Q1 2020 Earnings Call
Welcome to the corporate office properties Trust first quarter 2020 earnings conference call.
As a reminder, today's call is being recorded at this time I will turn the call over to Stephanie Krewson Kelly.
Oh, PPI, Vice President of Investor Relations Mr. Christian Kelly. Please go ahead.
Thank you do well good afternoon, and welcome to cops conference call to discuss first quarter results with me today, or Steve Budorick, President and CEO and Anthony Mifsud 80, Pncs, though.
Reconciliations of GAAP and non-GAAP financial measures management discussions on this call are available on our website and the results press release supplemental information package and results presentation posted on our website.
Before I turn the call over to Steve a quick reminder, that forward looking statements made during today's call are subject to risks and uncertainties, which are discussed it like that or FCC filings actual events or results can differ materially from these forward looking statements and the company does not undertake no duty to update.
Yes.
Good afternoon. Thank you for joining the.
We hope to you and your families are healthy unsafe during these challenging times for our country like.
I will address or first quarter operating results.
The business or packs, we're experiencing from the pandemic shut downs.
And lastly, our outlook for the rest of the year.
We had a strong start to 2021st quarter results exceeded our guidance range, primarily due to warmer weather related costs, which also drove strong same property cash and why growth 5%.
Our co portfolio.
95.2% lease.
And our occupancy increased by 90 basis points during the quarter to 94% driven by last year's record leasing or sector, leading retention rates and our continued ability to place highly leased developments in the service.
[noise] leasing volumes executed today it had been so.
We completed 631000 square feet of leasing in first quarter, including 488000 square feet of renewals are roughly one third of the scheduled annual explorations.
We achieved a robust renewal rate of 89%.
And our rents rolled up 11% on a GAAP basis and down the modest one person on the cash basis.
This volume includes full build a renewal with the U.S. government International business Burke.
And a full building renewal with the defense contractor in the BW corridor.
[noise] first quarter vacancy leads to strong is 140 843000 square feet.
At least in the quarter exceeded last year's first quarter volume by 13%.
In April we executed a build to suit transaction it Redstone gateway in Huntsville.
As detailed in the press release, we issued last night, we're developing a new headquarters building for Cummins Aerospace a leading provider of engineering solutions for complex aerospace systems.
Additionally, we await delivery of the executed leases with the U.S. government for large blocks of space at 100 secured debt gateway.
Both of these leases were expected to close during the first quarter there were delayed by presses friction during the shutdown.
We also made strong progress a DC six.
We recently executed a new 3.1 megawatt lease where the U.S. government contractor to bring a long term supercomputing contract into the facility.
In Backfilling the contractions, we previously disclosed.
The tenet is a fortune 100 property with whom we have a very strong relationship.
Additionally, the renewal negotiations for the 11.25 megawatt exploration. This year is progressing well or we expect completed this quarter.
We placed the 230000 square foot, 100% leased development into service during the quarter.
Following the delivery or active developments totaled 2.2 million square feet that are 78% leased currently and will be 86% leased upon delivery of the new lease with U.S. government.
Now I'll turn the discussion to the impacts of the pandemic shut down and said on our business.
I wish I am pleased to report had been very minor.
Our operating affected this remains unchanged.
We implemented our long established pandemic operating protocol and business continuity plan, the combination of which have allowed us to continue our operations seamlessly.
No copped employee has been confirmed with the buyers.
The other systems are supporting over 190 remote workers each day without failure.
Our properties the remain fully operational throughout the crisis in the reported infections among or tenants employees is very well.
New lease negotiations and discussions that commenced before the shut downs continue to advance various processes necessary to complete leases take more time with remote working so the timing has slowed but the volume of demand for locations has remained high three independent mix shut.
Yeah.
Since our February call her shadow development pipeline, a future development opportunities has increased by several hundred thousand square feet.
And now exceeds 2 million square feet.
The one area of activity that has been affected by the shut downs is showing for new vacancy leasing.
The tenor broker shop shut down their tourism response to the virus and as a result.
New space showings had been virtually nonexistent since late March.
The only exception being new space showings with U.S. government with whom we negotiate directly.
Accordingly, although we expect to see a flurry of activity once markets reopened.
We expect to see some transaction volume get deferred into the third or fourth quarters.
Development activity in or 2.2 million square foot pipeline has continued to advance unimpeded by Cobrand 19, shutdowns or labor quarantines.
We have experienced some minor delivery delays or disruptions, but we've either resolve them or substituted vendors to maintain or schedules.
[noise] or high concentration of U.S. government and defense contractor tenants is largely insulated our operations from coal bid 19 related cash flow stress as a result, right collections remain very high during the shutdown period.
We collected 97.4% of total April billings.
The resiliency of our revenues reflects the strength of our tenant base and the mission critical locations.
88% about revenue comes from location Sporting National Defense, which are designated as a central businesses.
So the majority of our tenants are exempt from the shutdown restrictions. Furthermore, their cash flow is tied to long term contracts for U.S. government funding and that general commercial activity.
Regarding tenant rent relief I'm pleased to report the impact on revenues is nominal.
The largest set of tenants requesting relief or the local food service tenants in our portfolio.
These tenants are an important component of the value proposition we offer.
And we're working with them to ensure our properties have appropriate amenities. After this crisis is pass.
We're our free one quarter free rent to these tenants in exchange for extended lease terms.
To date this set of concessions represent 0.13% of annual revenue.
We have a handful of tenants whose businesses are impacted by social distancing.
For these tenants, we have granted timing flexibility to do it for up to three months of cash rent.
And repaid the amounts in full over relatively short periods of time.
Today, the set of rent concessions represents.
0.35% of annual rents.
Bringing total concessions granted to date to just under 0.5%.
We do have some additional tenda discussions that are currently unresolved.
If we were to accommodate all of these requests and add them to the rent relief already granted.
The impact on our annualized rents would approximate 0.75%.
With all the impacts we can see right now.
We are well positioned to meet the bid the midpoint of our original guidance.
However, we believe it is prudent to adjust our guidance down by a penny to provide capacity to absorb unforeseen aftereffects of the shutdowns.
Or revise guidance continues to assume that developments placed into service contribute between 20 and $22 million with cash in a way to full year results.
92% of which is from executed leases.
Upon delivery of the government leases in Huntsville, This number increases to 99%.
In addition to the 230000 square feet placed in service this quarter.
We remain on track to place another 1.2 million square feet of 98% leased space into service during the balance of the year.
The incremental and why from these projects will hold drought will help drive this year's F. AFFO growth and position our company to deliver robust growth in 40 to 41.
Well, we expect to place at least another 700000 square feet of highly leased developments into service.
Lastly.
Our negotiations for new development leasing and discussions for new buildings have studied momentum.
Given us a high degree of confidence there will meet or 1 million square foot objective.
With that I'll hand, the call over to Anthony.
Thanks, Steve first quarter FFO per share as adjusted for comparability of 51 cents exceeded the high end of guidance by two cents.
Our results included a one cents charge related to adopting a new Cecil accounting standard and the outperformance resulted primarily from cost savings related to the extremely mild winter and lack of snow.
These cost savings also drove stronger than expected same property cash NOI, which increased 5%.
[noise] due to the stability in a central nature of our tenant base. The pandemic has minimally impacted our revenues.
We collected 97.4% of April billings, and excluding the tenant relief, we are granting we collected 98.7%.
Tenant accommodations grant or less than one half a percent of our annualized rent cash rental revenues.
And would be less than 0.75% if we accommodate further known requests.
We incorporated the impact of these accommodations plus reduced our new vacancy leasing expectations and added higher reserves for parking income and termination fees and we were still firmly in line with our original guidance.
[noise], depending on the duration of the pandemic and the related business interruptions. However, other issues may emerge.
In order to provide cushion to absorb such possibilities, we added additional reserves to our forecast the effective which lowers the midpoint of our full year guidance by a penny to $2.07.
We are establishing second quarter guidance for FFO per share as adjusted for comparability with a midpoint of 49 cents.
We are assuming we encounter some modest delays and lease commencements, resulting from delayed executions and as a result are lowering our year end forecast of same property occupancy by 50 basis points with a new midpoint of 93%.
The majority of the rent relief accommodations are expected to impact the second quarter, which will cause same property cash NOI to decline between one and a half and 3% versus second quarter 2019 results.
Due to these ran accommodations and additional reserves. We are also revising our same property cash NOI for the full year downward by 125 basis points and forecast cash NOI to be flat to up 1% for the year.
Based on our outperformance to date and our projection for future activity, we're increasing our renewal rate for the year by 5% to a new range of 75% to 80%. We continue to expect cash rents to roll down between one and 3%.
With regard to our capital plan, our development investment forecast for the year is down slightly to a midpoint of $325 million approximately 100 million of which we invested in the first quarter.
During the first quarter, we raised nearly $175 million in new debt capital.
In March we expanded our 2020 term loan by $150 million to 400 million and lowered the overall interest spread on the entire amount by 25 basis points.
Also in March we placed a $23 million mortgage on three recently developed fully leased properties in Redstone gateway.
Five year alone has an interest rate of 2.12%.
[noise] between cash on hand, and the capacity on our line of credit we have over $700 million of liquidity to fund the remaining $225 million that investment.
In summary, our operations have been minimally impacted by the cobot 19 virus and related shutdowns and we're being conservative conservative with capacity in our forecast to absorb additional negative surprises with that I'll turn the call back to Steve. Thank you.
Fair Defensively T. locations, there Jason to high priority U.S. defense and intelligence missions that support defense information technology and advanced research in fields include signals intelligence Human intelligence Naval systems, Both Air Sea bass missile Defense Army aviation.
Well enforcement.
Cyber activity in space exploration.
These activities are essential businesses demand for our locations is not correlated with the general economic cycle, but rather with defense spending which continues to enjoy strong bipartisan support.
Accordingly, our results today and are expected results for the year or minimally impacted by tenant issues caused by the buyers shutdowns.
We have strong run collections and nominal request for rent relief.
Our development and renewal leasing remains strong and on track to meet or exceed our original goals.
Vacancy lisi may be deferred a quarter or too.
With demand remains healthy.
Our development projects are on schedule and had been unimpeded by supply chain issues or labor quarantines.
To ensure the resiliency of our operations and tenant base.
He position our company could deliver AFFO per growth this year and robust growth in 2021.
With that operator, please open up to call for questions.
[noise]. Thank you Mr. butterick to ask a question you want me to press Star one on your telephone to withdraw your question press the pound King please standby will be compared to the new roster.
Our first question comes from Emmanuel Korchman with Citi. Your line is now open.
Hey, everyone.
This is Steve.
Question for you just in terms of the the planning process do while the government functions are essential it is this going to draw out the.
Planning for new space could just take longer to land deals or do you think timelines will be pretty consistent to what they were pre crisis.
Well, we talked about new leasing being delayed a quarter or two in it speaks is precisely to your question.
The negotiating process with people working from home seems to take a little longer.
One element.
It's critical police scene is the space planning and approval process.
And we have customers with people in remote location, so getting those approvals and consensus on plans takes a bit longer.
With regard to the developments we've been working on all that planning has been in process.
Most of the development will be affected said new leasing.
It's a taking a little bit longer.
Right and then in terms of the data centers.
Are you still think about those as as a source of equity and has the buyer pool or appetite there changed at all.
Yes, and yes, yes, and no actually we started the year.
Within intend to raise about $80 million and capital.
To support our development investment.
We disclose the we're contemplating either ATM later in the year or use the those joint venture structures that we used in the past.
We continue to maintain the optionality.
And we're going to move.
Later in the year towards resolving our desire to raise that equity.
And yes, there is a continued strength in folks interested in joint venturing or data center shelves.
Okay. Thank you.
Thank you.
Next question comes from Jamie Feldman with Bank of America.
And is now open.
Great. Thank you.
You would use the term robust for 2021 growth on this call I think you first use it on the last call I'm. Just curious as you look at you signed a data center lease you signed a new.
Alabama lease can you just talk about you know is your growth rate actually gone up for 21, now and just how do we think about the building blocks for next year and wet what might actually be at risk with the pandemic [laughter]. So I wouldn't say our anticipated growth has gone up I think we're a little more confident in it.
A key element is getting the rule the DC six so we don't want to put a.
Kind of guide posts around with that growth looks like till we get it done.
Well we spoke to.
The highly leased developments that we are placing.
Into service this year through next year. That's 1.2 this year and 700000 at a minimum next year that will add $20 million to $22 million to this year's annualize income and another 20 million to next year.
Okay and then in terms of the renewal can you just give more color on how those conversations are gone.
Are there going very well.
Working on the document though.
Okay.
And then can you just talk about the rest of the development pipeline you know the buildings that are not 100% leased how those conversations are going.
Sure.
So.
At 8000.
Redstone Gateway.
We have five tenants that in total neither 125000 square feet the buildings 100000.
[laughter] 6000, it Redstone gateway.
We have a about 10000 square feet vacant and we want to U.S. government lease award this that yet executed, but this should be 100% leased in the next month or so.
We anticipate delivery of the largely 700 secure gateway either today or early next week, we're disappointed that we didn't have it for the call.
And then at 4600 River Road, we have 75000 square feet vacant we.
We have two tenants in advanced negotiations for two thirds of that amount.
So a little over 50000 feet.
The one development where activity has been very sluggish through the pandemic is 2100 L.
We do have three prospects, but there's not a lot going on during the pandemic than I can speak too.
Opportunities on the next call one.
Activity returns to normal [noise].
Okay, and then along those lines can you maybe just talk about your your Baltimore tenants kind of traditional office.
How those tenants where with in terms of April rent and concerns you might have as you move into.
In June.
Well our collections were very high.
We're not going to talk about any individual tenants in the context, the brunt relief.
Others back for their businesses, but we have market, leading anchored tenants and all those buildings and we expect them okay.
Hey, there right and do extremely well third and health care strong legal firms insurance jewelry.
And then several functions that are government or university related.
Okay all right. Thank you.
Thanks, Jim.
Thank you.
Next question comes from Jason Green with Evercore. Your line is how open.
Good morning, I, just on the disposition front and specifically the potential data center JV sales, maybe not enough information yet in the marketplace. This pricing changed at all on those Neil.
Yeah, I don't think there's enough information in the market, we wouldn't expect it to change I mean that if investors are looking for any kind of product with a stability of cash flow in the.
In a business that isn't impacted by the environment. We're in right now the datacenter shelves or have to be near the top if not at the top of the list. So we would think value would be.
Pretty strongly held up as compared to the values, we achieved last year.
And then yeah.
Just one quick comment if we did nothing.
The leverage would tick up about a 0.15.
So we don't we're not in a position where we need to do that JV.
We're issue a ATM this year, we'd like to.
But if we can't find pricing we don't need to proceed.
Got it and then just just on the equity financing side and I realize you haven't done anything yet and year to date has the level at which you would feel comfortable using equity financing changed at all just given the market volatility.
No I.
I think we've been cleared pass.
We can be near or any v. and so creates significant value.
Issuing equity, but you don't want to do it.
We don't want to do a were trading today.
Got it thank you very much.
Thank you. Our next question comes from Craig Melman with Keybanc capital markets. Your line is now open.
Hi, everyone. Steve you know I I understand the nature of your tenancy, maybe a little bit sticky.
Well you know your commentary relative to you know others that we've heard this earning season seems a lot more.
Conviction in just the their performance here going forward and not having a lot of impact from Covidien mean, I'm just trying to understand why not just be a little bit more conservative with the guidance bake in you know maybe a little bit more downside may or may not happen, but you know you guys were down just a penny I get it with a two cents beat me.
Maybe you guys you this down three cents.
Well why not just take a little bit more of a conservative tack here versus you know kind of sticking to your guidance a little bit.
Well I guess, you're asking about judgment there I.
I think Anthony spoke to this in his comments, we put some pretty heavy contingencies on all the things that we should see being affected and we're still coming out at our guidance.
So that extra level of conservative Ism is the penny that we brought it down to create a cushion.
So.
You know, we're we're reacting to what we see in Trust me with regard to these rents discussions anthea I looked at our progress report every day.
So we are on top of the situation in a significant way.
That's fair then Anthony same store came down you know a little bit more than it would have looked like given kind of the more muted occupancy dropped the retention and kind of unchanged rent spreads and you guys had a pretty good first quarter with you know some weather related savings could you just kind of bridge the gap there on that reduction versus kind.
To the inputs.
Sure.
The other inputs that are part of that change include the reserves that Steve just mentioned that I had mentioned earlier that we've put into our guidance for has some non tenant.
Non tenant related rents around our parking revenue.
And then they also include the impact of the rent relief that we are granting that is going to have an impact on.
Anybody who's granting rent relief is going to have an impact on cash NOI and for us it's going to primarily be in the second quarter.
So that's really the components that.
Offset a or in addition to some of the changes that you mentioned with respect to the change in occupancy and the slightly higher retention rate.
That's helpful. Then just one more quick one you know you guys a lot of your external growth is based on development here.
There may be a little bit less investor appetite for spec depending on how long the disruption last from coal, but I mean, how do you guys look at.
You know your informed demand or however, you guys go about choosing to build the next project versus maybe a little bit more risk averse viewpoint from the market.
Well currently we don't have a lot of spec under construction we have two.
100000 square foot buildings in both cases, we had demand.
[noise] in front of us when we made the decision to build them.
And those are the only two locations were truly building spec Redstone gateway in the University of Maryland.
So we would not proceed with another spec building unless we had tends to show.
With regard to inform commit a demand.
Yeah, we expect to get or lease done at.
The secure campus or Redstone Gateway 100 secured gateway.
We do have some additional discussion quite a few of them with future government users for that.
And we would proceed with the government building if we saw the demand there was there.
Great. Thanks, Steve.
Thank you.
Next question comes from Dave Rodgers with Baird. Your line is open.
Yeah. Good afternoon, Steve I'm wanting to ask about you talked about the essential nature of your business than we all know that I guess, if you take the regional business than the datacenter business out Yeah are you guys able to track utilization of the facilities and in terms of Kennedy amount of people in those spaces, whether through utilities or other means are they still fully.
Functioning from that perspective.
The tenant so yeah, our teams look at that every week.
We have about 25% of or buildings, where there's been no change in attendance at all.
There are operating with the same.
Level of parking consumption.
Before the virus, we have another 50%.
Where the attendance is down a bit.
Some element of a remote working but still heavy heavy attended we have 25% where.
I'd say dependence is off significantly where people are remote working where they can.
Are we kind of track that.
Every week.
And with that specifically for the contract or government business, excluding other than two segments or was that including regional.
So that was everybody, including regional and I would say the regional office.
Is big component that last 25%, where there's remote working.
Okay, Yeah that makes sense.
You talked about the non development leasing pipeline or the vacancy leasing pipeline can you kinda talk about where that was coming into the crisis and where those conversations are today outside of the development.
It's a good question I benchmarked off of or the last report in February before the crisis started to occur.
And our overall vacancy pipeline is at the same level.
When you adjust for the leases we won in the six weeks that occurred.
The activity level, they use a term called the activity ratio.
The amount of tenants, we have seeking space represent 75% of all the vacancy in our portfolio, which we consider high <unk>.
So we've got over 60 deals.
That we're continuing to work or try to compete to win and they range from his smells a few thousand feet through his biggest 70000 square feet.
Great maybe to clean up for Anthony <unk> are you, Steve, but one on the DC six leads to 2.1 megawatts as that backfilling, they've already been vacated or will be vacated this year.
So all but 0.75 megawatts has been.
Already vacated so we get 'em that back in July 1st.
So the balances has already been vacated through the end of the first quarter.
Great in the last one on the part you guys mentioned parking income you don't strike me as a high parking income company, but can you talk about what that total risk as well that dollar.
Our total parking revenue for any for a year is about five and a half million dollars.
And it's mostly in the Baltimore urban locations and back like road down your in Springfield.
And maritime Plaza in DC so.
Yeah, we're seeing some drop off some of those are our monthly.
Charges that come along with ran some of them our transient.
So we're really putting reserves against the transient component of that income.
Okay. Thank you Bill.
Thank you.
Next question comes from Rich Anderson with SMBC. Your line is how open thanks good afternoon.
Hi, Steve you went through.
The sort of the breakdown of how full year buildings are in terms of attendance from 25%.
Being sort of no change in 50% being a bit down.
Does that.
Leave you feeling a little vulnerable I mean, these people assuming they're not.
Injecting clorox are just as horrible as anybody else to get the virus I'm. Just wondering if you if you worry about sorry about that terrible joke by the way you worry about.
The the vulnerability of your of your of your the people working in your buildings.
To the virus, which had you know you described is being minimal at this point.
No I honestly rich I don't.
Remember that.
Secure work.
In the government contracts has to be done in the after you can't take that work home, we know that both the government and.
Some of the defense contractors.
Our making adjustments there rotating people like in a group in the be group.
One of the things that we observe is where we have partially.
By buildings the length of the business day is longer because they're all trying to get their hours in better working in the longer day fewer days weeks and I think that will returned to normal.
And then with regard to the sample set we have in our own company. Our people are dying to get back to the office.
The idea of working from home the romance wears out pretty quick.
And this last week, we've had quite a few surprise visitors to just have to get out of their house come into the office for awhile.
Yeah, that's true test of a marriage I guess.
So second question is you know a lot of military activity to combat Cove. It are you seeing any or tenants being involved in that in any degree or you know in picking up some of their time fighting the virus.
I have no information along those lines rich okay.
Yeah.
Rich the only thing we can only thing I can add is.
The one thing you should note is it was about $10.5 billion of the care Act that was allocated to do you need it to really pay for and fund.
Work that they were being asked to do so none of the none of that work is being funded out of the defense budget that our tenants are our or the government rely on to do their activities that was sort of allocated above and beyond the base budget. Okay. Great. Thanks for that color Anthony and then lastly, I'm I don't I might've missed this.
At the beginning of the call, but how are.
Are you you entertaining a the process now of replacing Paul or are you inclined to sort of double duty for the time being and worked with this out.
Well I'm enumerating some.
Candidates.
Working in a variety of different.
Ways, but it's pretty tough theater interviews people when they can travel so we're.
We're going to push the me to that activity later into summer.
Okay sounds good thanks very much.
Thanks for asking for it.
Thank you. Our next question comes from Peter a bundle it with Jefferies. Your line is now open.
Yes, a apologies if I if I missed this before but just wanted to get kind of your high level thoughts.
Looking further out given kind of the shifting priorities for for federal spending needs I'm, what's kind of your for her out outlook for the defense budget and how might depend them.
Well.
We can only see one year or the time.
Because that's where the government works, but the discussions around the 2021 fiscal budget.
[noise] contemplated another two or 3% increase that's got to play out over the summer and certainly the.
Shutdown in Congress has slowed that press is down a bit.
But I guess I asked rhetorically at the end of the day or we more comfortable with the world threats that we deal with or less when this virus is over.
I don't see where we're going to be materially cutting defense.
Got it that's it for me thank you.
Thank you. Our next question comes from Daniel Ishmael with Green Street Advisors. Your line is how open.
Great. Thank you just a quick one for me can you provide updated thoughts on construction costs and land values and its environments.
Well I know you know most of what we have.
Rolling right now Danny is under contract already.
I think when we come out the other side of this.
I think is reasonable expected some of the development activity generally across the region.
Could fall off in a.
I think that.
My gut would tell me, we'd be it'd be more of a buyers market.
But it's little early to really make that claim.
And just as a refresher, though the majority of it yields are down on a return on cost basis, So a little impact due to her overall profitability on the development pipeline.
Regarding changing costs in terms of land or overall development.
That's correct.
Quite a few of them are.
Well, we you know even at 2100 L.R.
Joint venture effort in DC.
We had that those contract prices Blackstone.
Almost two years ago.
So we're not feeling heavy cost pressure on their drones.
Okay, great. Thank you.
Thank you. Our next question comes from John Guinee with Stifel. Your line is open.
Great. Thank you nice job guys.
Not particularly Stephanie.
[music].
HM $2.07 at the midpoint seems up a high degree of confidence and basic math says that you're in the mid Fiftys 50, 455 cents a share by the fourth quarter.
And you got $1.10 dividend for six or seven years, now or any thoughts on the dividend. These days.
[laughter] no weve well, yes, we have thought all the time no do thoughts.
You know we continue to like the level our dividend is that.
Feel lot happier if the yield were a little lower [noise].
But we you know what the value we've been able to create Wheeler steady stream of developments and we think it's best.
The reserve excess capital plowed back into value creation for our shareholders.
Good good thank you.
Thank you.
Thank you I'm next question comes from Tom Catherwood with BTI G.
Your line is now open.
Thank you very much so Steve you partially answered this.
When to in response, when a rich's question, but I wanted to take a different angle.
As far as how your tenants are using this space the ones that are obviously still utilizing it and you mentioned going to longer hours fewer days were going to some sort of a powder River basin system.
But when Youre looking at your build things and Youre building operations outside of just for the tenants are doing what kind of thoughts do you have thus far I was making any changes whether it's two mechanical systems vertical transportation touchless technology any kind of investment you guys need to make and then are you incorporating those thoughts in.
Just future developments as well.
Well the honest answer as we've looked at all of it. We think are really good shape. The biggest suggests we're going to make and have made.
Just a heavier focus and the frequency of cleaning of touch points.
At the door entries wash rooms, a horizontal services in common areas and elevators, though there, but and so on our activity ramps back up those buildings, where it's.
Been more remote working.
I would say were expected to show a force with the cleaning crew to make sure. We can get tenets comfortable with regarding with regard to the mechanical upgrades. If you really look at the data and the size of the virus particles. You spent a lot of money and achieve nothing upgrading or filters, we have great filter system. So.
And.
You know, we don't consider that a risk.
Understood and then the last one for me.
We saw a portfolio trade.
Down in Huntsville, Alabama, some assets and Cummins Research Park, and then an asset.
Downtown Huntsville Kinda two parts first did you take a look at that was that something you guys considered and then second how would those assets the trade compared to your portfolio down there.
So I saw the offering memorandum its 10 assets that we're interested most of them or.
The older product.
Relative to our new development.
Really had no interest and being in downtown.
Huntsville, if you will.
But we're very satisfied with the opportunities we have to create value a new modern facilities at the location we have.
So I didn't say that that closely.
Got you sorry, I guess, then just one follow up on that is it.
It is the the difference then between those assets and yours.
Just a the your buildings are newer you're obviously modern technology or is it location or is it a combination of those two.
It's all the above so location is one factor ours dominates.
The second factor is access to the amenities that we've created or drove is really very walkable got multiple foodservice operations, we've got a hotel.
ER cuff shop coming we're working on daycare center.
Those other locations don't have anything there that you got to get the card and you've got to drive.
And then those buildings I think the newest of which were.
Maybe ninetys, but more like Eightys product.
Got it I appreciate it thanks, everyone.
Thank you Tom.
Thank you.
I am I know to ask a question you will need to press star one on your telephone.
Our next question comes from Chris Lucas with capital One Securities. Your line is now open.
Hi, Good afternoon, everybody just a couple of quick ones you you talked about the fleet utilization changes like that they.
Protocol changes I guess in aggregate together [laughter], how that might impact operating expenses over the next few months quarter.
[noise] I wouldn't I wouldn't think the cleaning costs would be material.
It might have some impact, but nothing that we'd be talking on about on an earnings call.
With regard to space.
Entity.
Thank you know.
Since I've been with the company.
Operated through that defense spending contraction period.
All our defense customers got very efficient using fewer square feet for more people.
One potential outcome of this event.
Is that companies are less willing to get that high.
Concentration of humans and their space than they might lease more space to spread out time will tell us completely speculative.
But we've had some discussions about.
And things were planning spreading the people out more.
To create a less vulnerable.
Environment to transmit.
So thats if yeah. If you if you were to handicap that between sort of the contractors in the government itself is their likelihood that one might adopt a less dense environment than the other or where or how you see that playing out.
I think it's a little too early to make call on that when Chris but.
I invite you to challenge me again in the next two quarters.
We'll do that and then one last one.
As it relates to you know your other major tenant.
Are there any changes to the conversations you're having as it relates to the data show kind of in terms of the impact other pandemic on their business where on the North Dakota.
No not really none that I'm aware of we've been working on a long term development plan for them.
We have addition, passing on land that we have we're constantly in.
Discussions, making sure that we can meet their time crimes and deliver product when they need it.
You know they've been a regular consumer of space for upwards of seven years with us now and.
We've had no discussions there would lead me to believe otherwise.
Great. Thank you.
Thank you.
Our next question comes from Blaine Heck with Wells Fargo. Your line is now open.
Hi, Great just a quick on for me and apologies. If you guys touched on this already but Ah you guys have the expected moveout at Columbia Gateway come through recently and I think you have one of those floors least can you just touch on any interest that you know you guys may have had on the balance of that space and maybe how much of a delay here you're expecting there.
That backfill.
So from let me hit the delay first.
I would expect.
Totally might be one to two quarters.
From what we would've expected before pandemic.
It's just because there's no new activity that's.
[laughter].
Occurring in the current.
Shutdown of.
Turing.
We have had several tenants many of them in the park are already that are in growth mode. Many of them are cyber technology driven.
None of them large 25000 square feet or less.
But we're highly occupied in this bar, we have internal growth and it's a great asset.
So as we come into June July I think we'll be fine.
All right. Thanks, Dick Thanks.
Thank you.
Thank you.
I'm not showing any further questions at this time I will now turn the call back to Mr. butterick for closing remarks.
Thank you all for joining our call today, we will be in our offices. This afternoon. So police coordinate with Stephanie if you'd like follow up crawler [noise].
Any other communications, thank you very much.
Thank you for your participation today in the corporate office properties Trust first quarter Tiny Tiny conference call. This concludes the presentation. You may now disconnect good day.
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