Greetings, and 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. 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 informational 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&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 discussion 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 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. First and foremost, I hope and trust 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 and its 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 in process 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 until the current shutdowns are 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 pace of these initiatives is unprecedented. The long-term impact of these government actions is yet to be determined. However, we believe the longer-term impact on the industrial sector will be net positive. Companies are re-evaluating 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, and 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. 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 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've had under agreement, we requested a 60-day expense extension of the 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 square feet. We've seen increased demand from tenants in the logistics, retail, food products, and pharmaceutical industries. Tenants remain interested in available space with the 28 tenants representing 5 million square feet of requirements interested in our market space, similar to normal levels during more typical environments. Credit underwriting and monitoring have been an integral part of our business since day one, and our dedicated team has a deep understanding of our tenants’ operations and financial conditions. This understanding is vital to our operating under current conditions. The credit team, in conjunction with our asset management and customer solutions teams, continue to communicate directly with tenants across various points of internal contacts. 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 million before taking into account the forward equity proceeds available, with a large portion of that in cash on our balance sheet. This 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 in 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’ve incorporated what we know now and what might reasonably be expected to occur based on various scenario analyses across multiple inputs. Bill will discuss in detail our updated 2020 guidance in his remarks. We'll 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 environments and during the recovery that follows. With that, I'll turn it over to Bill to discuss our first quarter 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 first quarter of 2019. Leverages 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 4.4 times, prior to factoring in the outstanding forward equity proceeds, and 4.0 times when those proceeds are included. Acquisition borrowing for the first quarter totaled $119 million, with the stabilized cash and straight line cap rate of 6.7% and 7.2%, respectively. Our last acquisition closed on March 9, 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 distribution 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 releasing spread of 2.3%. Straight line releasing 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 rent billings are associated with at least four investment grade tenants who we expect to make payments in the next week or two, bringing the total collection 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're evaluating the future collection of these rental payments and have updated our credit loss guidance accordingly. To date, we have received run rate increases totaling 4.1% of the annualized base rent for $16 million. Of that $16 million of rent relief requested, we expect to grant net relief of approximately $1.5 million, equating to 38 basis points of ABR. The general framework includes a period of rent relief as opposed to payment, with the different amounts to be paid 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 million. Net proceeds of $173 million were received in January, with the remaining proceeds to be settled in the future. In late March, we drew the remaining $100 million of our delayed draw term loan 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 $136 million of forward equity proceeds available to our seller option, liquidity today stands at $733 million with a material amount of liquidity in cash. Subsequent to quarter-end on April 17, we refinanced our two upcoming term loan maturities. Term loan B and C totaling $300 million are now set to mature on April 16, 2021. STAG, at its sole discretion, has the option to execute a one year extension period, which if forward exercised would result in an outside maturity date of April 2023. The term loan is post-swap 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 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 a heightened uncertainty related to health, 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 and $600 million for 2020, with acquisition volume restarting in the second half of this year. We expect our acquisitions to be stabilized assets with an expected cash cap rate remaining at 6.25% to 6.75%. We continue to expect disposition volume to be between $150 million and $250 million for 2020. We expect 2020 annual same-store cash NOI to be between zero and 100 basis points for the year. This range includes a credit loss range of 100 basis points to 150 basis points on the same store. 2020 G&A is expected to be between $39 million and $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 leverage to average between 4.5 times and 5.5 times for the year, reflecting lower leverage compared to recent levels. Capital expenditure per average square 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 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 and open up the call for questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Manny Korchman from Citi. Please proceed with your question.

Good morning. This is Katy McConnell on for Manny. Wondering if you could provide a little more color on the increase in acquisition cap rate guidance for your underwriting for deals now? And how you're thinking about your cost of capital and underwriting risk in general differently today?

So, the higher cap rates are a reflection, obviously, of the cap rates that we have experienced in the first quarter of 6, and 7, as well as our expectations based on the information we received anecdotally in the market of lower prices and higher cap rates coming out of the crisis. Our cost of capital, as we tend to think of sort of on an instant basis, we're looking at our current equity pricing for the equity component of our 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.

And then could you also provide an update on the large top tenant move-outs that you're expecting from GSA and Solo Cup, and to address those, obviously what are the prospects there?

Obviously those, I'm sorry. I should let you finish. Please finish the question.

Go ahead. I was just going to say whether you’re consulting about re-tenanting or marketing the assets?

Yes. So obviously, those 2 million square foot vacancies are foremost in our mind as we think about leasing, and we're happy to report that there's a lot of activity around both. We have a number of at least two full building users interested in Solo Cup negotiating currently. And the asset, the GSA asset at Burlington, New Jersey, we still think has many options that would be positive for the company, including ongoing inquiries from potential buyers about buying the sort of the basket of opportunities that’s there, not just the existing buildings, but the development component that's there. That market remains very strong. And so, we feel, I would say moderately better about those opportunities and those situations.

Our next question comes from the line of Sheila McGrath from Evercore ISI. Please proceed with your question.

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?

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 reports to announce fairly soon. That's a full building that we have a full building user in lease negotiation for that building, an e-commerce 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 a big-picture macro observation or did you experience credit loss in the first quarter or your watchlist? Kind of what's driving that?

So, it’s not based on recent defaults; rather, it’s from our detailed analysis of all our tenants to gain better insights. Now, I will hand it over to Bill for further details.

Hey, Sheila. We did not experience any credit loss in Q1. And the change in our same-store guidance was primarily driven by the increased 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 you did, could you provide some insight on how the pricing compared to what you would have anticipated before COVID?

Sure. Bill, why don't you take that too.

So pre-COVID, that deal probably would have looked like a five-year term loan with a 100 basis point spread and no LIBOR floor. This one was a 1.1.1, which effectively is a three-year term loan. We have the option to extend each year with the payment of fees. And the spread on that was 150 basis points on the LIBOR floor of 25 basis points. With that being said, the swap rate was a lot lower. So all in, we were at 1.78% for three-year paper. We would have been a little north of that for five-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.

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, specialty retail, and apparel tenants, which is 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?

As we said before, it's widely diversified. There's certainly some plant closures that have happened. The big three, it looks like they're opening up here in the next few weeks. But all of that is the various industries, both in positive and negative industries are incorporated in our guidance of 100 basis points of 150 basis points of credit loss for the year. So, we try to take all of that into consideration obviously.

So some of those tenants are like supplies along the chain, and given sort of the disruption in the stay-at-home mandates from the government. Like how those times have been affected, but those are 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. We're anticipating granting about 40 basis points of relief which will be in general one to three months of relief. Because our portfolio consists of a lot of large tenants. Those tenants, they spend some opportunistic with us. And a lot of our auto tenants in particular are high-rated tenants. And so even if their facilities are shutdown or providing materials to a plant that is shutdown, the credit ratings are still very strong.

The other thing I would say obviously is that none of the shutdowns that have occurred have been mandated. Logistics seems almost everywhere, I believe everywhere is considered an essential business. So the shutdowns have been corporate decisions generally related to either planned shutdowns or instances where it was elsewhere it was a worker safety issue, really not a feature of our portfolio that's mandated shutdowns.

Now that's helpful. Thank you. And then just one more big picture. Ben, as you think about sort of what's going on with your business. Has your strategy changed at all? Or have you thought about changing your strategy going forward, given what's going on?

Yes. So in 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 cash flow going forward. That strategy, that approach to the business is not going to change if we believe it’s the correct strategy is the way to maximize value for our shareholders. What we don't know today is how much this location will be in the market. This is not a situation we've really been through before with these 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.

Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed with your question.

I want to dive into the rent collection trends. I guess that's your highlight real quick. And I believe that you're highlighting that there's about 3% to 3%, I mean, should we expect more referrals 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 tenants come to us relatively naively and subsequently a few weeks later contacted us and indicated they were able to receive some stimulus and they no longer needed 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 I mentioned in the prepared remarks, we expect about 40 bips to grant rent relief, and that should be one to three months and paid back within the next 12 months.

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 in the portfolio actually asked for a rent relief date?

There were 64 tenants who requested rent relief. But that, as of today, we’re expecting not to release your approximately a tenant.

And make sense out of a 400 plus tenant portfolio.

Okay, great. And then just real quick on the GSA property. I know that you kind of highlighted this and then the Q&A a little bit already. But how should we think about that? I mean, it seems like it's taking right now if you're able to give tours tends to make decisions, but it also seems like a much more complex decision given all the options that you have at a 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?

It's currently vacant, but we are still receiving rental income from it. The GSA lease is active until July, making it part of our income stream for now. It's a bit early to determine how quickly things will progress. I apologize for any confusion regarding the million square feet related to the end of December; that situation isn't a 2020 issue concerning our income. We need the crisis to stabilize before we see a full recovery in interest for development. The market remains very strong, with ongoing interest in that area, especially near the Jersey Turnpike, a key hub for e-commerce along the eastern seaboard. We are optimistic about our prospects. We expect to continue collecting rent, and if we have potential tenants interested now, we could negotiate a buyout with the current tenant to secure occupancy before the year ends. We have considerable flexibility, a steady income stream throughout the year, and favorable options ahead. However, the timing of when we will act on those options is still somewhat uncertain.

Okay. And then lastly for me on the two full building users interested in the Solo Cup space. I mean, 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 when 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 two full building users have an interest in that property. And a strong interest if they have begun to pass some paper around in terms of defining the requirement and the documentation. So, we're very encouraged about the level of interest in 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.

Our next question comes from the line of Mike Muller with JPMorgan. Please proceed with your question.

Hi, in terms of 2020 guidance. I was wondering, can you walkthrough for your same-store NOI portfolio occupancy at 962 at quarter-end. Where are you anticipating that ending the year?

It really depends on what our default experiences are. I think most of the variability and expected occupancy at this point is due to unexpected vacancy from defaults. We have good visibility regarding renewals. Dave, would you like to add to that?

I would say the spaces from 2020 that we expect to renew are nearly 90% through documentation, so there's not much uncertainty there. We anticipate positive outcomes for the remaining renewals. The main question lies in new leasing, where the market activity is still robust. However, the logistics of showing space and getting documentation completed may slow down the process. Therefore, the uncertainty primarily revolves around the timing of new leasing. I expect this to have some impact, but not significantly.

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 our base case that it is not far from us where we are now and then we've got some scenario analysis around that, but that doesn't get you very far off.

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've had on leasing to start first quarter, what is the tone on there and like what industries been driving those? And then like, kind of where did those stand today?

So, I missed actually the first part of the 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 and like first quarter, what kind of 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. Some of the areas we're seeing strength in pharmaceutical, e-commerce, et cetera. Those are 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 with a high proportion of e-commerce tenants today than we might see on a regular day. But it is pretty widespread; we've got some staples, pharmaceuticals, et cetera, 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 further timing and cap rates for the remaining assets. Now you guys kind of assuming maybe the sale of that GSA building potentially in that?

The cap rates on acquisitions and dispositions are relevant. For the dispositions, we sold two buildings in Camarillo at a 4.9 cap rate based on market rents at the time of sale. GSA is not included in our disposition guidance for this year. We still have rental income for the remainder of the year and various options, which will take time to assess. The upper end of our range of $250 million could involve selling either GSA or Solo Cup, but we currently do not anticipate that these sales will occur.

Thanks. And then the last one for me. You guys talked last quarter about scaling G&A this year, but due to the current circumstances around what portion of cutbacks you guys made and updated guidance, would you say was cutting back on that scaling?

We provided some details on the components of the cutbacks. A significant factor was the reduction in staff, which is a major part of it, as well as a decrease in corporate travel. It is likely that the staff will return as the markets improve, but many believe that corporate travel may remain lower for a longer time. Those are the two main factors.

Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

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 they didn't start talking about Brady and bronces. I'll let you slide on that. At least we alluded to it before. The buildings that are closed because of the auto plant shutdowns and some due to worker safety 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 18 buildings?

Dave, can you get some?

There isn't a strong correlation between the two factors. We do have some smaller tenants in the retail sector who are seeking relief due to closures. However, generally speaking, the largest concerns are related to the auto sector, with major organizations that aren't particularly asking for rent relief.

And then final for me. Ben, a lot of people are talking about how this event COVID-19 will pace on 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 would say, 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 in buildings we brought over ten years ago prior to being a public company in the call center area, which is certainly not an area. But most of our buildings are fungible. The grand vast componentry builds fungible distribution buildings located around population centers. We think of those buildings will remain an active part of the supply chain and indeed will be advantaged by the fact that the supply chains are fattening over redundancy being established in those supply chains. So I don't think that necessarily there's a change in strategy and sort of what 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 building that were the aspects of the buildings we're looking at. So I think that our strategy, not our strategy, but our execution style allows us to adapt to the new normal and be fluid in finding opportunities as we move forward.

Our next question comes to the line of Chris Lucas with Capital One Securities. Please proceed with your question.

Hi, good morning, guys. A couple of quick questions for you. On the tenant retention guidance decline, is there anything specifically programmed or was it more of a service general field?

And I'll turn that over to Dave. I think it's a small sample variance.

Well, a significant change is that we are no longer planning to sell the handset asset. This means that a million feet that could have been sold will not affect our retention statistics. We are anticipating the benefits of this change, although we are quite satisfied with today's activity.

Okay. And then for the operating expenses, just the current environment change your outlook for any of the non-reimbursed operating expenses or cleaning costs, utilities, whatever?

Yes, obviously that's specific to our vacancy. For the most, we're on a triple net basis. So, we're not impacted directly except on our vacancy. Dave do you have anything to add to that?

Our exposure to the operating costs are fairly low. As Ben mentioned, 95% of our properties are occupied and 96%. They don't really have much exposure at all.

And then the last question, Ben, just bigger picture, kind of where we sit today. Has your acquisition buy changed at all in terms of either the line of business exposure, geography, lease duration, or credit quality?

That's a great question. We're focused on identifying areas where we can maximize our returns relative to the risks we're taking. We're not investing in long-term federal leases but rather in a mix of tenant quality, lease location, and building condition. Our goal is to ensure that we are compensated adequately for the risks we assume. If the market shifts to favor only long leases with investment-grade tenants in a few select locations, we will avoid those investments, as we see them as overpriced. Conversely, if there is a trend towards shorter leases in secondary markets, we may find opportunities for better pricing and consider longer-term investments. We need to stay adaptable and keep an open mind about where future opportunities may arise.

Our next question comes from the line of Brendan Finn with Wells Fargo. Please proceed with your question.

I guess when you guys are able to just start back up with your acquisition activities? I guess which 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% certain, as it would have been during the credit crisis or some other professions where the distress is going to come from. So for 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 predilections to wait. Their desire to wait will be smaller. So our normal activity, which is largely focused on small sellers will likely continue that way.

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 with difficult payment issues. Could you just clarify what those issues are? And if you anticipate they'll be resolved for May payments?

Yes, let me turn that over to Bill.

Yes, thanks Ben. Their issues are twofold. Some of them are just companies getting in and sending out checks. The other one was, we implemented a new payments software. Interesting enough, we implemented it going live with April rents and express to pay. And so, that has created some logistical payment issues with some of our well-capitalized tenants that we would have otherwise expected rent payments from. So we're working through those issues. And as of today, we're expecting to collect those rents in May. But those are the two types of logistical issues that we're getting from our tenants.

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 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. So we're very encouraged for the potential for the company going forward. And we thank you for your time this morning, and 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.