Q1 2021 Corporate Office Properties Trust Earnings Call
Welcome to the corporate office properties Trust first quarter 2021 results conference call.
Today's call is being recorded at this time I will turn the call over to Stephanie Krewson, Kelly Copt's, Vice President of Investor Relations Ms. Krewson Kelly. Please go ahead.
Thank you Paul Good afternoon, and welcome to Copts Conference call to discuss first quarter 2021 results with me today are Steve <unk>, President and CEO.
Todd Hartman, and executive Vice President and COO, and 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 and presentation and in our supplemental information package. As a reminder, 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.
<unk> from these forward looking statements and the company does not undertake a duty to update them Steve.
Good afternoon.
Our unique strategy of concentrating and so it's around U S defense installations executing priority missions continues to produce highly resilient and growing cash flows.
As demonstrated by our strong first quarter results represent a great start towards shaping up to be another strong year.
Driven by solid operations and interest savings from our recent bond financing.
First quarter <unk> per share as adjusted for comparability of <unk>.
<unk> <unk> met the high end of guidance and this 10% higher than the first quarter results and 2020.
Additionally, NOI from real estate operations, and the quarter was up 6% from a year ago and.
<unk> increased an impressive 26%.
As these year over year comparisons demonstrate we are clearly on a path of sustainable and highly visible growth.
First quarter leasing results were solid and totaling 258000 square feet and.
And second quarter leasing is off to a blistering start.
And April.
We've completed 662000 square feet of renewals and vacancy leasing.
<unk> first quarter volume by two five times.
Better than planned outcomes on vacancy and renewal leasing.
Driving our increased guidance for same property results for the year.
Development and leasing and in the quarter totaled 11000 square feet.
However, we are in advanced negotiations and nearly 900000 square feet.
<unk> closed in the coming months.
Bridging to financing activities, we completed our second landmark bond offering last month.
$600 million 10 year issuance is 275% coupon and was the strongest debt financing and the company's history.
And the bonds price full notch higher than our current ratings, reflecting the market's growing recognition of the durability of our portfolio our strategy and our cash flows.
So for the second time and six months, the fixed income investor community unequivocally recognized and rewarded our company with robust demand for and exceptional pricing.
Our bond offerings.
The improved outlook for same property cash NOI and interest savings from the bond refinancing and driving the <unk> increase and the midpoint of 2021 guidance for <unk> per share as adjusted for comparability, which at the midpoint and <unk>.
<unk> four 7% growth over the elevated 2020 results.
And with that I'll hand, the call over to Todd.
Thank you Steve first quarter total leasing of 258000 square feet included 154000 square feet of renewals.
We know the economics were in line with expectations with cash rents rolling down two 2% annual escalations, averaging two 6% and leasing capital being only $1 93 per square foot per year of term.
This month, we renewed 596000 square feet of expiring leases, achieving and 88% renewal rate.
Cash rents on April renewals rolled up 0.5% and carried an average lease term of four eight years to date, we have completed 750000 square feet of renewal leasing with a 77% retention rate and average lease term and average term of four five years and cash rents rolling flat.
Based on our renewal achievement to date, we are increasing our full year retention guidance to a new range of 70 to 75 per cent.
We completed 93000 square feet of vacancy leasing and the quarter and 66000 square feet and April bringing our total to 159000 square feet and our leasing activity ratio remains strong.
One leads to highlight from the quarter was a two floor of 55000 square foot lease at $67 21, Columbia Gateway with recourse systems, a provider of real time technology to enable AI driven decisions.
Recall that the non renewal of that billings anchor tenant a year ago left at 20% leased we took the opportunity to reposition the asset, creating amenity areas, which appeal to a growing list of high tech and cyber companies and the market.
And this property is now 80% leased with strong demand for the remaining availability and.
And April we completed a 7000 square foot expansion with Intel and <unk> Cyber security defense contractor at 6900, 50, Columbia Gateway, bringing that 2020 redevelopment to 100% leased.
We believe our leasing success at both properties demonstrates the value we add by repositioning buildings as well as Colombia gateways growing importance as a preferred location for cyber and high Tech companies.
Development leasing and the quarter was light and 11000 square feet at Redstone Gateway, So far and the second quarter, we have 265000 square feet of development leasing out for signature and are in advanced negotiations for another 610000 square feet.
Our development leasing pipeline remains deep and diversified across our defense it locations and customer base.
<unk> up to $2 1 million square feet of development opportunities and are confident we will meet or exceed our 1 million square foot development leasing goal.
During the quarter, we placed 7100 Redstone gateway and to service the building as a build to suit for Cummings Aerospace our pipeline of active developments totaled one 4 million square feet that are 85% leased.
During the remainder of the year, we expect to place 739000 square feet of these projects into service, bringing our total for the year to 785000 square feet.
Regarding DC six our discussions with the 11, two five megawatt customer continue to progress. The original lease continues until such time as either party exercises the termination or the leases amended or replaced and we continue to believe the tenant will remain with that I'll turn the call over to Anthony Thanks Todd.
First quarter on <unk> per share as adjusted for comparability of <unk> 56 met the high end of guidance driven primarily by operations and interest savings from the recent bond refinancing.
Similar to our transaction last fall our March bond deal was an enormous success.
Our original plan and guidance for 2021 assumed a $450 million bond issuance to repay or refinance some higher coupon debt.
On March 3rd we launched a new 10 year offering at initial price talk on credit spreads of 175 basis points.
The offering was eight times oversubscribed with an order book that totaled close to three 5 billion.
Strong demand from many high quality investors allowed us to upsize, the offering to $600 million and significantly drive down the credit spread.
The deal priced at 140 basis points over the 10 year Treasury, resulting at a two seven and 5% coupon and a 1% discount.
We used the proceeds to retire two higher cost issuances blocking and annual interest savings of $7 million.
The fixed income investors were highly focused on our ability to deliver large volumes of highly leased low risk development to continue to grow EBITDA and <unk>.
They also appreciate that our strategy of concentrating assets around mission critical defense locations, which greatly insulates our cash flows from the impact of any work from home trends.
The March bond issuance represented the fifth most oversubscribed book of all time, and the office sector and the seventh lowest coupon of any length note ever issued by and office REIT.
This offering reset our credit spreads, which now are well within the band of spreads of peers, who are rated one notch higher.
Fixed income investors have expressed their views with their wallets and clearly value the performance of our portfolio. The resiliency of our cash flows and our growth from low risk developments.
Regarding operations same property cash NOI was roughly in line with the low end of our first quarter range as forecasted weather related expenses were at normal levels compared to extremely light levels and the first quarter of 2020 and parking income continued to be lower than last year as employees start to return to.
Our urban locations.
Based on current negotiations, we expect several positive leasing outcomes debt increase our forecast of same property cash NOI from our original midpoint of negative 1% to a new range that is flat at the midpoint.
As a reminder, our full year guidance continues to assume same property occupancy declined modestly during the year due to the diminished vacancy leasing volume last year and the projected impact of joint venturing additional wholly owned data center shells. This year to raise equity with that I'll turn the call back to Steve. Thank you.
Our central strategy of value creation through low risk development.
Deeply concentrated adjacent to department of defense priority missions that support the U S government and its contractors has and continues to provide an average of $1 million or more square feet of new development opportunities and by extension.
High value defense 80 assets each year.
<unk> also has created a portfolio of high credit tenants, whose business cycles are not correlated to the general economy, we are durable and growing business demand and it.
We're supported by healthy defense spending and priority National defense programs.
These attributes allow growth of our company and our tenants' businesses to outperform during the pandemic shutdowns and.
And continue press freeing up during the emerging recovery.
Our 2021 businesses play and had a great start and the first quarter and as accelerating achievement and demand levels, thus far into the second quarter.
Our recent experience and the debt markets achieving landmark results for our company combined with our stock's relative outperformance last year debt.
Constraints at the Investor and community recognizes the strength of our strategy.
And tenants the result, and the strength of our franchise.
Our increased midpoint.
Full year, <unk> guidance of $2 and 22 and.
And plus four 7% growth over the elevated 2020 results.
And four 8% compound growth from 2019.
We're firmly on a path of sustainable growth driven by a durable operating portfolio, a strong balance sheet and a reliable low risk development program that is producing and incremental NOI annually.
We look forward to capitalizing on the growing set of impressive opportunities we have before us with that operator, please open up the call for questions.
Thank you Mr. Woodbury to all participants as a reminder to ask a question you will need to press star one and you tell on side I get that the star one on your telephone. However, if your question has been answered and you wish to withdraw from the queue. Please press the donkey please standby, while we compile the Q&A roster.
Our first question is from the line of Manny Korchman with Citi. Your line is open.
Hi, everyone.
Good afternoon.
And looking for your Investor presentation, it looks like the retention rate on the 2022 explorations.
Is now more of a from number.
Does that imply that you have more conviction and getting those.
Leases were signed at that number or is there something else driving sort of debt that minor change and reporting.
Yes.
The minor change and reporting was we had.
Those two tenants are two large regional office tenants.
In Baltimore.
And our previous.
Matt had.
One tenant with a partial renewal and staying in the building for.
About 30000 square feet and our expectation is that they will totally vacate now.
The second was that we had a contraction for the second tenant debt ended up not being as large as what we had forecasted which resulted in a net change.
Thank you.
And then maybe tickets and regional office for a second.
Others in this space and accelerated their noncore nonstrategic and.
Physician programs, you've certainly sold non strategic assets in the past, but have you given any renewed thoughts to selling the regional office assets and and maybe I'll wrap that with you made a comment on working from home and being protected within your current portfolio. How do you feel about the working from home and funds with your regional office portfolio.
I'll take part of that first.
There is clearly one large tenant through on the site renewing that is implementing a significant work from home strategy.
Other large debt, we're renewing is not and their contraction is.
Less severe than we anticipated before the pandemic, which is good news for our shareholders.
With regard to recycling and those assets, we have always maintained that there are future opportunity for recycling.
Don't anticipate doing this year and in particular.
Because we need to renew those tenants or reestablish the occupancy that we're going to lose but they are certainly candidates for recycling and future years.
Thanks, Steve.
Our next question is from the line of Craig Mailman with Keybanc capital markets.
Your line is open.
Hey, guys good afternoon.
Just curious Anthony on the timing of potential JV sales is the slower development leasing out of the gate impact and that timing at all or is the kind of what you guys assumed in guidance.
Standing Pat.
Now what we're assuming in guidance is standing Pat when you think about the investment of our development capital into the <unk>.
Development projects, what we've projected for this year.
The majority of it is an investment and projects that are currently under construction and that and the commencement of some of the projects that we expect to lease this year later in the year. So.
Leasing pace has is sort of not correlated to the.
And the timing of our development and investment for the year and further record Craig The 11000 square feet. We did lease is 11 more than last year and the first quarter.
Development and leasing is lumpy and it does and average out by quarter.
Fair enough, it's infinite office zero right.
Yes.
But and.
Then just another quick one on DC six I think previous guidance had assumed.
Kind of $3 31 renewal and new lease on that and now it looks like it's going to take longer does that materially impact earnings at all getting the the higher rent for another quarter or two can you kind of just remind me the order of magnitude.
Sure that the incremental benefit per quarter is about a half a million dollars.
Okay.
And then just as we.
And it sounds like you guys have good momentum and the development pipeline for leasing could you just kind of go through the 875000 square feet, that's in and out for signature and advanced negotiations just break it down by either geography or office versus shell data centers, just to give us a sense of who is kind of more active these days.
Sure so first by breakdown.
It's 70%.
Defense and <unk>.
Office.
30% show.
And by location.
The diversified.
And that includes the MVP Glenn.
Land that we own and northern Virginia, and Redstone Gateway.
And does that totally.
The 30% totally exhaust your remaining data center Orlando.
And I don't know.
We have.
Okay.
For at least four additional shelf. So we can add on land we own.
Alright, great. Thank you.
Okay.
Okay.
Okay.
The next question is from Jamie Feldman with Bank of America. Your line is open.
Thank you.
And I guess to start with Anthony.
Do you can you talk about the next refi opportunity or the next potential debt range you might do it sounded like just wanted to show successful how are you thinking about maybe more.
Well in terms of debt maturities, we have $400 million term loan that comes due in December of 2022, that's our next maturity.
And currently that term loan is priced at a triple B flat credit spread based on.
The renegotiated deal we did with our banks last March.
It's very competitive capital right now in terms of pricing.
And then our next.
Maturity after that is the 2025.
And issuance of debt.
Comes due so.
I think we will continue to monitor the bond markets and see if theres an opportunity to.
And continue to take advantage of where.
Our bonds are trading and refinance that out to extend out our debt ladder.
Okay.
And when you think about the leasing pipeline pick up.
Is there anything new news wise or that Youre seeing and the market that's driving this beyond.
And kind of what was expected and kind of pent up demand.
Is there new.
Any of the data breaches, we've seen or anything else, that's kind of driving with the new the new administration. Perhaps this is all kind of what he thought it was just pent up demand.
Well I can't really tied to the administration by any means but.
It is.
Okay.
Clear.
The need for skiff space and the Fort Meade area.
Is it a very high level of demand.
And much of the leasing and I think we're going to do and in that sub segment.
Driven by new contracts drove the need for new or expanded skiffs.
Okay.
And then if you look at the portfolio occupancy quarter to quarter, you did see a slip and Fort Meade, BW corridor, and Nova defense and it's actually much and there's only 10 basis points and regional office can you just talk about.
What happened and those two submarkets.
And.
And that's more temporary or that's and that stuff youre going to backfill or how should we think about debt.
Well, particularly and Fort Meade I would expect it to be backfill.
And I would say the next six to 12 months.
And what space, we did get back had to do with either merger and acquisition activity and the past that resulted in surplus space.
And similarly consolidation and reorganization.
But demand and where we did get this space back is pretty high.
Yeah.
Okay, and then just any more detail on DC six and terms of how the conversations are going.
And your expected timeline.
Well theyre going well, but they are painfully slow.
Our client is extremely busy or kind of their team and getting on their schedule to drove the.
Negotiation of the document forward has been slow.
I read through the Red line.
That is the current status and the agreement and it feels to me like we're very close on the open issues.
There are a couple more levels of documents that need to be.
Settled and I would hope we could do it this quarter.
Okay. What's included in your latest guidance last time, you said, maybe April and if I remember correctly.
Our latest guidance assumes the end of the quarter.
And to the second quarter.
Okay, great. Thank you.
The next question is from the line of feedstock with Evercore ISI. Your line is open.
Yes. Thanks, So a lot of my questions have been asked and answered, but Steve I was just curious as you're talking to new tenants both for development and so on.
On your existing vacancy is there anything that youre seeing different and the density or seeding or how theyre laying out the space versus kind.
Current configurations.
Interestingly and I touched on this on the last call.
One of the customers were.
Working to complete.
Build to suit for.
Their intensity requirement, it's at Redstone Gateway is higher.
And then.
The density requirement and therefore parking.
The full $1 5 million, we've built over the last call it nine years.
And everything else is kind of normal, but this particular case, we're investing additional money and using or using more land because the parking ratio is higher than normal.
Okay, so they're actually patenting more people in and kind of go on the wrong direction, but.
And I guess, what we would have thought would happen.
Well certainly is thought to work from home situations and this for sure.
Okay.
And then I know when you talked about sort of buying land positions for the data center shells, you sort of suggested or said that you've kind of done and in concert with your partner and and you've kind of let them kind of drive the process a bit.
Is that still the case or are you looking to kind of broaden out with other partners and would you be looking to take down any land.
For potentially other JV partners.
Well certainly we have no plan to buy land with the JV partner.
We do.
And our from time to time, having conversations with other potential tenants.
Our interest and buying land would have to be tied to some pretty advanced.
Negotiations for development.
With regard to our current customer we've always worked in harmony with them and.
And we continue to have 800 per $1 million.
800002 million square feet of development capacity and what we've already bought.
Okay, and then just last question and I know you've kind of tightened up the footprint over the last couple of years are there any new potential locations that could emerge that would fit the current kind of defense profile that youre not currently and.
None that we've identified to date Steve.
Okay.
Great. Thank you.
Thanks.
Okay.
The next question is from the line of Tom Catherwood with ITG.
D D.
D T I G.
Your line is open.
Okay.
I'm going to stick with our with our data center shells for a second and just I'm thinking more about development funding and general and when we think about your pipeline going forward. Obviously as you stabilized properties. The additional NOI allows you to borrow against that on a leverage neutral basis and redeploy that into development.
And then the data center shell contributions provide a nice source of low cost equity do you have a sense of kind of the runway that you could get.
The number of years of development you could fund just from the contributions of the data center shells E. Coli on right now and the ones that are kind of.
And I'll close to being developed.
So Tom at the end of the year.
The portfolio of wholly owned data center shells that were operational.
Or the <unk> plus the two that were under development had a.
Gross value based on the cap rate that we achieved on <unk> in 2000, Twenty's joint venture of about $650 million.
And that doesn't include any <unk>.
Incremental development projects that we would expect to do this year and next year.
Based on our current pipeline as well as what we expected to do.
We have modeled out debt that capital would be able to continue to fund the development pipeline on a leverage neutral basis over the next four to five years.
Got it thanks for that Anthony.
And then.
Todd just wanted to check I thought I heard you say that the April leases were done at cash leasing spreads of positive 0.5% did I hear that right.
That's correct the renewal leasing yes.
Got it got it and so.
It sounds like those rents.
And then I guess, maybe a little better than that than we had expected.
Can you talk more broadly about rent trends and your markets and along with that and it also seems like the leasing that was done and <unk>.
Pumps were a little higher annual bumps were little higher than what used to was that just.
Leasing mix or are you being you able to push those more and in your leases.
Well I would say generally rents are tracking to where they were last year, we haven't seen any material decline and phase III.
In terms of the annual bumps I think thats, probably a mix basis rather than.
A sign of a market shift.
Got it thanks for that.
And then you mentioned.
Kind of certainty on the one regional office exploration in 2022, and now you've put capital and to a lot of those especially your Baltimore buildings over the past few years other than the leasing capital to get that space back filled are you expecting any incremental capital to put into that asset in order to get it stabilized.
Ken.
No we're not.
Great.
And then last one from me.
Last quarter, you had mentioned that there was an opportunity where it's hard to expectation of leasing some of 310 and BP and 2021 is that still the expectation.
Yes, it is still our expectation.
On a portion of the space mid year and the balance of it by the end of the year.
Excellent. Thank you everyone.
Thanks, Tom.
The next question is from the line of Rich Anderson with CNBC Youre line is open.
S M D C here on matters.
Sure.
And.
Sure.
Peter Your question was.
And so DC six.
Mind.
You described is moving slowly.
And now kind of obvious statement, but.
And maybe is there a is there a plan b like are you are you engaging.
Potential third parties and case this doesn't come through the to the finish line and one in particular I'm thinking about is that amazing customer of yours, and the shell business and I'm wondering if there's any fit there.
For this $11 million army that 11 megawatts space.
Our confidence is very high.
The current tenant.
Over the five now call it six year term.
Yes.
Adapted new documentation standards and we've been working to translate.
Our form into the comply with their structure.
And we've moved through that but last year. There was a lot of what ifs on further.
<unk> grades to things like security.
And fire control.
Which we've moved through and we've resolved.
So at this point and time, we feel like we're in a mop up which seem to get contract wrapped up and and.
And executed and.
Would that compromise our relationship, but putting that space on the market.
With the confidence we have.
Okay.
And quite fair.
On the growth.
Growth profile the company <unk>.
And you described the negative two 7% same store cash NOI is consistent with guidance.
And I guess, you know defined consistent but it was out outside of the range and yet you did better than we thought from a previous question on.
On a on the renewal rates during the quarter. So what happened there and maybe if I. If it's an obvious thing that I missed I apologize.
And it's.
The result for the quarter was driven by.
Sort of two things one was.
Weather related expenses, both snow and energy that were significantly higher than the first quarter of 2020 and slightly higher than our forecast.
On a net basis and then the parking revenue.
From our urban locations, which is Baltimore and maritime.
Primarily.
It was clearly lower than the first quarter of last year, which was pre pandemic shutdowns and.
And again was slightly.
The reduction was slightly.
Higher than what we were expecting okay fair.
Fair enough. So then with that.
Observation.
And I'd like to know longer term and maybe you know do you Steve once you kind of get through the kind of last remaining sort of nuances to the story and you just kind of get into a steady state.
Operating environment.
What do you see as the growth profile of the company when you take into consider considering.
Consideration and same store growth leverage the development pipeline you know all the things that you mashed together and come to a bottom line number is is it like a 5% type of growth model or do you see it and it's something greater than that.
I think over a longer period thats, probably a good number to rely on five.
Two to two and a half.
Same office and.
And then the balance being incremental.
Both from development.
Right.
Okay. Good thanks very much.
The next question is from the line of Dave Rodgers with Baird. Your line is open.
Yeah. Good afternoon between Todd and Anthony I think you guys had talked about several positive leasing outcomes that you hadn't anticipated and so I guess I wanted to just dive into those a little bit more can you talk about whether that was on the vacancy renewal or just on rate overall, and then Anthony wanted to dovetail and with that the question on the lease term fee and the <unk>.
Quarter and will that continue to be amortized or was that a one time one time fee.
In terms of the better than expected leasing activity.
Both.
Renewals that occurred that we were expecting non renewals on.
And then some additional leasing that was done on vacancy leasing both additional square footage and sooner than what we had forecasted.
So and with respect to the term fees.
A portion of the of the termination fees that we recognized and the first quarter, we will continue to be amortized through the balance of the year.
With that tenant.
Aspiring at the end of 2021.
Okay. Thanks for that and then Steve you haven't really talked too much about Washington, and the government and any potential issues there you've been pretty positive over the past several quarters in terms of the budget is there anything kind of in the pipeline now as you talk and have these advanced negotiations that that.
As a risk and your mind to kind of executing these transactions and the very near term.
Certainly left and near term.
And.
We talked about being in advanced negotiations, we wouldnt, we wouldnt have identified the if we were working on lease documents.
And with regard to the government.
Yeah.
The outlook looks to be status quo.
And with 1% to 2% growth on a very high defense budget basis.
And I think that'll be very stable and promising for our portfolio.
Okay.
Any issues is as obviously Congress has kind of battling and fighting out all these other issues.
In terms of funding other program that would just put this on the back burner and from a timing perspective, not necessarily and occurrence perspective.
The timing is driven by the appropriation of.
And annual budget.
And I think we've only had one.
One budget appropriated on time and the last nine years that I've been here.
I would fully expect this year to be another year, where there's a continuing resolution.
Pushes that appropriation from the scheduled.
September outcome to November and December.
Kind of become the norm.
Okay.
So back to normal and I appreciate the help thanks.
Yes.
The next question is from Daniel Ismail with Green Street. Your line is open.
And just curious to see if there's been any update on 'twenty 100 L Street I believe on the last call you mentioned.
Early stage prospects and I was curious to see how those conversations have evolved.
Those conversations are ongoing.
We have actually more prospects now from the space and we had last quarter.
And but.
No real advancement in the and the discussions other than.
And the lease process and lease negotiation process or or deal process I should say that's going to take its time.
Any anticipation for that being done this year or is that still pretty hard to say.
50 50.
We're certainly trading paper with a couple of prospects and.
And there is at least 50% likelihood.
And one of those deals.
Great and then just two questions on on development cost.
So you know obviously and development costs are moving higher so I'm just curious if there's been any impact on the pipeline and then two assuming replacement costs are moving higher in conjunction with construction costs should we see that translates into a better longer term rent growth for either the defense on regional office.
Yeah.
Certainly there are short term pressure on costs.
Throughout the last 12 months.
We have not had difficulty completing their developments.
We're hearing some.
Materials segments that are under some pretty significant cost increases right now like drywall.
With regard to the longer term elevation of.
Replacement cost.
Certainly it would follow that we could drive right into higher long term replacement cost, but I'm not convinced that this is a.
A permanent shift from a cost structure as much as a.
Short term supply and demand issue.
Great. Thanks, Steve.
Yeah.
And then next question is from the line of Matthias Okusanya with Mizuho. Your line is open.
Hi, Jeff.
And then I just wanted to focus on the regional office portfolio the.
And the non renewal on.
Also on the reading of all other two tenants you talked about can you just kind of talk about mark to market prospects on book the renewal on.
Possibility of when you get a new tenants for the space that that wasn't renewed.
So mark to market on rents.
Probably negative.
8% to 10%.
For a long term renewal.
And the second part was.
No.
And I can make that 10% for the new space for the empty space.
Yes.
Alright.
And on what about for the for the for the tenant that is renewal that is renewing.
Okay.
Same okay, great Okay and.
And then David if you could indulge me doing that and you guys.
The driver for you and kind of department of defense budget, specifically around the areas of security and things like that but the big amount of spending and that president and bite and is trying to do across all of these major bills.
Whether it's the Corona virus barrel or the education and bill or what have you.
Do you guys and expect that to have any kind of meaningful impact on tenant demand specifically for you or even just and a general kind of DC Washington area.
So with regard to our portfolio defense Ats.
And our priority missions, no I don't see any correlation.
With the bulk of our portfolio.
More spending and D C code and the D C.
Real estate community tends to believe the one that kind of spending increases they do get growth and demand.
I would say is.
No.
Landlord, finishing the development we'd welcome it.
Gotcha.
Thank you.
Thanks, Jeff.
The next question is from the line of Bill Crow with Raymond James Your line is open.
Yes, good afternoon.
Going back to Baltimore quickly does the outcome of those two leases change in any way the perspective timing of selling those assets.
Yeah.
Potentially I mean, certainly a successful outcome and the one we're.
We're expecting.
Good change our thoughts.
We're presuming and unsuccessful outcome.
And the second and.
And we prefer to bring that building the market fully leased as opposed to with the significant vacancy.
Alright, and that was it from me everything else and cover thank you.
Thanks Bill.
We have an additional question from the line of non <unk> Korchman with Citi. Your line is open.
Yeah. Thanks.
In response and earlier question about the new markets you gave a very very quick no.
And I was just wanted to dig into that and just figure out what what's driving that now is that because you don't have a presence and space now is it because you just don't think that those tenants are expanding quick enough and those markets are there others that are just more entrenched.
Whats driving that vary from now.
Okay.
Well there are certainly some markets that we've evaluated from time to time.
And we're just that and a position where I wanted to start indicating that we're ready to make a new market move until we're more certain but we continue.
[noise] regularly to evaluate opportunities that have come up from time to time to.
And up in a new market.
Thanks again.
Once again, ladies and gentlemen, if you have a question. Please press star one on your telephone keypad.
The next question is from the line of <unk> <unk> Evercore ISI. Your line is open.
Sorry, my questions Robin asked they just couldnt get out of Q, sorry about that.
Thanks Stephen.
So thank you for joining our call today.
We will be and our offices. This afternoon. Please coordinate through Stephanie if you'd like to follow up call.
Thank you for your participation today and and the corporate office properties Trust first quarter 2021 results Conference call. This concludes the presentation. You may now disconnect good day.
Okay.
[music].