Q4 2020 Corporate Office Properties Trust Earnings Call
Welcome to the corporate office properties Trust fourth quarter and full year 2020 earnings Conference call. As a reminder, today's call is being recorded at this time I will turn the call and I'll take the Stephanie Krewson, Kelly Corporate office properties Trust and Vice President of Investor Relations.
Chris and Kelly. Please go ahead.
Thank you Carmen and good afternoon, and welcomed the cops conference call to discuss fourth quarter and full year 'twenty and 'twenty result.
Most of our guidance for 'twenty and 'twenty one.
With me today are Steve the Dor, President and CEO.
And I've Hartmann executive Vice President and CLO and the.
Anthony Mifsud EVP and CFO.
Reconciliations of GAAP and non-GAAP financial measures management discusses on this call are available on our website and the results press release supplemental information package. The result.
On the presentation posted on our website.
As a reminder of forward looking statements made during today's call are subject to risks and uncertainties, which are discussed at length and our SEC filings.
Actual events and results can differ materially from those forward looking statements and the company does not undertake a duty to update them.
Good afternoon, and thank you for joining us.
2020 was challenging and with strong year for our company.
We drive nearly 90% of other runs from locations the support the defense activities of the United States government and its kind of tractors engaged national security.
The defense information technology cyber security activities among others.
These missions, our net correlated with the general economy, and the work executed and these buildings never shuts down.
Our strategy is kind of the trading buildings around the U S defense installations and executing priority mentions is unique among Reits.
Our performance during the economic uncertainty of 'twenty and 'twenty.
And our outlook for this year demonstrate the strength of our unique investment strategy.
From a leasing perspective.
Our ability to execute the problem and we've seen last year was unimpeded and contrast of vacancy leasing volumes were significantly reduced and the second and third quarters as a result of the strict shutdown restrictions.
In terms of operations are on.
On collections remained very high due to the.
The exceptional credit of our tenants in total we collected 99, 7% of gross rents between April and year end.
We made the combinations to retail and the amendment of the tenants to help them bridge the financial GAAP caused by the shutdowns in aggregate.
These reserves and concessions represented 1% of our annualized rental revenue, the including $1 $8 million of reserves against straight line rents.
Beyond range. The combinations are parking revenues were $2 $6 million lower than our original plan.
Although these amounts were largely offset by operating expense savings.
Our operations absorbed for $6 million of pandemic related impacts during the year.
Notwithstanding these impacts we met or exceeded expectations on multiple fronts.
Our initial guidance for <unk> per share the as adjusted for comparability.
Hey of the midpoint of $2 and eight.
And when the shutdowns began we lowered the mid point by a penny to $2 and seven.
To create capacity to absorb and anticipated events.
By the time, we hold in the third quarter growth, we had absorbed the impacts from the Covid shutdowns and.
And had good visibility on the remainder of the year.
With that we increased the midpoint of guidance to $2.09.
As detailed in last night's reporting for 2000 20-F of four per share of $2.12 beat the midpoint of our initial guidance by four cents and.
And grew four 4% over 2019 results.
During the year, we raise debt and equity capital on attractive terms and.
And as a result, we observed debt maturities to address during 'twenty 'twenty one and.
And we ended the year with that the EBIT and the conservative of six two times.
We completed the total of $3 6 million square feet of leasing last year.
The development demand was strong throughout the year and we met our pre pandemic goal of leasing 1 million square feet.
For 81% retention rate mesh or 20 year record, notably our average term of on renewals was four two years and excluding the short term Boeing renewals.
The terms for seven years.
The agency leasing volume was adversely affected by the pandemic shutdowns well.
Well first quarter volume was strong and fourth quarter volume recovered.
And the shutdowns dramatically suppressed vacancy leasing volumes and the second and third quarters.
The 400.
16000 square feet, we completed during the year was about 60% of our pre pandemic plan.
This reduction and leasing productivity impacts our 2020 same property outlook.
Most importantly, we placed one 8 million square feet.
We're fully leased into service during the year, surpassing the prior company record by more than 600000 square feet.
And fueling and first of all per share growth.
Our ability to place large volumes of highly leased developments into service as the key to our long term growth and.
In 'twenty and 'twenty, one NOI from these developments will more than offset the effects of last year's delayed vacancy leasing.
The national Defense spending drove some and for.
Defense it locations and the.
The defense spending environment remains healthy.
And of course appropriate at the fiscal year 'twenty 'twenty, one and defense budget at the beginning of this calendar year, passing the National Defense Authorization Act with solid bipartisan and bicameral support the.
The base the O D budget increased another 1% over fiscal 'twenty and 'twenty levels and.
And the consensus and the defense industry is that it will continue to grow by roughly 1% per year for the next several years.
And in 'twenty and 'twenty, one we expect demand for new development to remain solid and our development leasing pipeline, we're tracking and over 2 million square feet of demand across several of our defense it locations.
This demand includes solutions for government customers and defense contractors, including Hyperscale cloud computing.
Based on the breadth and depth of demand, we set our drove the and leasing guidance at 1 million square feet for 'twenty and 'twenty one.
And all we forecast recently completed and current development projects will contribute up to $23 million of NOI to 'twenty 'twenty one results.
The southern wire will drive <unk> per share between two and 5% higher than 2000 Twenty's elevated results.
Surely the midpoint of our 2021, that's not for all per share guidance is a penny higher now than the guideposts, we provided in October.
With that I'll hand, the call over to Todd.
Thank you Steve at the end of 2020, our core portfolio was 94, 3% occupied and 95 per cent leased representing gains of 120 basis points and 40 basis points, respectively. The year over year gains were led by strong increases at the National business Park, and and our Nova Defense I'd and Navy sub segments. Additionally.
And our Huntsville operating portfolio nearly doubled during 2020, the one 5 million fully occupied square feet.
And 2020, we achieved a very strong 81% renewal rate leasing capex on renewals remained among the lowest in the office sector, averaging only $2 and <unk> per foot per year of term cash rents rolled down and average of two 1% with annual escalations, averaging two 4% both in line with expectations.
First on your cash on expiring leases relative to first year cash of the renewed lease and pounded at two 5% annually demonstrating the internal growth embedded in our lease structures.
We renewed six large office leases totaling 775000 square feet, including early renewals of for large office leases scheduled to expire in 2021 on.
On slide 13 of our presentation. The two large 'twenty and 'twenty, one explorations totaling 250000 square feet or government leases that will be renewed shortly.
And slide 11 shows our quarterly vacancy leasing achievements started out the year with a healthy 143000 square feet and the first quarter.
And with suppressed for two quarters and recovered in the fourth quarter, the 142000 square feet, although 'twenty and 'twenty vacancy leasing volume totaled 416000 square feet or roughly 75% of our five year average volume it was still 40% below our original 2020 plan.
The million square feet of development leasing achieved during the year included five fully leased build to suit projects for defense contractors totaling 680000 square feet and for of our sixth defense sub segments, One International business Park, one at Redstone Gateway, one and San Antonio and two.
Data center shell build to suits and northern Virginia.
During the year. We also completed 238000 square feet of development leasing with the U S government, including 210000 square feet and 100 and secured gateway in Huntsville, which is now fully leased and occupied and and 18000 square foot lease on new development and the Pax River portion of our Navy group.
Regarding our leasing outlook for 'twenty and 'twenty, one we entered the year with solid momentum for new developments and recovering demand for operating properties and.
And our operating portfolio, we have solid prospects for current availability and our activity ratio is 75 per cent for.
For example, and Columbia Gateway, we have six concentrations of vacancy representing 240000 square feet or working with 22 prospects totaling 230000 square feet or 96 per cent of the available space.
One of these prospects requires occupancy in 2021.
With 80000 square feet of availability of $67 21 Gate Columbia Gateway represents our largest block of vacant space and the park and.
And the fourth quarter, we backfill the 20000 square feet and are tracking 140000 square feet of additional demand.
And Northern Virginia, We had 290000 square feet of vacancy and are pursuing 240000 square feet of demand.
Lastly, at the National business Park, and excluding <unk> and BP.
Which is reserved for the U S government, we signed 140000 square feet of vacancy leasing in 2020, bringing art and 92% occupied and 96% leased.
Also at the N V. P. We have five blocks of vacancy totaling 130000 square feet against which we are pursuing 90000 square feet on the demand half of which is now under lease negotiation.
Regarding <unk>, we continue to have confidence of the government will leaves the 135000 square feet of availability during the year.
Demand for development continues to look strong even though we completed half of million square feet of development leases and December we're still pursuing over 2 million square feet of potential transactions and our development leasing pipeline, which supports our goal of executing another 1 million square feet. This year.
<unk> 75 per cent of the demand is from U S government and defense contractors for new office facilities, and 25 percentage for data center shells.
Turning to our active development projects and the fourth quarter, we placed 582000 square feet of fully leased space into service, bringing our total volume for the year to a record 1.8 million square feet and increasing the size of our operating portfolio by over 9%.
These developments were fully leased and their NOI will contribute significantly to 'twenty and 'twenty one results.
Our 11 active developments totaled $1 5 million square feet and are 84% leased with the availability concentrated and three projects and.
And 4600 River Road, and College Park, Maryland, and and 8000 Rideout Road and Redstone Gateway, we are tracking significantly more demand and available space and expect both projects the stabilized during the year.
And at 2100 L Street, Our trophy building in downtown DC is roughly 85000 square feet of availability like many major urban markets. The downtown DC office market shut down during the pandemic Encouragingly, we are not working with 76000 square feet of early stage prospects.
During 2021, we expect the place 670000 square feet and the service that are now 81% leased.
Based on the activity we were tracking we expect further leasing gains during the year.
I'll conclude my remarks, with an update on progress at DC six.
The us government contractors and executed a three one megawatt lease last spring finalize their super supercomputing deployment during the fourth quarter and is paying full rent on the premises, adding roughly $3 million of annualized NOI.
Net lease has a five year term of five year renewal option and a $3 one megawatt expansion option.
Discussions with our 11 25 megawatt customer have progressed nicely since the holiday break and we have narrowed the open negotiating points. The original lease continues in full force and effect on the perpetual term unless either party exercises of the termination with six months notice for the lease is amended or replaced.
With that I'll turn the call over to Anthony Thanks, Todd.
Fourth quarter and full year <unk> per share as adjusted for comparability of <unk> 56, and $2 12.
The exceeded the high ends of our elevated guidance by <unk> <unk>.
The fourth quarter results benefited from higher revenues at DC, six and gains on the sale of and alternative investment.
Pretty operations were solid.
Lower free rent concessions and operating efficiencies net of the Covid impacts drove a one 6% increase and same property cash NOI for the year and same property occupancy ended the year at 92, 1%.
During the fourth quarter, we formed a new joint venture with Blackstone.
And two transactions, we raised $165 million of equity ending the year with debt to adjusted EBITDA ratio of six two times.
We achieved strong pricing on both transactions demonstrating the value we create through development.
Our 'twenty and 'twenty. One plan is summarized on slides 25, and 26 of our presentation and continues to be straightforward and low risk and nature.
NOI from development placed into service as the main driver of this year's growth.
And a record of one 8 million square feet into service last year, two thirds of which occurred in the second half of this of the year.
The incremental revenues plus those properties, we expect to place into service. This year should contribute between 21 and $23 million of cash NOI.
At the midpoint, 99% of this NOI is contractual.
We plan to invest between 275 and $300 million and development and have no acquisitions planned.
We will continue to prudently fund, our development and investment and expect to sell of just additional joint venture interest and data center shells to maintain existing leverage levels.
Just on our current portfolio of wholly owned data shells plus the two under development, we can monetize approximately $650 million of equity value from this sub segment to fund future requirements.
Lastly, we forecast the same property occupancy pool ended the year between 90 and 92% occupied.
Which is which is impacted by the deferred of vacancy leasing in 2020 by approximately 2%.
Based on these occupancy levels and assuming normal expense levels.
We forecast same property cash NOI will be flat to down 2% for the year.
Same property cash NOI is impacted by the reduction in 2020 of vacancy leasing as well by approximately 1.5% to 3%.
Additionally, we have built in some capacity for a possible early renewal and contraction activity and some of our non defense tenants, which impacts our outlook for both the same property statistics.
Based on these assumptions, we are establishing a range of <unk> <unk> per share of $2 16 to $2.22.
The midpoint of which is a penny higher and the midpoint implied by the growth Guideposts, we provided in October.
With that I'll turn the call back to Steve. Thank.
Thank you.
Our strategy is built on three fundamental pillars.
Invest and assets with durable demand characteristics that are for protection from broader economic cycles.
<unk> value for shareholders by managing our portfolio the.
High Occupancies and low recurring capital expenditures and developing new assets, because well below the market failure.
And maintain the strong and durable balance sheet.
The flexibility to respond to disruptions and the capital markets and to seize opportunities quickly.
For the last five years, we've implemented this strategy with great discipline and old.
The KD and our capital investments as follows.
And we're getting markets and properties.
And the support of essential U S government defense missions, such as signals and human intelligence missile defense space exploration law enforcement cyber activity and Hyperscale cloud computing and <unk>.
Dressing and advantage land positions best located to serve the priority defense missions, we targeted and.
Executing on low risk value, creating new developments.
Our performance in 'twenty, and 'twenty, and our high visibility into 'twenty and 'twenty, one demonstrates the high level of durability and our cash flows and.
The investor appetite for data shows this demonstrated the impressive value creation of developments provide to our shareholders.
Our bond offering during 2020 illustrated that the debt market recognized and rewarded us for the resilience of our portfolio and franchise and achieving the most attractive debt structure and our history.
Over the past nine years, we've completed approximately 10 million square feet of development leasing average.
Averaging $1 1 million square feet per year.
During the past three years, we've executed for 3 million square feet of development and leasing and averaging over one 4 million square feet per year.
We completed and our strategic asset reallocation plan and.
In 2018 and.
And so the third time, our new developments and durable operating portfolio.
Produced growth and <unk> per share as adjusted.
So in conclusion captors entered and narrow of growth driven by durable operating portfolio of strong balance sheet and of reliable low risk development program that is producing incremental NOI annually, we look forward to seizing the impressive opportunity before us.
And 'twenty 'twenty, one and with that operator, please open up the call for questions.
Thank you and Mr Pin Tai.
And ladies and gentlemen to ask the question you will need to press star one on your on telephone until withdraw your question press, the pound or has pool and Dan that is start and wine.
And now while we compile the Q&A loans.
The first question from 90 quite cement with Citi. Your question. Please.
Hey, everyone.
Anthony just looking at your guidance for D. C. Six can tell us what timing and and rent roll down on assumptions are based on to the NOI range that you provided there.
Sure So the range assumes that.
We have the current rent the tenant is paying for the first quarter and that the renewal.
It was executed at the beginning of the second quarter at which point the rent roll Downs roll down rolls down between 10 and 15%.
Great and then maybe this is looking too far forward, but I'll ask anyway, you've now presented your large maturities coming up in 2022.
And with retention ratios that are obviously lower than what you had last year at least for the commercial users.
How are those are the.
Discussions with those corporate users going if at all.
So with both of those customers we had.
Fairly advanced negotiations to extend and contract before the pandemic shutdowns occurred.
And since the time the active discussions had been told.
We expect them to heat up this year.
And.
Since we were negotiating contraction before the pandemic.
Continue to expect them to contract.
And they are both and downtown ballpark.
And maybe one last quick one for me Anthony you mentioned some.
Alternative investment sales and let the gains and the <unk>.
What else is on the books that we might expect to drive gains or losses and the future.
So we have a pretty limited amount of those investments left it's about three to $3 $5 million remaining so.
They are there and a fund that the company invested in and.
And they manage the liquidation of that funds. So the timing of that it's very difficult to predict.
So it sort of comes and goes as the as the fund is and sold off the fund is the private equity fund and bakery.
<unk> brings new defense technology to market with startup companies.
And we invest and to.
And to create opportunities to be the landlord for those tenants that they successfully.
And create.
Thanks Al.
Okay.
Our next question comes from Craig Mailman with Keybanc capital markets. Your question. Please.
Everyone.
I'm just curious it sounds like.
Vacancy leasing could be picking up a little bit here I'm. Just curious what you guys think was the trigger for that is it just the ability to actually tour space or you know what the vaccine news of our people kind of feeling a little bit better about making long term decisions and and also just curious anything you guys are seeing the <unk>.
Unlike different types of space usage or floor plan layout.
As we get to the hopefully on the back end of the pandemic.
So I'll take the and lawyers.
And certainly during the second and third quarter, there was very little showing activity.
Sure credit is kind of avoid and the natural deal flow.
And then it had the component to it.
Activity picked up and the fourth quarter remained strong now.
Wood.
The estimate the 60% to 70% is defense contractors and much of that activity is either in anticipation of contingent on contract awards continue to flow of a pretty healthy rate.
Out of defense installations.
Around their properties in terms of the space planning.
We really have not.
Seen a material change.
In the densities for the tenants that we've planned.
It's a bit surprising, but even the <unk>.
Leases that we had executed in April.
March and April.
And one of them the fulfill their.
Interior.
Plan.
Their interior build out as had been planned before the the pandemic.
Okay.
That's helpful any any kind of.
How are the dynamics on rents kind of progressing here.
Or is it totally is the face rent or is it ti is kind of what's the conversation go and like as people come back and want to take space.
So but for downtown DC.
And I Omics are stable and all of our markets.
The strength and some.
And the.
And Alabama, where we have a lot of activity right now and essence, each new lease that we execute sets a new kind of high watermark.
The mark for market rent.
Special business part of Columbia Gateway.
Very stable.
And we'll find.
Find the soon what the impact is in the downtown D C.
But I would expect concessions to go up and rates remain stable.
And any of the pickup and Huntsville, I know space for US I think that was the location that they pick for that is it just way too early for that to be of demand generator.
Yes, it's way too early Craig, it's very exciting but early.
Certainly the award has been announced.
And.
Other states are contesting the award it'll be challenged for some time.
But there is activity of evaluating the space requirements down there both short and long term.
And it could potentially create opportunity with the government and other.
Question and believe we will create an opportunity with contractors and.
And then just one last one you know 310th of MVP. It sounds like you guys are feeling better about that but what the administration change is there going to be any changes at the top of that that tenant organization that will require another review of the space like you guys of kind of how does there's been turnover there that could delay it.
I don't expect it to be true.
Thank you.
The matter at a much lower level.
And then the new cabinet positions are going to be evaluating.
Okay, great. Thank you.
Thank you for our next question comes from Blaine Heck with Wells Fargo and your question. Please.
Great. Thanks, Good afternoon, I feel like we ask this every quarter, but just to get it and update can you talk about the likelihood of you guys expanding your your D. C shell program to cater to some other tenants given that's a cloud.
Cloud computing and all of that goes with it has become increasingly competitive.
So we routinely of.
And the exploratory discussions with other tenants potential tenants.
Here to for the development model or the procurement model isn't a great alignment with our strategy and.
And that the bulk of those people one of the lease.
Fully developed.
Data centers, where the landlord is born and all of the capital risk.
Trust through that we've got a great relationship with now the Tonight.
The deal model for us because we're putting in.
A few hundred dollars a square foot and they're taking.
Measurably more capital risk.
And taking their show and.
The bulk of it to a tier three data center.
The the extent we had of customer.
Who is interested in the similar program, we would we would welcome the opportunity.
Alright, Thanks, Steve that's helpful. And then just one for Anthony can you just give us a little bit more detail on your equity needs for this year, you know, what and maybe a little bit on potential.
Potential size and timing on on an unexpected the DC shell JV.
Sure so.
The data center sale equity that we need is true.
202 hundred $25 million.
We.
We have.
Group groups of those assets that we have available to us to venture throughout the year as.
Some of them had been placed in service for longer than two years, which is sort of our benchmark for tax purposes.
So our plan is that that would.
Most likely go out in.
And.
Call it even call it thirds beginning in the second quarter.
<unk>.
And transactions closing and the second third and fourth quarters.
Got it alright, thanks, guys.
Thank you. Our next question comes from with.
Evercore ISI your question please.
Hi, Thanks, most of my questions have been asked but can you just remind us what the.
Size of the land bank is to further the data center shell business and our.
Are you actively looking for more land out of Northern Virginia.
So the land.
And have acreage available III true.
Okay I do now.
The fifth three acres Steve.
And all of that land is adjacent to current or recently completed developments.
We have a notional schedule of when they'll be developed.
Right now the long pole and the 10th is getting power with the extreme level of development activity over the last two years.
For the power suppliers are strained to get additional critical power to the sites.
But from a company program.
And we've got two maybe two and a half years of.
We're on time before we need to buy more and land.
Sorry, just the convert debt three acres would equate to what kind of developable square footage.
Fifth.
It's a little of almost $1 2 million.
Square feet.
Got it.
Okay. That's it for now thanks.
Thank you for.
Alright, and next question comes from Tom Catherwood, Ret and <unk>.
Your question please.
Thank you and good afternoon, everyone.
Following up actually on on Steve's question, one thing that did jump out it looks like the data center shells you started in the fourth quarter on the land that had been.
And the defense key.
Key buckets, there, where there wasn't a decrease and the data center shell land.
Are we reading that right and is there kind of some more potential to repurpose land elsewhere in your portfolio for data center shells.
And you get a cookie.
It was very good and analysis.
Yeah that was the personal land in Fairfax County.
We have held for office development.
And the.
Some customers specific needs.
The allowed us to make that available to our data center shell.
The tenant and.
We executed leases on that.
I don't think there's much more of of that in northern Virginia.
Got it got it and then Steve you alluded to the challenges with getting power and at this day.
The data center shells and the two that you started and the quarters seem to have longer development timelines and then other ones you've done is that because of the kind of constraints on getting the power and or are these developments a little different from what you've done before.
So, yes, and no but.
Pointed out there and a different county.
They are and Fairfax County.
Which is the Taurus Lee bureaucratic.
So we've got a very long development schedule.
Two.
The allowance.
Allow us sufficient time to get through a rezoning and.
And then all of the approvals we need to develop the asset. Additionally.
We need time to get the critical power as well.
Got it understood and then it for the last one for me.
For the quarter.
And accelerate the approvals and the access to power the.
We will deliver those early.
Got it thank you for that Steve.
And then one last one Steve you had mentioned the expectations for 1%.
The fence department budget increases going forward.
One of the things that kind of hit the news recently, but has been overwhelmed by other stories.
Was the cyber hack on the government and defense agencies, given that that was a growing portion of your portfolio are you seeing a reallocation of either dollars or attention to that space and what does that I imagine that could be.
And have some upside for Columbia Gateway and <unk>, what are you guys seeing so far.
I think its early and but we see impacts of those kinds of exogenous events.
When the contracts flow out of the.
The government agencies into tenants and.
And then we will experience at demand.
Would expect.
Significant increases and funding to address the issue.
But also the demand would materialize, maybe and then.
Other 12 months down the road.
Understood. Thanks, everyone.
Thanks Sam.
Okay.
Our next question.
Comes from Jamie Feldman.
With Bank of America Your question Paul.
Great. Thank you so I guess.
Long lived on the.
Along the same lines of the last question you had mentioned, 1% growth and the defense budget expected over the next three years, but if you were to look at the more relevant piece of the budget the tie to your business like defense and cyber what do you think the growth rate looks like that for that segment over the next several years.
So it's a little early they passed the budget, but we don't have access to the documents.
And I get published the Green book, which allows us the mine that data for.
More program level changes.
Certainly I think cyber would probably grow north of 5% for the next several years if not higher.
And then out of the programs I just can't speak to.
And you're saying five per cent per year.
Yes.
Okay.
And then you had mentioned for 2022 of the two large leases and question or both downtown Baltimore.
Does that and everything else seems like it's doing really well I mean does that make you rethink at all of your Baltimore exposure.
And maybe some of those assets and and move on.
Well we've always.
Considered those assets that we would recycle at the right point and time.
One of the reasons, we hold on to them as we wanted to enter.
The era of growth, we talked about and are and our discussions.
Certainly selling them before we get the renewals established we'd be silly, but I would certainly say that those one or two of those assets.
And it could be.
Could be considered for sale and then the next 24 months.
Okay, but you don't want the market and market them until you figure out these two leases.
Well.
Absolutely and that I mean, we saw.
Some of them at the worst for US we thought of it.
Okay.
And then I know you guys can you provide your guidance in terms of cash cash NOI growth same store growth and leasing spreads can you give us the sense of what does it look like on a GAAP basis.
So our leasing spreads on a GAAP basis or.
Between call it 5% to 7%.
In terms of converting the.
The cash roll downs into into GAAP spreads given the increases that we have embedded in those assumed renewals.
Positive five to seven.
Yes.
Okay, and what about at the same store NOI.
And same store NOI is.
Ah Okay that in front of me.
To get back to you on that Jamie.
Thank you.
Alright, I think I'm all set thank you.
Thank you.
And our next question comes from Jay Kornreich Rip off and.
Your line is open.
Hey, Thanks, guys.
And just looking at your portfolio as it lends itself more heavily to the D. C Metro area, which makes sense considering the business you're on how do you guys think about stretching beyond that as you've entered San Antonio and Huntsville. So what do you how do you kind of expansion and those markets and potentially other markets as well.
Well.
We try.
We have pursued.
Missions that our knowledge base.
Net.
The troop or weapons production base.
And we have.
Scoured the country for good opportunities.
Periodically for the.
The last decade.
The.
I would recommend the use of phone call, where I could go into more detail for the locations that we serve.
For places where the missions have.
Very high priority. So they will have high levels of consistent funding.
And our knowledge base.
Which suggests the need office property and the manufacturing or.
Residential so.
And.
We're pretty committed to the locations we have.
Okay I appreciate the high level color and that's it for me. Thank you.
Okay.
Next question comes from Dave Rodgers with Baird. Your line is open.
Yes, good afternoon, you've got the address a lot of two questions on maybe on.
And al.
And.
Our selling that before any kind of through the year hold period or is that still going to be subject of that same thinking.
And I'm trying to consider when that could potentially go for you is that still the plan and then the second question I think Todd mentioned, it, but maybe Todd and Steve you guys can tackle the the occupancy loss in 'twenty, one obviously the.
The lower backfill and that's showing up there, but when you see the lower retention. This year is there any thematic.
Net.
Either.
Geographic component of the portfolio of program that negatively impacted the lower retention.
Well, let's take them one of the time.
I'll take the first one day so win.
In order to create the flexibility to.
Monetize 'twenty 100 out.
There was a structure has been created for.
For it.
And that asset to be owned within.
A REIT within our REIT. So we have a structure that will allow us to sell.
Which is net which is a common kind of structure within in the district.
So we have a structure that would allow us to be able to monetize that asset.
For the 24 month period is up.
And then with regard.
Regards of the renewals.
And we've built into our assumption.
And so I'm pretty conservative.
And.
Numbers on commercial office tenant contractions.
During the year and capacity to absorb.
And early renewal with the contraction.
The opportunity is presented.
Specifically regarding those two tenants and downtown Baltimore.
So those are the 22 exploration, but there's there's just.
Room doing for bump this year, and what Youre, saying, yes.
Yes, we put some capacity for one or the other.
And then when we look at commercial tenants.
Renewing.
We've handicapped some contraction kind of generally.
For specific.
Okay.
Okay. That's helpful.
Thanks, everyone.
Oh cool.
And our next question.
And with me on Matteo <unk> Okusanya with Mizuho. Your line is open.
Yeah, and I was actually pretty good [laughter].
Good afternoon, everyone. So a quick question about same store forecast for next year, the occupancy guidance of 90% to 92%.
And at 92% for 'twenty and 'twenty one.
Kind of get to the low end of that of that range and <unk>.
And if you were at the higher and which is the same number youre at.
<unk> and 'twenty.
And kind of forecast about a flat theme costumes and the NOI growth and you just walk us through that and little bit.
So the lower and it would be represented.
Less.
We've seen that has been contemplated and our plan earlier over the year.
And you remind you we've got a pretty manageable revenue of at risk number.
But to the extent, we weren't able to hit the target that will be reflected and fewer square feet at the end of the year and the lower achievement.
The higher and it's the converse of that.
And we generated more of leasing than the mid point of our plant.
And then the quarter.
<unk> the corollary on the same office cash NOI growth is that.
The the occupancy is a is a point and time at the end of the year.
And based on how those leases commence throughout the year and and contribute to that cash number is just why we ended up at the flat at the high end.
Okay for the average is probably nowhere for the quality of life.
On the theatrical.
Correct.
Okay.
Thank you.
Okay.
Our next question comes from Chris Lopez Roth capital once the current pool Coker ahead.
Hey, guys good afternoon.
From a couple of quick ones for me.
<unk>.
The 'twenty 100 al was placed into service and the fourth quarter did that contribute any GAAP revenue in the fourth quarter.
It was <unk>.
Very small it was it was like a week.
Okay.
The minimums.
Okay, and then that doesn't change I guess, the expected cash rent start dates for that lease.
It does not.
Okay, and then Anthony just as it relates to the on.
Alternative investment sales that is included in your.
<unk> adjusted for comparability.
It is.
And we had a small and one in.
Yes.
Okay.
Okay cool. Thanks, that's all I had thanks.
Tom.
And our next question and Jamie Feldman with Bank of America. Your question. Please.
Hi, Thanks and just.
The follow up I, just want to understand your thought process on April 1st for the DC six renewal.
You guys choose that date.
Fairly randomly.
No just based on the.
And kind of progress that we've had since the holiday break.
Checking on the.
The open issues with the kind of.
Okay.
Right.
And what still needs to get done and you're able to discuss that.
I really don't want to grow and any further detail on points.
I think on the last call.
I conveyed that we.
For the bundle of we address all of the issues that were open with positions we'd be willing to accept.
And challenge them to narrow the gap and were.
And we're making pretty good progress there.
Ultimately, it's got to be good for our shareholders or we want and agreed to it.
Okay alright, thank you.
Thank you and I'm not showing any further questions on the core I'm.
I will now turn the call back to MS type of diet for his closing remarks.
So thank you all for joining our call today.
We are in our offices. This afternoon. So please coordinate through Stephanie if you'd like follow up call. Thank you.
And thank you for your participation today, and the corporate office properties Trust fourth quarter and point.
From time to the conference call. This concludes the presentation you may now disconnect the call.
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