expected to be between $0.27 $0.31 for the year. The above changes to our guidance result in a new core FFO per share range of $1.80 to $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 Our first question comes from the line of Manny Korchman from Citi. Please proceed with your question. This is Katie McHale. I would like to provide a couple of quick actions for your underwriting for deals now. And how do you expect your cost of capital and underwriting risk in general differently today? So the higher cap rates are a reflection obviously of the cap rate that we experienced we had in the Q1 or 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. And 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. And then could you also provide an update on the large top tenant move outs you are expecting from GSA and SoloPath? And to address those contingencies, what are the costs Obviously, those I'm sorry, I should let you finish, please. Please finish your question. Yes, go ahead. I was just going to say whether you're talking about re tenanting or marketing the assets. Yes. So obviously, those 2,000,000 square foot vacancies are currently And the asset the ZSA asset and drilling security, we still think has many options that would be positive for the company, including ongoing inquiries about potential buyers about buying the sort of the basket of opportunity that's there, not only the existing building, but the development component that's there. That market remains very strong. And so 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 is 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. That's a full building we have a full building user in lease negotiation for that building, an e commerce tenant. Tenant. Okay, great. And the yield on that project will be significantly higher than your acquisition yields, I'm assuming? Yes. Okay. And 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 Q1 or your watch list kind of what's driving that? So we're 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. And I'll turn it over to Bill to give you some more color. Sheila, we did not experience any credit loss in Q1 and the change in our same store guidance was primarily driven by the increase anticipated credit loss due to the pandemic of 100 basis points 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 because I think you just priced that. Bill, why don't you take that too? So pre COVID, that deal probably would have looked like a 5 year term loan with 100 basis points spread and no LIBOR 4. This one was a 111, which effectively is a 3 year term loan. We have the option to extend each year with the payment of fees. And the spread on that was one 150 basis points from a log before 25 bps. But that being said, the swap rate was a lot lower. So all in, we were $178 per 3 year paper. We would have been a little north of that for 5 year paper, call it 2%. So 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? And how are you thinking about those tenants going forward? Well, I mean, 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? Well, as we've said before, it's widely diversified. There's certainly some plant closures that have happened. The Big 3, it looked like they're opening up here in the next few weeks. But all of that is the various industries, both in positive industries and negative industries are incorporated in our guidance of 100 basis points to 150 basis of credit list credit watch credit loss excuse me for the year. So we try to take all of that into consideration obviously. But so some of those tenants are like suppliers along the chain and given sort of the disruption in the stay at home mandates from the government, like how 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. Go ahead, Bill. There's a fair bit of tenants that have asked for relief. Obviously, tenants that have asked for relief were anticipated granting about 40 bps of relief, which will be in generally 1 to 3 months of relief and pay back over the next 12 months. Because our portfolio consists of a lot of large tenants, those tenants, there's been some opportunistic requests and a lot of our auto tenants in particular are high rated tenants. And so even if their facilities are shut down or providing materials Yes. 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 a central business. So the shutdowns have been corporate decisions generally related to either planned shutdowns or instances where it was elsewhere, it would be a worker safety issue. So really not a feature of our portfolio that mandated shutdowns. That's helpful. Thank you. And then 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? Yes, Alastair, I mean, our strategy has always been to seek to acquire and to manage buildings, where we can get relative 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 choose cash flow going forward. That strategy, 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. So it's a different situation than we might normally see. But 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. Yes, thanks. I wanted to dive into the rent collection trends, I guess, that you highlighted real quick. And 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, I guess, that 3% I mean, should we expect more deferrals from that bucket? Yes. 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 of tenants come to us for rent relief and subsequently 2 weeks later contacted us and say they're and indicate they were able to receive some stimulus and they no longer need rent relief. So we're evaluating that bucket. We're evaluating all of our tenants that have requested rent relief and going through that process. And as we mentioned on the prepared remarks, we expect about 40 bps to grant rent relief and that should be 1 to 3 months and pay back within the next 12 months. Graham, I'm not sure if you said this or if I missed this, Bill, but 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. But of that, as of today, we're expecting to rent relief to approximately 8 tenants. And Mike, that's out of 400 plus tenant portfolio. Okay, great. And then just real quick on the GSA property. I know that you kind of highlighted this in the Q and A a little bit already. But how should we think about that? I mean, 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. So is that activity, could we expect that to get resolved sooner rather than later in the beginning of 2021? Or is it just too tough to say given all the options that could occur? Well, Mike, the building actually is vacant, but we're still getting rent on it. The GSA lease runs through July. So 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 guess the 1,000,000 square footers mixed up. So it's really not a 2020 issue in terms of income stream. We need the crisis to settle out a little bit for the sort of 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. So it's an exit 6A of the Jersey Turnpike, which is very much a focal point for e commerce activity in the Eastern seaboard. So we feel very good about that. Our expectations for the year is we'll continue to collect rent. Should we have we have tenants that are interested in the building today. Those tenants, if they're required occupancy before the end of the year, we can negotiate a buyout, with the current tenant and get occupancy before then. So we have lots of flexibility. We have a consistent income stream through the year. And the options remain really positive for us. It's just a little unclear as to less I should say less clear as to the timing of when we will execute on those options. Okay. And then lastly for me on the 2 full building users interested in the Solo Cup space. I mean is that how close are those leasing transactions? And 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? Well, 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. But I mean, we're very encouraged by the fact that the 2 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. So we're very encouraged about the level of interest on that building and it's something that things always move slower during this time. And 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. Yes. Hi. In terms of 2020 guidance, I was wondering, can you walk through for your same store NOI, portfolio occupancy is, I think, 96.2 at quarter end. Where are you anticipating that ending the year? It really depends on I'm going to ask this to David in a second, but it really depends on what our default experience is. I think most of the variability and 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 space is 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 of the new leasing market remains strong. The logistics of showing space and getting things documented tends to it's going to be a hindrance in moving things along quickly. So we're really the uncertainty is around the timing of new leasing. So I would expect stock to proceed to erode a little bit, but not tremendously. Got it. So if you're looking at the low end of the range, I mean, do you have something in there, which you say 100 basis points, 200 basis points at the low end or that sort of magnitude or not that extreme? I think we are our base case is not far off where we are now. And then we've got some scenario analysis around that, 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 Q1, what has the tone been there? And like what industry has been driving those? And then like kind of where do those stand today? So, I missed actually the first part of that question. My Internet buzzed at the wrong point. Could you repeat the question, please? So the conversations you guys have had on the leasing front in like quarter, what kind of has been the tone there? Like what industries are driving those discussions? And like what are the status of those leases today or discussions? Yes. So I mean, 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, etcetera. There's sort of the poster children for who's going to do well during this period. The demand that was 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. Day. But it is pretty widespread. We've got consumer staples, smart, so, etcetera and even some auto uses. So there is a wide range of demand. Okay. Thanks. And then 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? And then kind of for the timing and cap rates for the remaining assets, are you guys kind of assuming maybe the sale of that GSA building potentially in that? So the cap rates on acquisitions or acquisitions? On acquisitions. This is dispositions, yes. So the proponents of the dispositions were made up of the 2 buildings in Camarillo that we sold. Those were a 49% cap rate on market rents. They were villagers, I think, at the time we sold them, but that would be a 49% cap rate on market rent. 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. So we'll take some take some time and figure it out. The high end of our range, dollars 250,000,000 probably would encompass the sale of one of those either GSA or Celloka. But at this point, we don't think those are likely to happen. All right. Thanks. And then the last one for me. You guys talked last quarter about scaling G and 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? Well, I think that's I mean, we gave the Bill gave some of the components of what the cutback was. I think scaling of staff is certainly a big part of it as well as reduction in corporate travel. The staff will probably almost certainly probably come back as the markets come back. I think most people believe the corporate travel may be diminished for a more significant period of time. But those are the 2 big components. Okay. So you'd see maybe more of like a step up again in like 2021 versus like that? Yes. Sort of as we 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, but I just wanted to get a percentage. Bill, I'm surprised that you didn't start with a none, none, none, none about Brady and Gronkowski, but I'll let you slide on that. Let's at least get one game concerns. So I believe it's 18 buildings in total out of our 425. And what percentage of your rent abatement requests are represented by those ATV buildings? Dave, can you get some There's actually not a very high correlation between the 2. Obviously, if you've got a we've got some smaller tenants with quasi retail component, those are all shut as well as looking for relief. But 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. So there are large organizations that aren't particularly seeking rent relief. Got you. Okay. Thanks. And then final for me. Ben, a lot of people are talking about how this event, this COVID-nineteen will hasten the move to e commerce. And 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? Yes. So I mean, obviously, we're looking to call from the portfolio assets that we believe do not operate in the current environment. And the biggest example of that has been the buildings we bought 10 plus years ago prior to being a public company in the call center area, which is that's certainly not an area. But most of our buildings are fungible, the vast and ponders 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. So 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 submarkets and building that we're the aspects of the buildings we're looking at. So I think that our 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 of quick questions for you. On the tenant retention guidance decline, is there anything specific that drove that? Or was it more just sort of a general feel? I'll turn that over to Dave. I think it's a small sample variance. Well, the I guess, I think the major move there is that we're now not projecting to sell the Hampstead asset. So that's 1,000,000 feet that could have been sold and would have dropped out of the retention statistic. Now we are going to endure the non retention event there, though we're pretty pleased with the activity to date. Okay. And then, as it relates to the operating expenses, does the current environment change your outlook for any of the non reimbursed operating expenses, cleaning costs, utilities, whatever? Yes. Obviously, that's specific to our vacancy. For the most, we're triple net leases. So 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, it's 95% of our properties are occupied under 96%, then we don't really have much exposure at all. Okay, great. And then the last question, just, 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? I think that Chris, it's a great question. I think the what we're looking for and have always looked for is trying to find the places where we can get the on the betting parlance, we can get the most open overlay. So 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. And we're trying to get make sure that we by analyzing that, we get overpaid for the risks we're taking. So if the entire market rushes back in and says we only want to buy 15 year leases to investment grade credits in 5 or 6 markets, pretty clearly we're not going to be buying those assets because they're going to we believe they'll be mispriced to the high side. So we remain fluid now that the opposite is true and people have to brush back in and say the secondary markets and shorter term leases where we need to be, you'll see a pricing dislocation to the upside there and maybe we'll be operating in the longer term leases. So 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. Our next question comes from the line of Brandon Fint with Wells Fargo. Please proceed with your question. Thanks for taking my questions. So 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? So like 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 mean, I alluded to this a little bit earlier. It's not 100% as certain as it would have been during the credit crisis or some other recession where the distress is going to come from. So 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. So our normal activity, which is largely focused on small sellers, will likely continue that way. Got you. That's helpful. And then I apologize if I missed this, but in the press release, you talked about tenants, 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 will be resolved for May payments? Yes. Let me turn that over to Bill. Yes. Thanks, Brennan. 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 going live with April rents and that's VersaPay. And so that has created some And as of today, we're expecting to collect those rents in May. But those are the 2 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, and thank you all for joining us today. This is goes without saying, but it's been said many times, we are 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. So we're very encouraged as to the potential for the company going forward. And 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.