Q4 2021 Corporate Office Properties Trust Earnings Call

Speaker 1: You

Okay.

Speaker 2: Welcome to the Corporate Office Properties Trust Fourth Quarter and Year-End 2021 Results Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Stephanie Creuze-Kelley, COPT's Vice President of Investor Relations. Ms. Creuze-Kelley, please go ahead.

Welcome to the corporate office properties Trust fourth quarter and year end 2021 results Conference call. As a reminder, 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.

Speaker 3: Thank you, Jonathan. Good afternoon and welcome to COPS Conference Call to discuss Fourth Quarter and Year-End 21 results and guidance for 2022. With me today are Steve Bedorek, President and CEO , Todd Hartman, Executive Vice President and COO, and Anthony Mifsud, EVP and CFO .

Thank you Jonathan Good afternoon, and welcome to <unk> conference call to discuss fourth quarter and year end 'twenty one.

Guidance for 2022 with me today are Steve <unk>, President and CEO , Todd Hartmann Executive Vice President and COO, and Anthony Mifsud, EVP and CFO reckon.

Speaker 3: Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website, in 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 in our SCC filings. Actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them. Steve? Good afternoon, everyone.

Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website.

In the press in 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 in our SEC filings actual events and results can differ materially from these forward looking statements and the company does not undertake a duty to update them.

Steve.

Good afternoon, and thank you for joining us.

Speaker 4: We finished 2021 with strength and outperformed in all aspects of our business, including leasing, operations, development, and capital market.

We finished 2021 with strength and outperformed in all aspects of our business.

Re leasing operations development and capital markets.

Speaker 4: The full year FFO per share is adjusted for comparability of $2.29 through 8% over 2020s strong results. And it's 10th entire than our original guide.

The full year <unk> per share adjusted for comparability.

Of $2 29.

<unk> grew 8% over 2000 Twenty's strong results.

This 10 centers than our original guidance.

Speaker 4: favorable leasing and operating activity in the portfolio, drove solid gains in NOI, and contributed about 3 cents of upside to 2021 results.

Favorable leasing and operating activity in the portfolio drove solid gains in NOI and contributed about <unk> of upside to 2021 results.

Speaker 4: The gains were widespread with favorable results in renewal activity, R&M project costs, utility savings, and higher NOI from DC.

The gains were widespread with favorable results and renewal activity.

And then project cost utility savings and higher NOI from DC six.

Speaker 4: Despite challenges in the supply chain environment, we completed and delivered 766,000 square feet of developments with three projects completed earlier than planned.

Despite challenges in the supply chain environment, we completed and delivered 766000 square feet of developments with three projects completed earlier than planned.

Speaker 4: The 562,000 square feet of early commencements contributed roughly 2 cents to 2021 performance.

562000 square feet of early Commencements contributed roughly <unk> <unk> to 2020 one performance.

Speaker 4: We executed about 1.2 million square feet of development leasing during the year, outperforming our objective by 18%.

We executed about $1 2 million square feet of development leasing during the year outperforming our objective by 18%.

Speaker 4: Our 2021 activity included three major defense contractor developments, one data shell build suit, and our second fully leased office property for the US government in the secure campus of Redstone Gateway.

Our 2021 activity included three major defense contractor developments, one day shell build to suit and our second fully leased office property for the U S government and the secure campus at Redstone Gateway.

Speaker 4: We had expected this government lease opportunity to occur in 2022, and were favorably surprised by the early lease action last year.

We had expected this government lease opportunities occurred in 2022.

We're favorably surprised by the early lease action last year.

Speaker 4: We outperformed in the debt capital markets as well.

We outperformed in the debt capital markets as well.

Speaker 4: We seized the opportunity to lock in low interest rates and extend their debt maturity ladder by issuing $1.4 billion of new senior unsecured notes to retire higher rate short-term debt.

He sees the opportunity to lock in low interest rates and extend our debt maturity ladder.

Issuing $1 $4 billion of new senior unsecured notes to retire higher rate short term debt.

Speaker 4: highly successful debt finance activity, contributed about four cents of outperformance, and more importantly, protects the company from the risk of rising interest rates for years to come.

This highly successful debt finance activity contributed about <unk> about performance and more importantly protects the company from the risk of rising interest rates for years to come.

Speaker 4: We raised equity capital by completing the sale of DC6 last month.

We raised equity capital by completing the sale of DC six last month.

Speaker 4: generating $222.5 million to further balance our leverage and support our development activities.

Generating $222 5 million.

To further balance our leverage and support our development activity.

Speaker 4: Recycling DC6 has been a high priority for the company for several years, and we recognize that the capital market demand for data centers during 2021 created a long-awaited opportunity to sell the asset with a full and fair valuation.

Recycling deceased six has been a high priority for the company for several years and we recognize that the capital market demand for data centers during 2021 created a long awaited opportunity.

Sell the asset with a full and fair valuation.

Speaker 4: We were successful in identifying several bidders that possessed data center operating capabilities and the capital to purchase a multi-tenant facility.

We were successful in identifying several bidders.

Possess data center operating capabilities and the capital to purchase a multi tenant facility.

This sale.

Speaker 4: simplifies our capital allocation and increases the lease stability in our operating portfolio.

Simplifies our capital allocation and increases the least stability in our operating portfolio.

Speaker 4: We had expected the transaction to close during 2021, and the delay in closing added about a half cent to 2021 outperformance.

We had expected this transaction to close during 2021.

And the delay in closing added about a half.

2021 outperformance.

Speaker 4: Turning our outlook to defense spending, which is summarized on slide five.

Turning to our outlook for defense spending which is summarized on slide five.

Speaker 4: Congress authorized the DOD's fiscal 2022 base budget at $665 billion, representing a 5.8% increase over the fiscal 2021 budget.

Congress authorized the Dod's fiscal 2022 base budget at 665 billion representing.

Representing a five 8% increase over the fiscal 2021 budget.

Speaker 4: The expected increase is 5% higher than last year's 0.8% increase, and we expect continued strength in defense leasing demand.

The expected increase is 5% higher than last year's 8% increase and we expect continued strength in the defense leasing demand.

Speaker 4: fiscal year 2022 began under a continuing resolution that we expect will be in effect until mid-March.

Fiscal year 2022 began under a continuing resolution that we expect will be in effect until mid March.

Speaker 4: Recall that these have become a normal occurrence as the DOD has started its fiscal year operating under a continuing resolution for 13 of the past 15 years.

Recall that these have become a normal occurrence.

<unk> has started its fiscal year operating under a continuing resolution for 13 of the past 15 years.

Speaker 4: We do not expect this continuing resolution to have a material impact on our business.

We do not expect this continuing resolution to have a material impact on our business.

Turning to 2022 guidance.

Speaker 4: We set our FFO range midpoint at $2.34, implying 2.2% growth over 2021's strongly elevated results.

We said, our <unk> range midpoint at $2 34.

Implying two 2% growth over 2021 strongly elevated results.

Speaker 4: The guidance absorbs two percentage points of dilution from the sale of DC-6, as well as the dilution from the Boeing and Transamerica non-renewal.

The guidance absorbs two percentage points of dilution from the sale of DC six as well as the dilution from the Boeing and transamerican on renewals.

Speaker 4: adjusted only for the dilution from the sale of DC6.

Adjusted only for the dilution from the sale of DC six.

Speaker 4: 2022 pro forma growth would be 4.2% at the midpoint of schedule.

2022 pro forma growth.

Would be four 2% at the midpoint of guidance.

Speaker 4: As slide four illustrates, our FFO per share is adjusted for comparability. It's compounded at 4.4% annually since 2018 when we finished our programmatic asset sales under our strategic reallocation plan.

Slide four illustrates our <unk> per share as adjusted for comparability.

This is compounded at four 4% annually since 2018.

When we finished our programmatic asset sales under our strategic reallocation plan or.

Speaker 4: Our 2022 FFO guidance midpoint suggests that the compound growth will remain at roughly 4%, notwithstanding the dilution in the sale of DC.

Our 2022 us with full guidance midpoint suggests that compound growth will remain at roughly 4% notwithstanding the dilution from the sale of DC six.

Speaker 4: We have 1.7 million square feet of active developments that are 96% leased today. As we place them into service, we expect these projects to fuel strong growth in 2023, further extending our compound growth achievement.

We have one 7 million square feet of active developments, 296% leased today as.

As we place them into service, we expect these projects fueled strong growth in 2023 further extending our compound growth achievement.

Speaker 4: Our guidance for development leasing in 2022 is 700,000 square feet.

Our guidance for development leasing in 2022 is 700000 square feet.

Speaker 4: Recall that our 2021 success pulled for 205,000 square feet of expected 2022 development leasing and several data shell development leases a way to access critical power at those sites.

Recall that our 2021 success pulled forward 205000 square feet of expected 2022 development and leasing.

And several data showed development leases a way to access critical power at those sites.

Speaker 4: As slide 11 of our presentation shows, we've averaged about a million square feet of development leasing annually since 2012.

As slide 11 of our presentation shows.

We've averaged about 1 million square feet of development leasing.

Annually since 2012.

Speaker 4: During the past three years, we've achieved 4.4 million square feet of development leases, averaging just under 1.5 million.

During the past three years, we've achieved $4 4 million square feet of development leases.

Averaging just under $1 5 million square feet a year.

Speaker 4: Our current development leasing pipeline contains 1.8 million square feet of opportunities supporting our optimism that 2023 development leasing activity will return close to our long-term average.

Current development leasing pipeline.

<unk>, one 8 million square feet of opportunities supporting our optimism of the 2023 development leasing activity will return close to our long term average.

Speaker 4: With that, I'll hand the call over to Todd. Thank you, Steve. We achieved strong leasing results in all categories last year and expect 2022 to be another strong year.

With that I'll hand, the call over to Todd.

Thank you Steve.

We achieved strong leasing results in all categories last year, and expect 2022 to be another strong year.

Speaker 5: Total leasing volume in 2021 of 3.9 million square feet included 2.1 million square feet of renewals. Lease economics were in line with guidance and included a low teens roll down in rent for CareFirst at Camp Crossing in our regional office portfolio.

Total leasing volume in 2021 of $3 9 million square feet included $2 1 million square feet of renewals.

Lease economics were in line with guidance and included a low teens roll down in rent for care first I can't crossing in our regional office portfolio.

Speaker 5: CareFirst is a high credit health care tenant that leases nearly half the space in our Canton Crossing asset and in December renewed 214,000 square feet for a new 15 year term.

<unk> is a high credit healthcare tenant leases nearly half the space and our canton crossing asset and in December and renewed 214000 square feet for a new 15 year term.

Speaker 5: The renewal represented 30% of the quarter's renewal volume and 10% of the year's volume, and consequently heavily influenced our metrics.

<unk> represented 30% of the quarters were normal volume and 10% of the year's volume and consequently heavily influenced our metrics.

Speaker 5: To illustrate the impact of the CARE First renewal, we completed 93 renewal transactions in 2021, and cash rents on renewals rolled down 5.8% in the quarter and 2.2% for the year. If we exclude the effect of the CARE First transaction, cash rents rolled down 1.5% in the quarter and only 6 tenths of a percent for the year.

Analyst day illustrates the impact of the care first renewal, we completed 93 renewal transactions in 2021 and cash rents on renewals rolled down five 8% in the quarter and two 2% for the year.

We exclude the effect of the care first transaction cash rents rolled down one 5% in the quarter and only six tenths of a percent for the year.

Speaker 5: Vacancy leasing during the year was also strong, and the 196,000 square feet we completed in the quarter brought our full-year volume to 616,000 square feet, exceeding our five-year average volume by 14 percent and 2020's volume by nearly 50 percent.

Vacancy leasing during the year was also strong and 196000 square feet. We completed in the quarter brought our full year volume to 616000 square feet exceeding our five year average volume by 14% in 2020 volume by nearly 50%.

Speaker 5: In the second half of 2021, we completed 412,000 square feet of vacancy lease.

In the second half of 2021, we completed 412000 square feet of vacancy leasing and our leasing activity ratio. Currently is a healthy 94%. We've entered 2022 with good momentum and prospects to re tenant the largest vacancies in our operating portfolio.

Speaker 5: And our leasing activity ratio currently is a healthy 94%. We've entered 2022 with good momentum and prospects to re-tend at the largest vacancies in our operating portfolio.

Speaker 5: In Huntsville, we are tracking over 300,000 square feet of demand to backfill the 121,000 square foot vacancy at 1200 Redstone Gateway, which Boeing gave back at the end of 2021. With demand far exceeding the available space, we expect to kick off another spec building this year to capture the excess demand.

In Huntsville, we are tracking over 300000 square feet of demand tobacco, the 121000 square foot vacancy at 1200, Redstone Gateway, which Boeing gave back at the end of 2021 with demand far exceeding the available space, we expect to kick off another spec building this year to capture the excess demand.

Speaker 5: In Baltimore, we are working with over 80,000 square feet of prospects to backfill the trans America space in a hundred lights.

In Baltimore, we are working with over 80000 square feet of prospects to backfill the transamerican space and 100 Light Street.

Speaker 5: Development leasing exceeded our 2021 objective. We executed 1.2 million square feet during the year, including a 183,000 square foot build-to-suit at the National Business Park for a Fortune 100 company supporting operational activities on Fort Meade, a new campus for KBR at Redstone Gateway comprised of a 172,000 square foot office property and half of a 46,000 square foot building.

Development leasing exceeded our 2021 objective, we executed one 2 million square feet during the year, including 183000 square foot build to suit at the National business Park for a fortune 100 company supporting operational activities on Fort Meade.

New campus for KBR in Redstone Gateway comprised of a 172000 square foot office property and half of our 46000 square foot R&D facility.

Speaker 5: a new campus for Northrop Grumman at Redstone Gateway, comprised of two build-to-suit office properties with advanced infrastructure, totaling 263,000 square feet.

Our new campus for Northrop Grumman at Redstone Gateway comprised of two build to suit office properties with advanced infrastructure totaling 263000 square feet.

Speaker 5: A 265,000-square-foot data center shall build the suit in Loudoun County, Virginia for our cloud computing customer and our second development for the U.S. government in the secure campus of Redstone Gateway, a 205,000-square-foot office property that, when completed, will increase the secure campus operational square footage to roughly 450,000-square-foot.

265000 square foot data center shell build to suit in Loudoun County, Virginia for a cloud computing customer and our second development for the U S government and our secure campus at Redstone Gateway 205000 square foot office property.

When completed will increase the secure campus operational square footage to roughly 450000 square feet.

Speaker 5: These development projects will fuel future FFO growth as we complete construction and place them in the service.

These development projects will fuel future <unk> growth as we complete construction and placed them in the service.

Speaker 5: Our 1.8 million square foot development leasing pipeline supports our goal of executing 700,000 square feet in 2022. Within this goal, we expect about two-thirds of the volume to be office and R&D space for defense contractors, primarily at Redstone Gateway and the National Business Center.

Our one 8 million square foot development leasing pipeline supports our goal of executing 700000 square feet in 2022.

Within this goal we expect about two thirds of the volume to be office, and R&D space, where defense contractors, primarily at Redstone gateway in the National business Park.

Speaker 5: And the remaining one-third to be a data center shall build a suit with our cloud computing customers.

And the remaining one third to be a data center shell build to suit with our cloud computing customer.

Speaker 5: In terms of placing developments into service, our 2022 guidance assumes we place over 800,000 square feet of fully leased developments into service. These new completions combined with the 766,000 square feet placed into service during 2021 should contribute between 15 and $17 million of cash NOI to 2022 results. At the $16 million midpoint, 100% of this development cash NOI is contraction.

In terms of placing developments into service. Our 2022 guidance assumes we placed over 800000 square feet of fully leased developments into service. These new completions combined with the 766000 square feet placed into service during 2021 should contribute between 15 and $17 million of cash NOI to <unk>.

22 results at the $16 million midpoint, 100% of this development cash NOI is contractual.

Speaker 5: With that, I'll turn the call over to Anthony. Thanks, Todd. Fourth quarter and full year FFO per share as adjusted for comparability of $0.58 and $2.29 exceeded the high ends of guidance driven by the DC6 sale closing later than planned and another strong operating.

With that I'll turn the call over to Anthony.

Thanks Todd.

Fourth quarter and full year Africa per share as adjusted for comparability of <unk> 58, and $2 29.

Exceeded the high end of guidance driven by the DC six sale closing later than planned and another strong operating quarter same.

Speaker 5: Same property results were in line with previously elevated guidance.

Same property results were in line with previously elevated guidance same property occupancy ended the year at 91, 3% and reflects the Boeing non renewal at 1200 Redstone Gateway.

Speaker 5: Same property occupancy ended the year at 91.3% and reflects the Boeing non-renewal at 1200 Redstone Gateway.

Speaker 5: Cash NOI grew 1.2% during the year, driven by favorable renewing leasing outcomes and further advancement of operating

Cash NOI grew one 2% during the year driven by favorable renewing leasing outcomes and further advancement of operating efficiencies.

Speaker 5: We were very active in the senior debt markets last year, refinancing existing debt with new issuances in March, August , and November . During 2021, we issued $1.4 billion of new senior notes with an average interest rate of 2.6% and used those proceeds to redeem $900 million of senior notes that had an average interest rate of 4.5% as well as other debt.

We were very active in the senior debt markets last year refinancing existing debt with new issuances in March August and November .

During 2021, we issued $1 $4 billion of new senior notes with an average interest rate of two 6% and use those proceeds to redeem $900 million of senior notes that at an average interest rate of four 5% as well as other debt.

Speaker 5: The debt we refinanced in 2021 had an average maturity of 2.5 years, and the new notes we issued have an average maturity of 9.5.

The debt we refinanced in 2021 had an average maturity of two five years and the new notes, we issued have an average maturity of nine nine years.

Speaker 5: Moreover, since September of 2020, we have issued $1.8 billion of senior notes with an average term of 8.

Moreover, since September of 2020, we have issued $1 $8 billion of senior notes with an average term of eight nine years and used the proceeds to retire debt carrying an average term of just two one years.

Speaker 5: And use the proceeds to retire debt carrying an average term of just 2.1.

Speaker 5: With respect to 2022 guidance, we are establishing a range for FFO per share of $2.30 to $2.38.

With respect to 2022 guidance, we are establishing a range for <unk> per share of $2 30 to $2 38.

Speaker 5: which at the $2.34 midpoint implies 2.2% growth over 2021's extremely strong result.

Which at the $2 34 midpoint implies two 2% growth over 2021 is extremely strong results.

Speaker 5: Our guidance detail is available in the press release and on slides 14 and 15 in the deck we issued last night. And I'll touch on a few highlights now.

Our guidance detail is available in the press release and on slides 14, and 15 in the deck, we issued last night and I will touch on a few highlights now.

Speaker 5: We expect same property occupancy to change during the year and for same property cash NOI to be flat to down 2%.

We accept expect same property occupancy to increase to deep.

To change during the year and for same property cash NOI to be flat to down 2%.

Speaker 5: Our same property guidance reflects the Boeing non-renewal at Redstone Gateway that occurred on the last day of last year.

Our same property guidance reflects the Boeing non renewal at Redstone gateway that occurred on the last day of last year, the transamerican on renewal.

Speaker 5: at 100 Light Street in Baltimore that occurred on the first day of this year.

At 100 Light Street in Baltimore that occurred on the first day of this year.

Speaker 5: The 45,000 square foot contraction from care first October 1st of 2022 and their new cash rent that went into effect on December 1st, 2020.

The 45000 square foot contraction from care versus October one 2022, and their new cash rent. It went into effect on December one 2021.

Speaker 5: The 2022 same property pool started the year at 92.6%

The 2022 same property pool started the year at 92, 6% occupied.

Speaker 5: The impact of the 1.7% occupancy decline related to the three vacancies just discussed will be offset by occupancy gains elsewhere in the portfolio. And we project to end the year between 91 and 93%.

The impact of the one 7% occupancy decline related to the three vacancies just discussed will be offset by occupancy occupancy gains elsewhere in the portfolio and we project to end the year between 91% 93%.

Speaker 5: We expect to invest $275 to $300 million into our existing 1.7 million square foot feet of active development projects and new start.

We expect to invest $275 million to $300 million into our existing $1 7 million square foot feet of active development projects and new starts.

Speaker 5: Development investment will be funded with free cash flow from operations, the proceeds from the sale of DC6, and by executing another asset sale or joint venture to manage our leverage later.

Development investment will be funded with free cash flow from operations proceeds from the sale of DC six and by executing another asset sale or joint venture to manage our leverage later in the year.

Speaker 5: Lastly, for the first quarter, the 56 cent midpoint of our guidance range is two cents lower than our fourth quarter 2021.

Lastly for the first quarter to 56% mid point of our guidance range is <unk> <unk> lower than our fourth quarter 2021 results.

Speaker 5: decrease reflects one cent of higher weather related expenses that we typically see in the first quarter and one cent of dilution related to the sale of DC-6.

The decrease reflects <unk> <unk> of higher weather related expenses that we typically see in the first quarter and one incentive dilution related to the sale of DC six.

And now I'll turn the call back to Steve.

Speaker 4: Thanks. With 2021 in the books, we've delivered our third consecutive year of growth that is compounding around 4% a year. We're projecting 2.2% growth for 2022, even while recycling DC-6 and absorbing the dilution from the recent Boeing and Transamerica vacancies.

With 2021 in the books, we have delivered our third consecutive year of growth that is compounded in around 4% a year.

We're projecting to 2% growth for 2022.

Even while recycling DC six and absorbing the dilution from the recent borrowing and transamerica vacancies clearly our strategy of investing that priority defense missions locations and creating value through new low risk development has and will continue to generate <unk> growth.

Speaker 4: Clearly, our strategy of investing in priority defense mission locations and creating value through new low-risk development has and will continue to generate FFO growth regardless of the broader economic trend.

<unk> of the broader economic trends.

Speaker 4: Our 1.7 million square foot pipeline of active developments that are 96% leased will have significant influence on 2023 growth, which we expect to be in the 4% to 6% range. The outlook for DOD funding is stable and strengthening, and we look forward to another strong leasing year that will further our growth. With that, operator, please.

Our one 7 million square foot pipeline of active developments that are 96% lease will have significant influence on 2023 growth.

Which we expect to be in the 4% to 6% range.

The outlook for Dod funding is stable and strengthening that we look forward to another strong leasing year that will further growth.

With that operator, please open the call for questions.

Speaker 2: Thank you, Mr. Budork. Ladies and gentlemen, if you have a question at this time, please press star then one on your telephone. If you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Manny Cushman from Citi. Your question, please.

Thank you Mr Butters.

Ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone if you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Manny Korchman from Citi. Your question. Please.

Hey, everyone. Thanks.

Speaker 6: Steve or maybe Anthony, in terms of what's left to sell in the portfolio, you mentioned, you know, JVs are sales. I assume the JVs are the debtors in our shells. And what were the sales at this point or what could the sales at this point?

Steve or maybe Anthony.

In terms of what's left to sell in the portfolio, you mentioned JV or sales I assume the JV or the.

The data center shells, and what would the sales at this point or what could the sales at this point in court.

Speaker 4: Well, we have been conveying for about six months that sometime between now and 24, 25, we'd start to, we look for the right opportunity to start selling off the regional office assets in Baltimore and Northern Virginia. And if we were to hit an opportunity where that was a favorable move for the shareholder, we'd consider doing that.

Well.

Have been conveying for about six months that sometime between now and 2425, we'd start.

We look for the right opportunity to start showing up.

Regional office assets in Baltimore, Northern Virginia.

Here's an opportunity where there was a favorable move for the shareholder we consider doing that.

Speaker 5: And you're correct, Manny. The alternative would be to venture the two data center shells that we had planned to venture in the initially planned to venture in the third or fourth quarter of last year, but we had we replaced that transaction with the sale.

And Youre correct me the alternative would be to venture.

Two data center shells that we had planned to venture.

Initially planned to venture in the third or fourth quarter of last year, but we had we replace that transaction with the sale of DC six.

Speaker 6: Steve, on the regional office portfolio, as you've been exploring that for some time, how has buyer interest and valuation there changed?

And Steve on the regional office portfolio as <unk> been exploring that for some time, how has buyer interest in valuation there changed.

Speaker 4: Well, there's not a lot of buyer interest in office property right now in this region where I would say a couple of years ago, there's pretty strong interest in Baltimore and some impressive cap rates coming out of the pandemic. We think it's going to take another at least 12 months to kind of normalize that capital market segment.

Well, there's not a lot of buyer interest in office property right now in this region.

I would say a couple of years ago, there was a pretty strong interest in Baltimore and some impressive cap rates coming out of the pandemic. We think it's going to take another at least 12 months to kind of normalize the capital market segment.

Speaker 6: Got it. And then on development value creation, are you seeing any pressure on yields from increasing costs?

Got it and then on development value creation are you seeing any pressure on yields.

From increase in costs.

Speaker 4: Well, certainly we've had increasing costs, as much as 10 to 15% over a year, and it puts pressure on us to achieve rents that will support the development, which we have done. So we've been able to hit our yield targets equally well this year and what we expect to do in 2022, but we have to achieve a higher rent to get it.

Well certainly we've had an increase in costs as much as 10% to 15% over a year.

Pressure on us too.

Achieve rents that will support the development, which we have done so we've been able to hit our yield targets.

Well this year and what we expect to do in 2022, but we have to achieve a higher rent to get it.

Great. Thanks Al.

Speaker 2: Thank you. Our next question comes in the line of Rich Anderson from Corporate Office Properties. Your question please.

Thank you. Our next question comes from the line of Rich Anderson from corporate office properties. Your question. Please.

Speaker 7: Steve, I don't know if this was ever mentioned along the lines, but what was the reasoning for the Boeing vacancy?

Yes.

Yeah.

So.

Good.

[laughter].

So yes, SMB see here so Steve I don't know if this was ever mentioned along the lines, but what was the reasoning for the Boeing vacancy.

Okay.

Speaker 4: They did not win a recompete of a major segment of an enormously important contract that's issued out of Redstone Arsenal, and they contracted to adjust their footprint for that.

<unk>.

They did not win a recompete of a major segment.

With the enormously important.

Contract, that's issued out of Redstone Arsenal and they contracted to adjust their footprint for that.

Speaker 8: Okay, so when you think generally about when things like that happen, is it mostly what you just described, or are there other, or is it...

Okay. So when you think generally about when things like that happen is it mostly what you just described or are there other is it.

Or is it.

Speaker 8: oftentimes they need more space that you can't provide them. You know, what's the general cadence of why you lose people? Is it mostly the former or the latter?

Oftentimes they need more space that you can't provide them.

What's the general cadence of why you lose people is it mostly the former or the latter.

Speaker 4: Well, it's rarely the latter, and often the former. In less extreme ways, over time, M&A actually has a pretty significant impact in the defense industry as large contractors buy up smaller contractors. Usually they want to keep the SCIF and the secure mission part of a suite, but they might be able to shed some of the more administrative space, but we're

Well, it's really the latter.

Often the former.

And less extreme ways overtime M&A actually is.

A pretty significant impact.

In the defense industry is large contractors buy up smaller contractors, usually they want to keep the skiff.

Secure mission part of suite, but they might be able to shed some of the.

More administrative.

Space.

There really <unk>.

Speaker 4: People aren't leaving our locations because of space needs. We're in the development business after all, and those locations are really the primary place to be. An interesting sidebar with regard to the Boeing contraction is another contractor won that contract and they signed a lease in Redstone Gale.

We are leaving our locations because of space needs. We are in the development business after all.

Locations are really the primary place to be.

An interesting sidebar with regard to the growing contraction is another contractor when that contract.

They signed the lease in Redstone Gateway.

Speaker 8: Okay. When you think about what happened with Boeing, do you have a sort of a longer watch list that maybe extends a few years out that are on your radar? I assume you're kind of doing that, but is there anything you can add color to at this point?

Okay.

When you when you think about what happen with Boeing.

Sort of.

Longer watch list that may be extends a few years out that.

That are on your radar I assume I assume you're kind of doing that but is there anything you can sort of add color to at this point.

Speaker 4: There's nothing that we've seen that we'd be concerned about. All the new development we've achieved over the last three years.

There's nothing that we've seen that we'd be concerned about.

All the new development, we have achieved over the last three years.

Speaker 4: In each case, enormous new contracts were achieved.

In each case.

Enormous new contracts were achieved.

Speaker 4: which really were the compelling reason for those contractors to get new efficient.

Which really grew the compelling.

Compelling reason for those contractors to get new efficient.

Speaker 4: very well located facilities to complete the contracts and they tend to be very long term. So no, we don't really see any more of that.

Very well located facilities to complete the contracts.

We tend to be very long term. So we don't really see any more of that.

Speaker 8: Okay, last question for me, you mentioned, you know, regional office between now and 2024. So, you know, obviously it depends on a bunch of things, but what is the timeline right now to getting regional office sort of to the point where it's fully leased and, you know, you've checked off that box, is that a this year event or is that a next year event?

Okay and last question for me you mentioned.

Digital office between now and 2024.

So.

Obviously, it depends on a bunch of things, but what is what is the timeline right now to getting regional office sort of to the point, where it's fully leased.

You've checked off that box is that a this year event or is that a next year event.

Speaker 4: Well, there's four large assets in regional office, each has its own set of opportunities or challenges, depending on how you look at it. But for instance, 100 Light, we just got 140,000 or 50,000 square feet back from Transamerica. It's a fantastic space. It's not really been available to smaller tenants in the market.

Well there is there is for large assets in regional office, each has its own set of opportunities or challenges.

Depending on how you look at it.

But for instance, 100 light, we just got 140 or 50000 square feet back from Transamerica is fantastic space that really been available to smaller tenants in the market.

Speaker 4: We definitely want to re-stabilize that asset before we even consider selling it. Like we did with DC6, we will be disciplined and patient to create the value our shareholders deserve before we move to a sale.

We definitely want to re stabilize that asset before we would even consider.

Like we did with DC six we will be disciplined.

And patient to create the value our shareholders deserve.

Before we move to a sale.

Speaker 8: Is it more likely the regionals will be sold all at once or in pieces?

Is it more likely the region also be sold all at once or in pieces.

Speaker 4: I think it's got to be in pieces, particularly the Balfour segment. It's just too big a bite for an investor in Balfour.

I think it's got to be in pieces, particularly with the bulk of our segment, but it's just too big.

An investor in Baltimore.

Got it thanks.

Thank you rich.

Speaker 2: Thank you. Our next question comes from the line of the SACWA from Evercore ISI. Your question, please.

Thank you. Our next question comes from the line of Steve <unk> from Evercore ISI. Your question. Please.

Speaker 9: Yeah, thanks. Good afternoon. Steve or Todd, I was just wondering if you could spend a little more time speaking about the leasing trends, you know, kind of in particular on some of the larger vacancies. You guys had good success last year and I'm just curious what the discussions are like and if that's an area that possibly could surprise to the upside again in 22.

Yes, thanks, good afternoon.

Steve or Todd I was just wondering if you could spend a little more time speaking about the leasing trends kind of in particular on some of the larger vacancies you guys.

Good success last year and I'm, just curious what the discussions are like and if thats an area that possibly could surprise to the upside again in 'twenty two.

Speaker 10: Let Todd handle that one. Sure. Well, as I mentioned, we have good activity on the large vacancy down in Huntsville.

Well I'll, let Todd handle that one sure.

As I mentioned, we have good activity on the large vacancy down in Huntsville.

It is.

Speaker 10: It's hard to put a timeline exactly on when that activity would close and whether or not it would be an upside for this year, but we do have very good activity and I would expect the lease to get signed.

It's hard to put a timeline exactly.

When that activity would close.

And whether or not it would be an upside for this year, but we do have very good activity and I would expect the lease to get signed.

Speaker 10: you know, before the first half of the year is done, and, you know, potentially provide some, but it's hard to quantify. In terms of 100 light, you know, 80,000 square foot of prospects down there.

For the first half of the year is done.

And potentially provide some but its hard to quantify in terms of.

100 light 80000 square foot of prospects down there.

Speaker 10: That's just going to take some time, as Steve was alluding to, the Baltimore market is, was affected like most major CBDs in the downturn and velocity, leasing velocity.

That's just going to take some time as Steve was alluding to the Baltimore market is.

The fact is like most major CBD is in the downturn and velocity leasing velocity.

Speaker 10: has not returned to its historical average. So we'll continue to work it, but I wouldn't anticipate any upside from 100 light.

Has not returned to its historical average so we will continue to work it but I wouldn't anticipate any upside from 100 late this year.

Speaker 9: And I guess, Steve, maybe on the development front, you know, you talked about some of the things shifting out of 22 into 21, and then a couple things, you know, shifting back, but it sounds like you've got a large pipeline today at, you know, 1.8 million feet. So, you know, I'm just trying to gauge sort of the 700,000 feet and the likelihood that some more of that could come in. I realize that might not have much of an earnings impact at all this year, but just what are the prospects for that 700 to drift higher?

And I guess, Steve maybe on the development front.

<unk> talked about some of the things shifting out of 'twenty two into 'twenty, one and then a couple of things shifting back, but it sounds like you've got.

A large pipeline today at $1 8 million feet. So I'm.

Im just trying to gauge sort of the 700000 feet and the likelihood that some more of that could comment I realize it might not have much of an earnings impact at all this year, but just what are the prospects for that 700 to drift higher.

Speaker 4: Well, for it to get bigger, we have three projects.

Well for them to get bigger.

We have three projects.

Speaker 4: that are planned on land we own and we await the critical power delivery from the utilities in Northern Virginia.

Our planned on land we own.

The critical power delivery from the utilities in Northern Virginia.

Speaker 4: The current information we have is that power will not be available this year, and it's a threshold to making that build-to-suit commitment with our tenant. If that power were to come earlier, hypothetically, we could beat $700,000.

The current information we have is that power will not be available this year.

And it's a threshold to make you might build to suit commitment with our tenant.

Power were to come earlier.

Hypothetically, we could beat 700000.

Speaker 4: But we're only planning to get one of the four leases this year because of that timing. And just one other thing to...

But we're only planning to get one of the four.

Leases this year because of the timing.

And just one other thing to point out.

Speaker 4: But for the Boeing non-renewal, we would be building two buildings at Redstone Gateway this year. But we're staying very disciplined. We want to backfill, you know, 1,200 Redstone Gateway before we start our next development. And that kind of costs us that $120,000 that would otherwise would have been development had we not got the major non-renewal.

But for the Boeing non renewal, we would be building two buildings at Redstone Gateway this year.

But we're staying very disciplined and we want to backfill.

<unk> hundred Redstone Gateway before we start our next development.

That kind of costs us about 120000 that would otherwise would've been development.

And we have not got the major non renewal.

Speaker 9: Got it. And then just last question. 2100 L Street, I know, is sort of another kind of non-core asset. Just kind of remind us on the leasing status there. And is there a chance that that D.C. market is picking up a little bit more steam? And could that be on the sale block this year? Or is that more likely at 23?

Got it and then just last question 2100 L Street, I know as part of another non core asset just kind of remind us on the leasing status there.

Is there a chance that that DC market is picking up a little bit more steam and could that be on the sale of block this year or is that more likely a 2003 events.

Speaker 4: I'll take the last part of it. As soon as we get leases to stabilize, it will be on our sale block, or we'll start to investigate the best way to monetize it. With regard to timing, I'll let Don answer that hot question. I would not characterize the D.C. market as

Well I'll take the last part of it.

As soon as we get leases to stabilize it will be honored.

Sales locker will start to investigate the best way to monetize it.

With regard timing I'll, let Todd answer that question.

I would not characterize the DC market.

<unk>.

Speaker 10: Emerging, returning to normal, you know, it's still.

Emerging returning to normal.

It's still.

Speaker 10: still affected by the pandemic and the negative absorption that's occurred over the past few years. With that said, we're still tracking more prospects than we have space in the building, and we continue to work those prospects.

Still affected by the pandemic and the negative absorption thats occurred over the past few years.

With that said, we're still tracking more prospects than we have space in the building and we continue to work those prospects.

Speaker 10: Everybody's taking their time making decisions. It's hard to place a timeline on a lease resolution.

Everybody is taking their time, making decisions, it's hard to place a timeline on lease resolution there.

Speaker 4: Just a bit of color, Steve, we're 30 miles outside of DC. And when I talk to business colleagues at office in, in the district, it's like, we're in two different worlds and they can't go to a restaurant without vaccine, uh, documentation and they're still wearing masks and the counties in and around Baltimore, we've been back to normal for quite a long time.

A bit of color Steve.

30 miles outside of the DC when I talk to business colleagues that office.

In the district.

We're in two different worlds they can't go to a restaurant with a vaccine.

Documentation and Theres still were in mass.

The counties in and around both where we've been back to normal for quite a long time.

Speaker 9: Yeah, no, I can appreciate that. I guess what we've seen in other markets is the flight to quality and new buildings, whether it's in New York or parts of California or other cities, definitely seem to be leasing up and older stock is struggling. And given your new building, I guess I would have thought even if the market's not great that you might capture market share of what's going on, just given the new product.

Yeah, No look I can appreciate that I guess, what we've seen in other markets as the flight to quality in new buildings, whether it's in New York our.

Parts of California, or other cities.

Definitely seem to be leasing up and older stock is in SaaS struggling and given your new building I guess I would have thought even if the market's not great that you might capture market share of what's going on just given the new product.

Speaker 4: Yeah, I think when share comes back, we expect to do well. It's just the transaction velocity is really dropped off the table during the pandemic.

Yes, I think when share comes back we expect to do well this just.

No.

Transaction velocity is really.

We have dropped off the table during the pandemic.

Yeah.

Okay. Thanks very much.

Speaker 2: Thank you. Our next question comes from the line of Craig Millman from Key Bank Capital Markets. Your question please.

Thank you. Our next question comes from the line of Craig Millman from Keybanc capital markets. Your question. Please.

Speaker 11: Steve, I just want to clarify, did I hear you correctly that DC6 is just two cents dilutive this year versus kind of the talk previously about being four cents dilutive?

Hey, guys.

Steve I just wanted to clarify did I hear you correctly. The DC six is just <unk>.

<unk> <unk> dilutive this year versus kind of the talk previously about being <unk> <unk> dilutive.

Speaker 4: Well, the two cents is net of an alternative recycle. It's 2%. Craig, the comment in the script was that the impact to growth was 2%, not two cents. Right. Which equates to 2%.

Well the <unk> is net of it.

An alternative recycle it was 2%.

Craig It was too.

Comment in the script was that the impact to growth was 2%.

Right.

Which is great.

Great.

Okay.

Speaker 11: That's helpful, thanks for the clarification there.

That's helpful. Thanks for the clarification, there and then just.

Speaker 11: Can you go through, I know in the supplemental kind of regional office is 2 million square feet, 8 assets. You kind of mentioned 100 Light Street, I'm sure Canton Crossing is on there. What are the, and 2100 Elstree, just kind of what are the other big chunks?

Can you go through I know in the supplemental kind of regional offices has 2 million square feet eight assets.

Kind of mentioned 100 light Street for Canton crossing is on there.

What are the in 2100 <unk>.

So you just kind of what are the other big chunks of that regional office and when anything like Columbia gateway ever beyond the block or is that.

Speaker 11: of that regional office. And would anything like Columbia Gateway ever be on the block or is that, you know, I know it's in the defense IT location.

I know, it's in the defense ITE location, but it's <unk>.

Speaker 11: you know, mainly suburban, would anything like that ever be up for sale?

Mainly suburban.

With anything like that ever be up for sale.

Speaker 4: The other components of the regional office are two sets of two buildings in northern Virginia. One of those sets, we should be able to do that.

That in the near term.

The other components of regional office.

There are two sets two buildings in northern Virginia.

One of those.

Speaker 4: have considered and probably will likely just pull into defense because it's become increasingly more occupied by defense contractors and cyber contractors.

If considered and probably will likely just pull into defense.

Because it's become increasingly.

Increasingly.

More occupied by defense contractors and cyber contractors.

Speaker 4: And that one's way out by Dulles. And then we have Wells Fargo in Pinnacle Towers in Tysons. And that would be an asset we'd like to recycle. With regard to Columbia Gateway, yes, you could say it's suburban, but it's within the competitive and the operating radius of Fort Meade. And our business in this park is defense business.

That one's way up.

And then we have wells.

Wells Fargo and.

Critical towers in Tysons and that would be an asset we'd look to recycle with regard to Columbia Gateway, Yes, you could say it's suburban.

But it's within the competitive and the operating radius of Fort Meade.

Our business in this park is defense business.

Okay.

Great. That's all for me thanks, guys.

Speaker 2: Thank you. Our next question comes in a line of Jamie Fieldman from Bank of America. Your question please.

Thank you. Our next question comes from the line of Jamie Feldman from Bank of America. Your question. Please.

Speaker 9: Great, thank you. I guess just thinking about the development pipeline sounds like, you know, you could be more aggressive, but you want to get Redstone leased up. So you think at this time next year, do you think your development pipeline is larger or smaller than it stands today? I would guess it to be about the same.

Great. Thank you I guess, just thinking about the development pipeline it sounds like.

It could be more aggressive, but you want to get.

Redstone leased up so you think at this time next year do you think your development pipeline is larger or smaller than than it stands today.

I would guess it to be about <unk>.

We've been in that.

Speaker 4: 1.5 to sometimes as much as 2.5 million square foot range for years now, what our guidance suggests is we'll pull in 700,000 this year based on what is currently classified in the pipeline. That leaves over a million, but I can tell you we have almost.

1.5 to sometimes as much as $2 5 million square foot range for years now.

Our guidance suggests this will pull in 700000. This year based on what is currently classified in the pipeline that leaves over $1 million, but I can tell you. We have almost one 4 million square feet of development discussions that we have not yet classified.

Speaker 4: 1.4 million square feet of development discussions that we have not yet classified as 50% likely to win within two years or less.

It was 50% likely to win within two years or less.

Speaker 4: So I'm very confident we'll be in the same range a year from now.

I'm very confident it will be in the same range year from now.

Speaker 9: Okay, great. And then going back to Manny's question on development costs.

Okay, Great and then going back to Manny's question on <unk>.

Development costs.

Speaker 9: You know, you had said costs are up 10 to 15%. Are you saying you can push rent to keep your yield? I don't know if you came across that clearly. Yes, we have. We have all through 2021. And with the activities that we're working on now, that.

You had said cost of about 10% to 15% are you, saying you can push rents.

Keep your yield.

Rehab came across that clearly yes.

Yes, we have.

We have all through 2021.

And with the activities that we're working on now.

Speaker 4: should be signed before our next call. We'll be able to demonstrate we did.

Should be signed before our next call.

Be able to demonstrate we did.

So what are you targeting for yield.

Speaker 4: Our target yield on a defense contractor building is 8% cash yield and a typical 7-10 year lease.

Our targeted yield.

Fence contractor building.

Is 8% cash yield.

Typical seven to 10 year lease.

Okay great.

And then.

Speaker 9: You had given an outlook for 4% to 6% FFO growth in 2023. What does that assume for any of these asset sales? Or maybe a better way to ask it is just, what are the key building blocks to get to that 4% to 6%?

You had you had given kind of an.

And outlook for 46% <unk> growth in 'twenty three.

What does that assume for any of these asset sales kind of what are the maybe a better way to ask it is just what are the key building blocks to get to that four to six.

Well the key building blocks are too.

Speaker 5: You know, the same office cash and a life growth that we expect, it's the continued benefit of the developments placed in service that

Same office cash NOI growth that we expect.

It's the continued benefit of the developments placed in service that.

Speaker 5: that partially get placed in service this year, it will be fully placed in service next year, as well as those projects that will place into service next year. On the capital market side, I don't think we want to get into what.

If you.

Partially get placed in service this year it will be fully in place in service next year as well as those projects that will place into service next year.

On the capital market side.

I don't think we want to get into.

<unk>.

Speaker 5: transactions or what equity capital we're raising to finance that, there's enough equity capital costs in that math to maintain or slightly improve our leverage.

Transactions are what equity capital raising to finance that.

Were there are there is enough equity capital costs in that math.

To maintain or slightly improve our leverage ratios.

Speaker 5: And, you know, we think that the cost of that capital will.

And we think that.

The cost of that capital will.

Speaker 5: may ebb and flow, but within that.

May ebb and flow but.

But within that range.

Okay.

Speaker 9: And then I don't think you guys talked about the demand for the Care First space that they're giving back. I know it's not until later this year. Is there any interest in that, or do you think that fits for a while?

And then I don't think you guys talked about the demand for that the carefirst space that theyre, giving back I know, it's not till later this year.

And is there any interest in that or do you think that fits for a while.

Speaker 4: Oh no, we think that'll lease up awfully quickly, frankly. That building only has like one 11,000 square foot space.

We think that Elisa.

Quickly frankly.

Building.

<unk> has like 111000 square foot space.

Speaker 10: effectively 100% leased today. You got that lease. Yep. So it just has a really strong demand profile. We don't get the space till September , the end of September . So, you know, I'd give it six months, but we'll be chipping away at that right away.

100% leased earlier today.

Yes.

It just says it really strong demand profile.

Get the space till September the end of September .

So I'd give it six months, but it will be cheaper with it right away.

Speaker 9: Okay. And then last for me, just any thoughts on the latest from the GSA in terms of plans to reduce space and how you think that might impact your portfolio, your markets overall? I'm just going to.

Okay, and then last from me just any thoughts on the latest from the GSA in terms of the plans to reduce space and how you think that might impact.

Portfolio your markets overall.

The latest buses from them.

Speaker 4: So we don't really follow the GSA that much because we don't do any GSA leasing.

So we haven't really followed the GSA that much because we don't do any GSA leasing.

Speaker 4: The bulk of their contraction activities would affect, you know, the B class.

The bulk of their.

Contraction activities.

Correct the B class.

Speaker 4: or maybe older A in downtown D.C., a market we're not really exposed to our, besides 2100L, our only D.C. asset is adjacent to the Navy Yard. It's a defense contractor location. It's not really a GSA area, but to remind people, we have less than 100,000.

Or maybe over a in downtown D. C market, we're not really exposed to or besides just wondering 100, though early dcs.

It was adjacent to the Navy yard, it's a defense contractor location.

Really GSA area.

But to remind people we have less than 100.

Speaker 4: square feet of GSA leases throughout the company. And 45,000 of that is a court system in downtown Baltimore where our building is located immediately next to the courthouse.

Square feet of GSA leases throughout the company.

45000 of that is.

Court system in downtown Baltimore, where building is located immediately next to the courthouse.

Yeah.

Alright, great. Thank you.

Thank you Jamie.

Speaker 2: Thank you. And once again, as a reminder, if you have a question, please press star then one. Our next question comes in line of Tom Catherwood from BTIG. Your question, please.

Thank you and once again.

If you have a question. Please press Star then one our next question comes from line of Tom Catherwood from <unk>. Your question. Please.

Speaker 12: Excellent. Thanks, everyone. Maybe Todd, the renewal and guidance implies roughly 400,000, maybe just under 500,000 square feet of expected move-outs this year, kind of what you talked about with Care First and 100 Light Street, and I think a few others in the regional office portfolio. It seems like roughly half of that is regional office. So, that would kind of by our math imply that this is a pretty late year on the move-outs.

Excellent thanks, everyone.

Todd.

Renewal guidance implies roughly.

<unk> hundred thousand <unk>, maybe just under 500000 square feet of expected move outs. This year kind of what you talked about with care first at 100 Light Street and I think a few others in the regional office portfolio. It seems like roughly half of that is regional office. So.

That would kind of by our math imply that this is a.

Pretty light year on the move outs and the defense portfolio, just said another way it seems like youre going to be well above average on the renewables. There is that is that a fair statement.

Speaker 12: in the defense IT portfolio. Just another way, it seems like you're going to be well above average on the renewals there. Is that a fair statement?

Yes, I would consider that a fair statement.

Speaker 10: We're tracking good activity, the renewals outside of the ones that you've already identified as trans-American care.

We're tracking.

Good activity on the renewals outside of the ones that you've already identified transamerica and characters.

Speaker 12: Got it. And that kind of ties into the next part, which is to get up to your...

Got it and that kind of ties into the next part which is to get up to your.

Speaker 12: You know, let's call the midpoint of same store occupancy, the 92%, it looks like by our math, you'd be kind of slightly below the vacancy leasing that you did this year, you know, so you'd be something in the, you know, 550 to 600,000 square feet.

Let's call it midpoint of same store occupancy of 92% it looks like by our math you'd be kind of slightly below with a vacancy leasing that you did this year.

The $5 50 to 600000 square feet of vacancy leasing where your pipeline is sitting right. Now is it kind of on par with where you were to start last year or is it kind of moderated somewhat which is kind of leading you to be a little more conservative on.

Speaker 12: of vacancy leasing from where your pipeline is sitting right now. Is it kind of on par with where you were to start last year or is it kind of moderated somewhat which is kind of leading you to be a little more conservative on that guide?

Guidance.

Speaker 10: I would say our vacancy leasing is on par with last year at this point. Yeah, but in terms, Tom, in terms of how that impacts our.

I would say our vacancy leasing is on par with last year at this point, yes, but in terms of Tom in terms of how that impacts are.

Speaker 5: our year-end same-office occupancy guidance. It's not that linear. The 2021 same-office pool at the end of the year was 93.4 percent.

Our occupier year end same office occupancy guidance, it's not that linear.

If you.

The 2021, the same office pool at the end of the year was 93, 4% leased.

Speaker 5: Um, and 91.3% occupied. So.

And 91, 3% occupied so.

Speaker 5: it's really part of the 2021 transactions that were leased in 21 that will occupy during 2022, offset by the non-renewals that you mentioned earlier, plus the benefit of any leases that get executed in 2022 and commence in 2022. So it's not as...

It's really the Avenue, it's really part of the 2021 transactions that were leased in 'twenty, one that will occupy during 2022.

<unk> offset by the non renewals that you mentioned earlier plus the benefit.

<unk>.

Any leases that get executed in 2022 and commence in 2002.

So it's not us.

It's not as linear as that.

Speaker 12: I think it makes total sense, so kind of said another way, it would be more a timing of getting the lease done and then commence.

Yes.

It makes total sense, so kind of set another way it would be more a timing of getting that lease done and then commenced.

Speaker 12: less than, you know, as opposed to, you know, running slower than last year.

Bless that as opposed to.

Running slower than last year.

Speaker 12: Got it. And then last one for me, something jumped out in the presentation, it might have been in other ones and if I missed it, I apologize, but on page 10, you guys touched on expected cap rates for your assets if they were sold and a lot of them lined up with what we would expect, but the one that was kind of eye-opening for us was the sub 4%

That's correct.

Got it and then last one for me kind of something jumped out in the presentation. It might've been in other ones and if I missed it I apologize, but on page 10, you guys touched on.

Expected cap rates for your assets, if they were sold and a lot of them lined up with what we would expect but the one that was kind of eye opening for US was the sub 4% on U S government leased secure.

Speaker 12: on U.S. government least secure facilities. Can you provide kind of a little bit more color on that? Is that, would that just be assets kind of considered behind the fence in most of your locations? And has that, it seems like that has compressed.

<unk> can you provide kind of a little bit more color on that is that would that just be assets kind of considered behind defence and most of your locations.

Has that it seems like that has compressed over this past year and any thoughts you have on that would be helpful.

Speaker 12: over this past year and any thoughts you have and that would be helpful.

Speaker 4: Well, we have compressed that estimate, but we've compressed it based on market comp.

Well, we have compressed that estimate.

We've compressed it based on market comps for.

Speaker 4: for high-value assets and other segments. So for instance, the data center shell,

For high value.

Yes to the other segments. So for instance, the data Center show.

Speaker 4: sales market last year had comps below 4. And if you're willing to buy a data center shell below 4, you'd be very willing to buy the U.S. government assets that we have below 4. But there are also some comps around the country with great credit tenants.

<unk>.

Sales were good last year.

Comps below four.

If you are willing to buy.

Data Center show.

Low for you be very willing to buy the U S government assets that we have below four but there are also some.

Comps around the country with great.

Credit tenants.

Speaker 4: like Microsoft on full building leases that are being marketed or expect to close below 4%. So we think it's a pretty fair statement.

Like Microsoft on full building leases.

That are being marketed or expect to close below 4%.

So we think it's a pretty fair statement.

I appreciate that color Steve that's it from me thanks, everyone.

Speaker 2: Thank you. Our next question comes from the line of Dave Rogers from Baird. Your question, please.

Thank you. Our next question comes from the line of Dave Rogers from Baird. Your question. Please.

Speaker 5: Hey, Steve, just wanted to follow up on that last point, page 10, sub-4 cap rates for data center shelves. Obviously, you're going to sell some more of those this year, it sounds like. How do you think about just kind of selling more, getting leverage down kind of in line with your kind of high-quality secondary office peers, if that's the peer group we want to use, versus kind of the trickling it out and then kind of waiting for some of these bigger, you know, chunkier transactions like 2100L and the regional office sales? So, maybe the question is, you know, why not maybe rip some of the Band-Aids off and kind of get the range-bound issues around the stock and move those away?

Hey, Steve just wanted to follow up on that last point page 10 sub for cap rates for data center shells, obviously youre going to sell some more of those this year it sounds like.

How do you think about just kind of selling more getting leverage down kind of in line with your kind of high quality secondary office peers, if thats the peer group, we want to use <unk>.

Versus kind of the tripling it out and then kind of waiting for some of these bigger chunkier transactions like 'twenty 100 al in the regional office sales so.

Maybe the question is why not maybe some of the bandaids off and kind of get the range bound issues around the stock and moved those away.

Speaker 4: Well, Dave, we've been talking for years about establishing a company that can grow and replenish and recycle capital, the fuel.

Well.

Dave we've been talking for years about establishing the company.

Can grow and replenish and recycled capital to fuel our development, if we rip our band it off we're going to Rip our earnings after as well.

Speaker 4: our development, and if we rip our bandaid off, we're going to rip our earnings off as well. And that's not the way we want to run the company.

And Thats the way, we want to run the company.

Speaker 4: Moreover, those assets, I don't consider them a problem, I consider them...

Moreover, those assets I don't consider a problem I consider them.

Speaker 4: you know, a long-term, tremendous investment for our shareholders. And to the extent opportunities in the future would allow me to keep those and sell other things, I prefer to keep.

A long term.

A tremendous investment for our shareholders and to the extent opportunities in the future would allow me to keep those things.

I prefer to keep them.

Speaker 4: So we'll face the decision to recycle when we need to.

Well, we will face the decision to recycle when we need to.

Speaker 5: It's not in our base plan. And Dave, with respect to the balance sheet and with respect to leverage,

But.

It's not in our base plan.

And David with respect to the balance sheet and with respect to leverage.

Speaker 5: each one of the four debt transactions that we've executed over the past 18 months have priced

At <unk>.

Each one of the four debt transactions that we've executed over the past 18 months.

Have priced.

Speaker 5: either equal to or better than triple B flat or B double A two price.

Equal to or better than triple B flat or <unk> pricing.

Speaker 5: And the fixed income investors recognize the strength of the company's cash flows and their stability, regardless of where the agencies have us pegged.

And the fixed income investors recognize the strength of the company's cash flows and their stability.

Regardless of.

Where the agencies have us pay again.

Speaker 5: I think they are focused on, our fixed income investors are focused on that portion of the portfolio. They see our continued increase of interest in fixed charge coverage because of the stability, combined with the stability of the cash flows, as a huge positive for us.

I think we're there.

They are focused on our fixed income investors are focused on.

A portion of the portfolio.

See our continued increase of interest in fixed charge coverage is up.

Because of the stability of combined with the stability of the cash flows is a huge positive for us.

So.

Speaker 5: If we were to do that and reduce leverage, we don't think there'd be an incremental interest reduction for our shareholders.

If we were to do that and reduce leverage.

We don't think there'll be an incremental.

Interest reduction for our shareholders.

Speaker 5: Yeah, I agree with that. I guess just from the equity side, I think there could be a meaningful change, but we could always take that offline, but I appreciate the answers in the edit.

Yes, I agree with that I guess, just from the equity side I think there could be a meaningful change, but we can always take that offline, but I appreciate the answers and the added color. Thank you.

Speaker 2: Thank you. Our next question comes from the line of Chris Lucas from Capital One Securities. Your question please.

Thank you. Our next question comes from the line of Chris Lucas from capital One Securities. Your question. Please.

Speaker 10: Hey, good afternoon everybody. Anthony, just a quick one. Just wanted to understand, the sale of DC6, does that, do the proceeds from that provide all of the equity you need to meet your development spend for 2022?

Hey, good afternoon, everybody Anthony just a quick one just wanted to understand the sale of DC six does that with the proceeds from that provides all of the equity you need to meet.

Development spend for 2022.

Speaker 5: Uh, it it doesn't meet all of it. So if we in order to based on what we're expecting to spend We have our plan includes the assumption that we either sell an asset or venture

Hi.

It doesn't mean all of it so if we in order to based on what we're expecting to spend.

We our plan includes the assumption that we either sell an asset or a venture.

Speaker 5: data center shell to generate the incremental capital, which is in the fourth quarter.

Data center shell to generate the incremental capital, which is in the sort of.

In the fourth quarter.

And the competition.

Speaker 5: combination of free cash flow at throughout the year plus the proceeds from DC six fund

The combination of free cash flow at throughout the year plus.

Proceeds from DC six fund.

A portion of it you have to remember that.

Speaker 5: The fact that it's sold after the end of the year, part of that is really funding a portion of what we invested last year to

The fact that it's sold after the end of the year.

Part of that is really funding a portion of what we invested last year too.

Speaker 5: reduce our leverage that we that we had reported as of 1231. So what's that delta in terms of the equity gap that

Reduce our leverage.

That we had reported as of 12 31.

So what's the delta in terms of the equity gap.

No.

About cornerstone.

$75 million.

Okay, great. Thank you.

Speaker 2: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Mr. Budorek for any further remarks.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Mr. <unk> for any further remarks.

Speaker 4: Thank you all for joining the call today. It was really a great call. We're in our offices, so please coordinate through Stephanie if you'd like to follow up.

Thank you all for joining the call today. It was really a great call. We're in our offices. So please coordinate through Stephanie if you'd like.

Speaker 2: Thank you for your participation today in the Corporate Office Properties Trust's fourth quarter and year-end 2021 results conference call. This concludes the program. You may now disconnect. Good day.

Thank you for your participation today in the corporate office properties Trust fourth quarter and year end 2021 results conference call.

Concludes the program you may now disconnect good day.

Yeah.

Speaker 1: ??

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Speaker 2: Welcome to the Corporate Office Properties Trust's fourth quarter and year-end 2021 results conference call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Stephanie Krewson-Kelley, COPT's Vice President of Investor Relations. Ms. Krewson-Kelley, please go ahead.

Welcome to the corporate office properties Trust fourth quarter and year end 2021 results Conference call. As a reminder, today's call is being recorded at this time I will turn the call over to Stephanie Krewson Kelly C. O P. Pes Vice President of Investor Relations Ms. Krewson Kelly. Please go ahead.

Speaker 3: Thank you, Jonathan. Good afternoon and welcome to COPS conference call to discuss fourth quarter and year-end 21 results and guidance for 2022. With me today are Steve Fedorek, President and CEO , Todd Hartman, Executive Vice President and COO, and Anthony Mifsud, EVP and CFO .

Thank you Jonathan Good afternoon, and welcome to Copts conference call to discuss fourth quarter and year end 'twenty, one adult and guidance for 2022 with me today are Steve <unk>, President and CEO , Todd Hartmann Executive Vice President and COO, and Anthony Mifsud, EVP and CFO .

Speaker 3: Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website, in 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 in our SEC filings. Actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them. Steve? Good afternoon.

Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website and.

In the press in 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 in our SEC filings actual events and results can differ materially from these forward looking statements and the company does not undertake a duty to update them.

Steve.

Good afternoon, and thank you for joining us.

Speaker 4: We finished 2021 with strength and outperformed in all aspects of our business, including leasing, operations, development and capital market.

We finished 2021 with Stryker and <unk>.

Reforms in all aspects of our business, including leasing operations development and capital markets.

Speaker 4: The full-year FFO per share, as adjusted for comparability, of $2.29 grew 8% over 2020's strong results, and is 10 cents higher than our original guidance.

The full year <unk> per share adjusted for comparability.

Of $2 49.

<unk> grew 8% over 2000, Twenty's strong results and is 10% higher than our original guidance.

Speaker 4: Favorable leasing and operating activity in the portfolio drove solid gains in NOI and contributed about 3 cents of upside to 2021 results.

<unk> seen in operating activity in the portfolio drove solid gains in NOI and contributed about three tenths of upside to 2021 results.

Speaker 4: The gains are widespread with favorable results in renewal activity, R&M project costs, utility savings, and higher NOI from DC.

The gains were widespread with favorable results and renewal activity R&M project cost utility savings and higher NOI from DC six.

Speaker 4: Despite challenges in the supply chain environment, we completed and delivered 766,000 square feet of developments with three projects completed earlier than planned.

Despite challenges in the supply chain environment, we completed and delivered 766000 square feet of developments with three projects completed earlier than planned.

Speaker 4: The 562,000 square feet of early commencements contributed roughly $0.02 to 2021 performance.

The 562000 square feet of early Commencements contributed roughly <unk> <unk> to 2020 one performance.

Speaker 4: We executed about 1.2 million square feet of development leasing during the year, outperforming our objective by 18%.

We executed about $1 2 million square feet of development leasing during the year.

Performing our objective by 18%.

Speaker 4: Our 2021 activity included three major defense contractor developments, one data shell build suit, and our second fully leased office property for the U.S. government in the secure campus of Red Zone Gateway.

Our 2021 activity included three major defense contractor developments, one data shell build to suit.

Our second fully leased office property for the U S government and the secure campus at Redstone Gateway.

Speaker 4: We had expected this government lease opportunity to occur in 2022 and were favorably surprised by the early lease action last year.

We had expected this government lease opportunities occurred in 2022 and were favorably surprised by the early lease action last year.

Speaker 4: We outperformed in the debt capital markets as well.

We outperformed in the debt capital markets as well.

Speaker 4: We seized the opportunity to lock in low interest rates and extend their debt maturity ladder by issuing $1.4 billion of new senior unsecured notes to retire higher rate shorter term debt.

We seized the opportunity to lock in low interest rates and extend our debt maturity ladder by issuing $1 $4 billion of new senior unsecured notes to retire higher rate charter term debt.

Speaker 4: This highly successful debt finance activity contributed about four cents of our performance and more importantly, protects the company from the risk of rising interest rates for years to come.

As highly successful debt finance activity contributed about <unk> of our performance.

More importantly protects the company from the risk of rising interest rates for years to come.

Speaker 4: We raised equity capital by completing the sale of DC6 last month.

We raised equity capital by completing the sale of DC six last month.

Speaker 4: generating $222.5 million to further balance our leverage and support our development activity.

Generating $222 5 million to further balance our leverage and support our development activity.

Speaker 4: Recycling DC-6 has been a high priority for the company for several years and we recognize that the capital market demand for data centers during 2021 created a long-awaited opportunity to sell the asset with a full and fair valuation.

Recycling deceased six has been a high priority for the company for several years and we recognize that the capital market demand for data centers. During 2021 created a long awaited opportunity to sell the asset with a full and fair valuation.

Speaker 4: We were successful in identifying several bidders that possessed data center operating capabilities and the capital to purchase a multi-tenant facility.

We were successful in identifying several bidders that possess data center operating capabilities and the capital to purchase multi tenant facility.

Speaker 4: simplifies our capital allocation and increases the lease stability in our operating portfolio.

This sale.

Simplifies our capital allocation and increases the least stability in our operating portfolio.

Speaker 4: We had expected the transaction to close during 2021, and the delay in closing added about a half cent to 2021 outperformance.

We had expected a transaction that closed during 2021.

And the delay in closing added about a half to 2021 outperformance.

Speaker 4: Turning our outlook to defense spending, which is summarized on slide five.

Turning to our outlook for defense spending which is summarized on slide five.

Speaker 13: Congress authorized the DOD's fiscal 2022 base budget at $665 billion, representing a 5.8 percent increase over the fiscal 2021 budget.

Congress authorized the Dod's fiscal 2022 base budget at $665 billion.

Representing a five 8% increase over the fiscal 2021 budget.

Speaker 4: The expected increase is 5% higher than last year's 0.8% increase, and we expect continued strength in defense leasing demand.

The expected increase is 5% higher than last year's 8% increase and we expect continued strength in the defense leasing demand.

Speaker 4: fiscal year 2022 began under a continuing resolution that we expect will be in effect until mid-March.

Fiscal year 2022 began under a continuing resolution that we expect will be in effect until mid March.

Speaker 4: Recall that these have become a normal occurrence as the DOD has started its fiscal year operating under a continuing resolution for 13 of the past 15 years.

Recall that these have become a normal occurrence as the Doj has started its fiscal year operating under a continuing resolution for 13 of the past 15 years.

Speaker 4: We do not expect this continuing resolution to have a material impact on our business.

We do not expect this continuing resolution to have a material impact on our business.

Turning to 2022 guidance.

Speaker 4: We set our FFO range midpoint at $2.34, implying 2.2% growth over 2021's strongly elevated results.

We set our <unk> range midpoint at $2 34.

Implying two 2% growth over 2021 strongly elevated results.

Speaker 4: The guidance absorbs two percentage points of dilution from the sale of DC-6 as well as the dilution from the Boeing and Transamerica non-renewal.

The guidance absorbs two percentage points of dilution from the sale of DC six as well as the dilution from the Boeing and transamerican on renewals.

Speaker 4: adjusted only for the dilution for the sale of DC-6.

Adjusted only for the dilution from the sale of DC six 2022 pro forma growth would be four 2% at the midpoint of guidance.

Speaker 4: 2022 pro forma growth would be 4.2% at the midpoint of schedule.

Speaker 4: As slide four illustrates, our FFO per share is adjusted for comparability. It's compounded at 4.4% annually since 2018 when we finished our programmatic asset sales under our strategic reallocation plan.

Slide four illustrates our <unk> per share as adjusted for comparability.

Has compounded at four 4% annually since 2018.

When we finished our programmatic asset sales under our strategic reallocation plan.

Speaker 4: Our 2022 FFO guidance midpoint suggests that the compound growth will remain at roughly 4%, notwithstanding the dilution in the sale of diesel.

Our 2022 asking for guidance midpoint suggests that compound growth will remain at roughly 4% notwithstanding the dilution from the sale of DC six.

Speaker 4: We have 1.7 million square feet of active developments that are 96% leased today. As we place them into service, we expect these projects to fuel strong growth in 2023, further extending our compound growth achievement.

We have one 7 million square feet of active developments that are 96% leased today as we replace them into service. We expect these projects fueled strong growth in 2023 further extending our compound growth achievement.

Speaker 4: Our guidance for development leasing in 2022 is 700,000 square feet.

Our guidance for development leasing in 2022, it's 700000 square feet.

Speaker 4: Recall that our 2021 success pulled forward 205,000 square feet of expected 2022 development leasing and several data shell development leases a way to access critical power at those sites.

Recall that our 2021 success pulled forward 205000 square feet of expected 2022 development leasing and several data shell development leases a way to access critical power at those sites.

Speaker 4: As slide 11 of our presentation shows, we've averaged about a million square feet of development leasing annually since 2012.

As slide 11 of our presentation shows.

We've averaged about 1 million square feet of development leasing.

Annually since 2012.

Speaker 4: During the past three years, we've achieved 4.4 million square feet of development leases, averaging just under 1.5 million.

During the past three years, we achieved $4 4 million square feet of leases.

Averaging just under $1 5 million square feet a year.

Speaker 4: Our current development leasing pipeline contains 1.8 million square feet of opportunities supporting our optimism that 2023 development leasing activity will return close to our long-term average.

Our current development leasing pipeline contains one 8 million square feet of opportunities supporting our optimism that 2023 development and leasing activity will return close to our long term average.

With that I'll hand, the call over to Todd. Thank.

Thank you Steve.

We achieved strong leasing results in all categories last year, and expect 2020 to be another strong year.

Speaker 10: Total leasing volume in 2021 of 3.9 million square feet included 2.1 million square feet of renewals. Lease economics were in line with guidance and included a low teens roll down in rent for care first at Canton Crossing in our regional office portfolio.

Total leasing volume in 2021 of $3 9 million square feet included $2 1 million square feet of renewals.

Economics were in line with guidance and included a low teens roll down in rent for care first at canton crossing in our regional office portfolio.

<unk> is a high credit healthcare tenant leases nearly half the space and our canton crossing asset and in December our renewed 214000 square feet for a 15 year term.

Speaker 10: The renewal represented 30% of the quarter's renewal volume and 10% of the year's volume, and consequently heavily influenced our metric.

The renewal represented 30% of the quarters were normal volume and 10% of the year's volume and consequently heavily influenced our metrics.

Speaker 10: To illustrate the impact of the CARE First renewal, we completed 93 renewal transactions in 2021, and cash rents on renewals rolled down 5.8% in the quarter and 2.2% for the year. If we exclude the effect of the CARE First transaction, cash rents rolled down 1.5% in the quarter and only 6 tenths of a percent for the year.

To illustrate to illustrate the impact of the care first renewal, we completed 93 renewal transactions in 2021 and cash rents on renewals rolled down five 8% in the quarter and two 2% for the year.

If we exclude the effect of the care first transaction.

Cash rents rolled down one 5% in the quarter and only six tenths of a percent for the year.

Speaker 10: Vacancy leasing during the year was also strong, and the 196,000 square feet we completed in the quarter brought our full year volume to 616,000 square feet, exceeding our five-year average volume by 14%, and 2020's volume by nearly 50%.

Vacancy leasing during the year was also strong and 196000 square feet. We completed in the quarter brought our full year volume to 616000 square feet.

Exceeding our five year average volume by 14% in 2020 volume by nearly 50%.

Speaker 10: In the second half of 2021, we completed 412,000 square feet of vacancy lease.

In the second half of 2021, we completed 412000 square feet of vacancy leasing.

Speaker 10: And our leasing activity ratio currently is a healthy 94%. We've entered 2022 with good momentum and prospects to return at the largest vacancies in our operating portfolio.

And our leasing activity ratio currently is a healthy 94%. We've entered 2022 with good momentum and prospects to re tenant the largest vacancies in our operating portfolio.

Speaker 14: In Huntsville, we are tracking over 300,000 square feet of demand to backfill the 121,000-square-foot vacancy at 1200 Redstone Gateway, which Boeing gave back at the end of 2021. With demand far exceeding the available space, we expect to kick off another spec building this year to capture the excess demand.

Huntsville, we are tracking over 300000 square feet of demand tobacco, the 121000 square foot vacancy at 1200, Redstone Gateway, which Boeing gave back at the end of 2021 with demand far exceeding the available space, we expect to kick off another spec building this year to capture the excess demand.

Speaker 15: In Baltimore, we are working with over 80,000 square feet of prospects to backfill the trans America space in a hundred lights.

In Baltimore, we are working with over 80000 square feet of prospects to backfill the transamerican space and 100 Light Street.

Speaker 10: Development leasing exceeded our 2021 objective. We executed 1.2 million square feet during the year, including a 183,000 square foot build-to-suit at the National Business Park for a Fortune 100 company supporting operational activities on Fort Meade, a new campus for KBR at Redstone Gateway comprised of a 172,000 square foot office property and half of a 46,000 square foot building.

<unk> leasing exceeded our 2021 objective, we executed one 2 million square feet during the year, including a 183000 square foot build to suit at the National business Park for a fortune 100 companies supporting operational activities on Fort Meade our.

Our new campus for KBR in Redstone Gateway comprised of a 172000 square foot office property and half of our 46000 square foot R&D facility and.

Speaker 10: a new campus for Northrop Grumman at Redstone Gateway, comprised of two build-to-suit office properties with advanced infrastructure, totaling 263,000 square feet.

Our new campus for Northrop Grumman Redstone Gateway comprised of two build to suit office properties with advanced infrastructure totaling 263000 square feet or.

Speaker 10: A 265,000-square-foot data center shall build the suit in Loudoun County, Virginia for our cloud computing customer and our second development for the U.S. government in a secure campus of Redstone Gateway, a 205,000-square-foot office property that, when completed, will increase the secure campus operational square footage to roughly 450,000-square-foot.

265000 square foot data center shell build to suit in Loudoun County, Virginia for our cloud computing customer and our second development for the U S government and our secure campus at Redstone Gateway 205000 square foot office property that when completed will increase the secure campus operational square footage to roughly 400.

50000 square feet.

Speaker 10: These development projects will fuel future FFO growth as we complete construction and place them in the service.

These development projects will fuel future <unk> growth as we complete construction and placed into service.

Speaker 10: Our 1.8 million square foot development leasing pipeline supports our goal of executing 700,000 square feet in 2022. Within this goal, we expect about two-thirds of the volume to be office and R&D space for defense contractors, primarily at Redstone Gateway and the National Business

Our one 8 million square foot development leasing pipeline supports our goal of executing 700000 square feet in 2022.

Within this goal we expect about two thirds of the volume to be office and R&D space by defense contractors, primarily at Redstone Gateway in the National business Park and.

Speaker 10: And the remaining one-third to be a data center shall build a suit with our cloud computing customers.

And the remaining one third to be a data center shell build to suit with our cloud computing customer.

Speaker 10: In terms of placing developments into service, our 2022 guidance assumes we place over 800,000 square feet of fully leased developments into service. These new completions combined with the 766,000 square feet placed into service during 2021 should contribute between 15 and $17 million of cash NOI to 2022 results. At the $16 million midpoint, 100% of this development cash NOI is contraction.

In terms of placing developments into service. Our 2022 guidance assumes we placed over 800000 square feet of fully leased developments into service. These new completions combined with the 766000 square feet placed into service during 2021 should contribute between 15 and $17 million of cash NOI to <unk>.

122 results at the $16 million midpoint, 100% of this development cash NOI is contractual.

Speaker 10: With that, I'll turn the call over to Anthony. Thanks, Todd. Fourth quarter and full year FFO per share as adjusted for comparability of $0.58 and $2.29 exceeded the high ends of guidance driven by the DC6 sale closing later than planned and another strong operating.

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> 58, and $2 29.

Exceeded the high end of guidance driven by the DC six sale closing later than planned and another strong operating quarter.

Speaker 5: Same property results were in line with previously elevated guidance.

Same property results were in line with previously elevated guidance same property occupancy ended the year at 91, 3% and reflects the Boeing non renewal at 1200 Redstone Gateway.

Speaker 5: Same property occupancy ended the year at 91.3% and reflects the Boeing non-renewal at 1200 Redstone Gateway.

Speaker 5: Cash NOI grew 1.2% during the year, driven by favorable renewing leasing outcomes and further advancement of operating.

Cash NOI grew one 2% during the year driven by favorable renewing leasing outcomes and further advancement of operating efficiencies.

Speaker 5: We were very active in the senior debt markets last year, refinancing existing debt with new issuances in March, August , and November . During 2021, we issued $1.4 billion of new senior notes with an average interest rate of 2.6% and used those proceeds to redeem $900 million of senior notes that had an average interest rate of 4.5% as well as other debt.

We were very active in the senior debt markets last year refinancing existing debt with new issuances in March August and November .

During 2021, we issued $1 $4 billion of new senior notes with an average interest rate of two 6% and use those proceeds to redeem $900 million of senior notes that at an average interest rate of four 5% as well as other debt.

Speaker 5: The debt we refinanced in 2021 had an average maturity of 2.5 years, and the new notes we issued have an average maturity of 9.5.

The debt we refinanced in 2021 had an average maturity of two five years and the new notes, we issued have an average maturity of nine nine years.

Speaker 5: Moreover, since September of 2020, we have issued $1.8 billion of senior notes with an average term of 8.9 years.

Moreover, since September of 2020, we issued $1 $8 billion of senior notes with an average term of eight nine years and used the proceeds to retire debt carrying an average term of just two one years.

Speaker 5: and use the proceeds to retire debt, carrying an average term of just 2.1%.

Speaker 5: With respect to 2022 guidance, we are establishing a range for FFO per share of $2.30 to $2.38.

With respect to 2022 guidance, we are establishing a range for <unk> per share of $2 30 to $2 38.

Speaker 5: which at the $2.34 midpoint implies 2.2% growth over 2021's extremely strong result.

Which at the $2 34 midpoint implies two 2% growth over 2021 is extremely strong results.

Speaker 5: Our guidance detail is available in the press release and on slides 14 and 15 in the deck we issued last night. And I'll touch on a few highlights now.

Our guidance detail is available in the press release and on slides 14, and 15 in the deck, we issued last night.

Such on a few highlights now.

Speaker 5: We expect same property occupancy to change during the year and for same property cash NOI to be flat to down 2%.

We accept expect same property occupancy to increase to deep.

To change during the year and for same property cash NOI to be flat to down 2%.

Speaker 5: Our same property guidance reflects the Boeing non-renewal at Redstone Gateway that occurred on the last day of last year.

Our same property guidance reflects the Boeing non renewal at Redstone gateway that occurred on the last day of last year, the transamerican non renewal.

Speaker 5: at 100 Light Street in Baltimore that occurred on the first day of this.

At 100 Light Street in Baltimore that occurred on the first day of this year.

Speaker 5: The 45,000 square foot contraction from care first October 1st of 2022 and their new cash rent that went into effect on December 1st, 2020.

45000 square foot contraction from care versus October one of 2022 and their new cash rent that went into effect on December one of 2021.

Speaker 5: The 2022 same property pool started the year at 92.6%

The 2022 same property pool started the year at 92, 6% occupied the impact of the one 7% occupancy decline related to the three vacancies just discussed will be offset by occupancy occupancy gains elsewhere in the portfolio and we project to end the year between 91 and 93%.

Speaker 5: The impact of the 1.7% occupancy decline related to the three vacancies just discussed will be offset by occupancy gains elsewhere in the portfolio. And we project to end the year between 91 and 93.

Speaker 5: We expect to invest $275 to $300 million into our existing 1.7 million square foot feet of active development projects and new start.

We expect to invest 275 million to $300 million into our existing $1 7 million square foot feet of active development projects and new starts.

Speaker 5: Development investment will be funded with free cash flow from operations, the proceeds from the sale of DC6, and by executing another asset sale or joint venture to manage our leverage later.

Development investment will be funded with free cash flow from operations proceeds from the sale of DC six and by executing another asset sale or joint venture to manage our leverage later in the year.

Speaker 16: Lastly, for the first quarter, the $0.56 midpoint of our guidance range is $0.02 lower than our fourth quarter, 2021.

Lastly for the first quarter to 56% midpoint of our guidance range is <unk> lower than our fourth quarter 2021 results the.

Speaker 17: decrease reflects one cent of higher weather related expenses that we typically see in the first quarter and one cent of dilution related to the sale of DC-6.

The decrease reflects <unk> <unk> of higher weather related expenses that we typically see in the first quarter and one incentive dilution related to the sale of DC six.

And now I'll turn the call back to Steve.

Speaker 4: Thanks. With 2021 in the books, we've delivered our third consecutive year of growth that is compounding around four percent a year. We're projecting 2.2 percent growth for 2022, even while recycling DC-6 and absorbing the dilution from the recent Boeing and Transamerica vacancy.

Thanks.

With 2021 in the books, we have delivered our third consecutive year of growth that is compounding at around 4% a year.

We're projecting to 2% growth for 2022, even while our recycling DC six and absorbing the dilution from the recent borrowing and transamerica vacancies clearly our strategy of investing that priority defense missions locations and creating value through new low risk development.

Speaker 18: Clearly, our strategy of investing in priority defense mission locations and creating value through new low-risk development has and will continue to generate FFO growth regardless of the broader economic trend.

<unk> will continue to generate <unk> growth.

<unk> of the broader economic trends.

Speaker 4: Our 1.7 million square foot pipeline of active developments that are 96% leased will have significant influence on 2023 growth, which we expect to be in the 4% to 6% range. The outlook for DOD funding is stable and strengthening, and we look forward to another strong leasing year that will further our growth. With that, operator, please.

Our one 7 million square foot pipeline of active developments that are 96% leased we will have significant influence on 2023 growth.

Which we expect to be in the 4% to 6% range.

The outlook for Dod funding is stable and strengthening that we look forward to another strong leasing year that will further our growth.

With that operator, please open the call for questions.

Speaker 2: Thank you, Mr. Budork. Ladies and gentlemen, if you have a question at this time, please press star, then one on your telephone. If you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Manny Cushman from Citi. Your question, please.

Thank you Mr <unk>.

Ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone if you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Manny Korchman from Citi. Your question. Please.

Hey, everyone. Thanks.

Speaker 6: Steve or maybe Anthony, in terms of what's left to sell in the portfolio, you mentioned JVs or sales. I assume the JVs are the debtors in our shells. And what were the sales at this point or what could the sales at this point include?

Steve or maybe Anthony.

In terms of what's left to sell in the portfolio, you mentioned JV or sales I assume the JV or the.

The data center shells, and what was the sales at this point or where could the sales at this point in court.

Speaker 19: Well, we have been conveying for about six months that sometime between now and 24, 25, we'd start to, um, we look for the right opportunity to start selling off the, um, regional office assets in Baltimore and Northern Virginia. And if we were to hit an opportunity where that was a favorable move for the shareholder, we consider doing.

Well.

Have been conveying for about six months that sometime between now and 'twenty four 'twenty five we circle.

We look for the right opportunity to start selling up.

Regional office assets in Baltimore, Northern Virginia, and if we were to hit an opportunity where there was a favorable move to the shareholder we consider doing that.

Speaker 20: And you're correct, Manny. The alternative would be to venture the two data center shells that we had planned to venture in the initially planned to venture in the third or fourth quarter of last year, but we had we replaced that transaction with the sale.

And Youre correct me the alternative would be to venture the two data center shells that we had planned to venture.

Initially planned to venture in the third or fourth quarter of last year, but we had we replace that transaction with the sale of DC six.

Speaker 6: And Steve, on the regional office portfolio, as you've been exploring that for some time, how has buyer interest and valuation there changed?

And Steve on the regional office portfolio as <unk> been exploring it for some time how has buyer interest in valuation there changed.

Speaker 4: Well, there's not a lot of buyer interest in office property right now in this region where I would say a couple of years ago, there's pretty strong interest in Baltimore and some impressive cap rates coming out of the pandemic. We think it's going to take another at least 12 months to kind of normalize that capital market.

Well theres not a lot of buyer interest in office property right now in this region.

I would say a couple of years ago, there was pretty strong interest in Baltimore and through impressive cap rates.

We are out of the pandemic, we think it's going to take another at least 12 months to kind of normalize that capital market segment.

Speaker 6: Got it. And then on development value creation, are you seeing any pressure on yields from increasing costs?

Got it and then on development value creation are you seeing any pressure on yields.

From increasing costs.

Speaker 4: Well, certainly we've had increasing costs, as much as 10 to 15% over a year, and it puts pressure on us to achieve rents that will support the development, which we have done. So we've been able to hit our yield targets equally well this year and what we expect to do in 2022, but we have to achieve a higher rent to get it.

Well certainly we've had an increase in costs.

<unk> is 10% to 15% over a year and it puts pressure on us too.

We achieved rents that will support the development, which we have done so we've been able to hit our yield targets.

Well this year and what we expect to do in 2022, but we have to achieve a higher rent to get it.

Great. Thanks Al.

Speaker 2: Thank you. Our next question comes from the line of Rich Anderson from Corporate Office Properties. Your question please.

Thank you. Our next question comes from the line of Rich Anderson from corporate office properties. Your question. Please.

Speaker 7: Steve, I don't know if this was ever mentioned along the lines, but what was the reasoning for the Boeing vacancy?

Yes, Brandon.

Company.

Yes.

So.

You bet.

[laughter].

So yes, SMB see here so Steve I don't know if this was ever mentioned along the lines, but what was the reasoning for the Boeing vacancy.

My pleasure.

Speaker 4: They did not win a re-compete of a major segment of an enormously important contract that's issued out of Redstone Arsenal, and they contracted to adjust their footprint for that.

<unk>.

They did not win a recompete of a major segment.

An enormously important.

Contract, that's issued out of Redstone Arsenal and they contracted to adjust their footprint for that.

Speaker 8: Okay, so when you think generally about when things like that happen, is it mostly what you just described or are there other, or is it...

Okay. So when you think generally about when things like that happen is it mostly what you just described or are there other.

Speaker 8: oftentimes they need more space that you can't provide them. You know, what's the general cadence of why you lose people? Is it mostly the former or the latter?

Or is it.

Oftentimes they need more space that you can't provide them.

What's the general cadence of why you lose people is it mostly the former or the ladder.

Speaker 21: Well, it's rarely the latter, and often the former. In less extreme ways over time, M&A actually has a pretty significant impact in the defense industry as large contractors buy up smaller contractors. Usually they wanna keep the SCIF and the secure mission part of a suite, but they might be able to shed some of the more administrative space.

Well, it's rarely the ladder.

Often the former.

In less extreme ways over time M&A actually is.

Pretty significant impact.

In the defense industry is large contractors buy up smaller contractors, usually they want to keep the skiff.

Secure mission part of the suite, but they might be able to shed some of the.

More administrative.

Space.

Speaker 22: People aren't leaving our locations because of space needs. We're in the development business after all, and those locations are really the primary place to be. An interesting sidebar with regard to the Boeing contraction is another contractor won that contract and they signed a lease in Redstone Gale.

Rarely.

People are leaving our locations because of space needs. We are in the development business. After all those locations are really the primary place to be.

An interesting sidebar with regard to growing contraction is another contractor when that contract.

They signed a lease in Redstone gateway.

Speaker 8: Okay. When you think about what happened with Boeing, do you have sort of a longer watch list that maybe extends a few years out that are on your radar? I assume you're kind of doing that, but is there anything you can add color to at this point?

Okay.

When you when you think about what would happen with Boeing.

You have sort of.

Longer watch list that may be extends a few years out that.

We are on your radar I assume I assume you're kind of doing that but is there anything you can sort of add color to at this point.

Speaker 4: There's nothing that we've seen that we'd be concerned about. All the new development we've achieved over the last three years.

There's nothing that we've seen that we'd be concerned about.

All the new development, we achieved over the last three years.

Speaker 4: In each case, enormous new contracts were achieved.

In each case.

Enormous new contracts were achieved.

Speaker 4: which really were the compelling reason for those contractors to get new, efficient, you know, very well-located facilities to complete the contracts. And they tend to be very long-term. So, no, we don't really see any more of that.

Which really grew the compelling reason for those contractors to get new efficient.

Very well located facilities to complete the contracts.

They tend to be very long term. So we don't really see any more of that.

Speaker 8: Okay, last question for me, you mentioned, you know, regional office between now and 2024. So, you know, obviously it depends on a bunch of things, but what is the timeline right now to getting regional office sort of to the point where it's fully leased and, you know, you've checked off that box, is that a this year event or is that a next year event?

Okay and last question for me you mentioned.

Regional office between now and 2024.

So.

Obviously, it depends on a bunch of things, but what is what is the timeline right now to getting regional office sort of to the point, where it's fully leased and <unk>.

Check that box is that a this year event or is that a next year event.

Speaker 4: Well, there's four large assets in regional office, each has its own set of opportunities or challenges, depending on how you look at it. But for instance, 100 Light, we just got 140,000 or 50,000 square feet back from Transamerica. It's a fantastic space. It's not really been available to smaller tenants in the market.

Well there is there is for large assets in regional office, each has its own set of opportunities or challenges.

Depending on how you look at it.

But for instance, 100 light.

Just got 140 or 50000 square feet back from Transamerica's fantastic space that really been available to smaller tenants in the market.

Speaker 4: We definitely want to re-stabilize that asset before we even consider selling it. Like we did with DC6, we will be disciplined and patient to create the value our shareholders deserve before we move to a sale.

We definitely want to re stabilize that asset before we would even consider.

Like we did with DC six we will be disciplined.

And patient to create the value our shareholders deserve before we move to a sale.

Speaker 8: Is it more likely the regionals will be sold all at once or in pieces?

Is it more likely the original off will be sold all at once or in pieces.

Speaker 23: I think it's got to be in pieces, particularly the Balfour segment. It's just too big a bite for an investor in Balfour.

I think it's got to be in pieces, particularly with the bulk of our segment. There is just too big for an investor in Baltimore.

Got it thanks.

Thank you rich.

Speaker 2: Thank you. Our next question comes from the line of the SACWA from Evercore ISI. Your question, please.

Thank you. Our next question comes from the line of Steve <unk> from Evercore ISI. Your question. Please.

Speaker 24: Yeah, thanks. Good afternoon. Steve or Todd, I was just wondering if you could spend a little more time speaking about the leasing trends, you know, kind of in particular on some of the larger vacancies. You guys had good success last year and I'm just curious what the discussions are like and if that's an area that possibly could surprise to the upside again in 22.

Yes, thanks, good afternoon.

Steve or Todd I was just wondering if you could spend a little more time speaking about the leasing trends.

<unk> on some of the larger vacancies you guys had good success last year and I'm just curious what the discussions are like and if thats an area that possibly could surprise to the upside again in 'twenty two.

Speaker 25: Let Pat handle that one. Sure. Well, as I mentioned, we have good activity on the large vacancy down in Huntsville.

Well I'll, let Todd handle that one sure.

As I mentioned, we have good activity on the large vacancy down in Huntsville.

Yes.

Speaker 26: It's hard to put a timeline exactly on when that activity would close and whether or not it would be an upside for this year, but we do have very good activity and I would expect the lease to get signed.

It is hard to put a timeline exactly.

When that activity would close.

And whether or not it would be an upside for this year, but we do have very good activity and I would expect the lease to get signed.

Speaker 27: before the first half of the year is done and potentially provide some, but it's hard to quantify. In terms of 100 light, 80,000 square foot of prospects down there, that's just going to take some time. As Steve was alluding to, the Baltimore market was affected like most major CBDs in the downturn and leasing velocity.

For the first half of the year is done.

And potentially provide some but its hard to quantify in terms of.

100 light 80000 square foot of prospects down there.

That's just going to take some time as Steve was alluding to the Baltimore market is.

The fact is like most major CBD is in the downturn and velocity leasing velocity.

Speaker 28: has not returned to its historical average. So we'll continue to work it, but I wouldn't anticipate any upside from 100 light.

And not returning to its historical average so we will continue to work it but I wouldn't anticipate any upside from 100 light this year.

And I guess, Steve maybe on the development front, you talked about some of the things shifting out of 'twenty two into 'twenty, one and then a couple of things shifting back, but it sounds like you've got.

A large pipeline today at $1 8 million feet. So I'm.

Im just trying to gauge sort of the 700000 feet and the likelihood that some more of that could comment I realize it might not have much of an earnings impact at all this year, but just what are the prospects for that 700 to drift higher.

Well for them to get bigger.

We have three projects.

Our planned on land we own.

We await the critical power delivery from the utilities in Northern Virginia.

The current information we have is that power will not be available this year.

And it's a threshold to make you might build to suit commitment with our tenant is.

Power were to come earlier.

Hypothetically, we could be 700000.

Speaker 29: Um, but we're only planning to get one of the four leases this year because of that timing. And just one other thing.

But we're only planning to get one of the four.

Leases this year because of the timing.

And just one other thing to point out.

Speaker 30: But for the Boeing non-renewal, we would be building two buildings at Redstone Gateway this year. But we're staying very disciplined. We want to backfill 1,200 Redstone Gateway before we start our next development. And that kind of costs us that $120,000 that would otherwise would have been development had we not got the major non-renewal.

But for the Boeing non renewal, we would be building two buildings at Redstone Gateway This year, where we're staying very disciplined we want a backfill.

1200, Redstone Gateway before we start our next development.

That kind of costs us about 120000 that would otherwise would've been development.

And we have not got the major non renewal.

Speaker 10: Got it. And then just last question, 2100 L Street, I know, is sort of another kind of non-core asset. Just kind of remind us on the leasing status there. And is there a chance that that D.C. market is picking up a little bit more steam? And could that be on the sale block this year? Or is that more likely at 23?

Got it and then just last question 2100 L Street, I know is sort of another non core asset just kind of remind us on the leasing status there.

Is there a chance that DC market is picking up a little bit more steam and could that be on the sale of block this year or is that more likely a 2003 events.

Speaker 31: Well, I'll take the last part of it. And as soon as we get leases to stabilize, it will be on our sale block, or we'll start to investigate the best way to monetize it. With regard to timing, I'll let Todd answer that hot question. I would not characterize the DC market.

Well I'll take the last part of it.

As soon as we get leases to stabilize it will be honor.

The sale of block or will start to investigate the best way to monetize it with regard to timing I'll, let Todd answer that question.

I would not characterize the D C market.

Speaker 10: Emerging, returning to normal, you know, it's still.

As.

Emerging returning to normal.

Speaker 10: still affected by the pandemic and the negative absorption that's occurred over the past few years. With that said, we're still tracking more prospects than we have space in the building, and we continue to work those prospects.

It's still.

Still affected by the pandemic and the negative absorption thats occurred over the past few years.

With that said, we're still tracking more prospects than we have space in the building and we continue to work those prospects.

Speaker 32: Everybody's taking their time making decisions. It's hard to place a timeline on a lease resolution.

Everybody is taking their time, making decisions target places a timeline on on a lease resolution there just a bit of color Steve.

Speaker 4: Just a bit of color. Steve, we're 30 miles outside of DC. And when I talked to business colleagues that office in in the district, it's like we're in two different worlds. They can't go to a restaurant without vaccine documentation, and they're still wearing masks. And the, you know, counties in and around Baltimore, we've been back to normal for quite a long time.

30 miles outside of the DC when I talk to business colleagues that office.

In the district, it's like we're in two different worlds.

Go to a restaurant with a vaccine.

Documentation and Theres still were in mass.

<unk> currently is in and around both where we've been back to normal for quite a long time.

Speaker 9: Yeah, no, look, I can appreciate that. I guess what we've seen in other markets is the flight to quality and new buildings, whether it's in New York or parts of California or other cities, definitely seem to be leasing up and older stock is struggling. And given your new building, I guess I would have thought even if the market's not great, that you might capture market share of what's going on, just given the new product.

Okay.

Yeah, No look I can appreciate that I guess, what we've seen in other markets as the flight to quality in new buildings, whether it's in New York.

Parts of California, or other cities.

You seem to be leasing up and older stock is in SaaS struggling and given your new building I guess I would've thought even if the market is not great that you might capture market share of what's going on just given the new product.

Speaker 4: Yeah, I think when share comes back, we expect to do well. It's just the transaction velocity is really dropped off the table during the pandemic.

Yes, I think when share comes back we expect to do well this year.

Sure.

Transaction velocity Israeli.

Dropped off the table during the pandemic.

Okay. Thanks very much.

Speaker 2: Thank you. Our next question comes from the line of Craig Miltman from Key Bank Capital Markets. Your question please.

Thank you. Our next question comes from the line of Craig Millman from Keybanc capital markets. Your question. Please.

Speaker 33: Steve, I just want to clarify, did I hear you correctly that DC6 is just 2 cents dilutive this year versus kind of the talk previously about being 4 cents dilutive?

Hey, guys.

Steve I just wanted to clarify did I hear you correctly. The DC six is just.

<unk> <unk> dilutive this year versus kind of the talk previously about being <unk> <unk> dilutive.

Speaker 34: Well, the two cents is net of an alternative recycle. It's 2%. Craig, it was the comment in the script was that the impact to growth was 2%, not 2 cents. Right. Which equates to 2%.

Well the <unk> is net of.

And alternative recycle is 2%.

Craig It was too.

Comment in the script was that the impact to growth was 2%.

Right.

Great.

Great.

Speaker 35: That's helpful, thanks for the clarification there.

Okay.

That's helpful. Thanks for the clarification, there and then just.

Speaker 11: Can you go through, I know in the supplemental, kind of regional offices is two million square feet, eight assets, you kind of mentioned 100 Light Street, I'm sure Canton Crossing is on there. What are the, and 2100 Elstree, just kind of what are the other big chunks?

Can you go through I know in the supplemental kind of regional offices has 2 million square feet eight assets.

You mentioned 100 Light Street I'm sure can crossing is on there.

What are the end 2100.

Or should we just kind of what are the other big chunks of that regional office and when anything.

Speaker 36: of that regional office, and would anything like Columbia Gateway ever be on the block or is that, you know, I know it's in the defense IT location.

Columbia Gateway ever beyond the block or is that.

I know, it's in the defense ITE location, but it's me.

Speaker 11: you know, mainly suburban, would anything like that ever be up for sale?

Mainly suburban.

Would anything like that ever be up for sale.

Speaker 4: The other components of the regional office are two sets of buildings in northern Virginia. One of those sets we should

That in the near term.

The other component is a regional office.

Our two sets two buildings in northern Virginia.

One of those.

Speaker 4: have considered and probably will likely just pull into defense because it's become increasingly more occupied by defense contractors and cyber contractors.

If considered and probably will likely just pull into defense because it could come in.

Kris singly.

More occupied by defense contractors and cyber contractors.

Speaker 4: And that one's way out by Dulles. And then we have Wells Fargo in Pinnacle Towers in Tysons. And that would be an asset we'd like to recycle. With regard to Columbia Gateway, yes, you could say it's suburban.

One is way up.

And then we have.

Wells Fargo and critical towers in Tysons and that would be an answer we'd look to recycle with regard to Columbia Gateway, Yes, you can say it's suburban.

Speaker 37: But it's within the competitive in the operating radius of Fort Meade.

But it's within the competitive and the operating radius of Fort Meade.

Speaker 4: And it's, you know, our business in this park is defense business.

And it's.

Our business in this part is the defense business.

Okay.

Great. That's all for me thanks, guys.

Speaker 38: Thank you. Our next question comes in a line of Jamie Fieldman from Bank of America. Your question, please.

Thank you. Our next question comes from the line of Jamie Feldman from Bank of America. Your question. Please.

Speaker 9: Great, thank you. I guess just thinking about the development pipeline sounds like...

Great. Thank you I guess, just thinking about the development pipeline it sounds like.

Speaker 9: You know, you could be more aggressive, but you want to get Redstone leased up. So you think at this time next year, do you think your development pipeline is larger or smaller than it stands today? I would guess it to be about the same.

It could be more aggressive, but you want to get.

<unk> leased up so you think at this time next year do you think your development pipeline is larger or smaller than than it stands today.

I would guess it to be about <unk>.

We've been in that.

Speaker 39: 1.5 to sometimes as much as 2.5 million square foot range for years now, what our guidance suggests is we'll pull in 700,000 this year based on what is currently classified in the pipeline that leaves over a million, but I can tell you we have almost

1.5 to sometimes as much as $2 5 million square foot range for years now.

Our guidance suggests this will pull in 700000 this year based on what is currently classified in the pipeline.

It leaves over $1 million, but I can tell you we have almost one 4 million square feet of development discussions that we have not yet classified as 50% likely to win within two years or less.

Speaker 40: 1.4 million square feet of development discussions that we have not yet classified as 50% likely to win within two years or less.

Speaker 41: So I'm very confident we'll be in the same range a year from now.

I'm very confident it will be in the same range here from now.

Speaker 9: Okay, great. And then going back to Manny's question on development costs.

Okay, Great and then going back to Manny's question on development cost.

Speaker 42: You know, you had said costs are up 10 to 15%. Are you saying you can push rent to keep your yield? I don't know if you came across that clearly. Yes, we have. We have all through 2021. And with the activities that we're working on now that.

You had said cost of about 10% to 15% are you, saying you can push rents.

Keep your yield.

We came across that clearly.

Yes, we have.

We have all through 2021 and with the activities that we're working on now.

Speaker 4: should be signed before our next call. We'll be able to demonstrate we did.

Should be signed before our next call.

We will be able to demonstrate we did.

So what are you targeting for yield.

Speaker 4: Our target yield on a defense contractor building is 8% cash yield and a typical 7-10 year lease.

Our targeted yield.

Fn's contractor building.

Is 8% cash yield.

Sure.

Typical seven to 10 year lease.

Okay great.

Speaker 43: You know, you had given kind of an outlook for 4% to 6% FFO growth in 2023. What does that assume for any of these asset sales? Or kind of what are the, maybe a better way to ask it is just what are the key building blocks to get to that 4% to 6%? Well.

And then.

You had you had given kind of an.

Outlook for 46% <unk> growth in 'twenty three.

What does that assume for any of these asset sales kind of what are the maybe a better way to ask it is just what are the key building blocks to get to that four to six.

Well the key building blocks are too.

Speaker 44: You know, the same office cash and a life that grows that we expect. It's the continued benefit of the developments placed in service that.

Same office cash NOI growth that we expect.

It's the continued benefit of developments placed in service that.

Speaker 5: that partially get placed in service this year, it will be fully placed in service next year, as well as those projects that will place into service next year. On the capital market side, I don't think we want to get into what.

If you.

Partially get placed in service this year it will be fully in place in service next year as well as those projects that will place into service next year.

On the capital market side.

I don't think we want to get into.

Speaker 45: transactions or what equity capital we're raising to finance that, there's enough equity capital costs in that math to maintain or slightly improve our leverage.

<unk>.

Transactions are what equity capital raising to finance that.

Were there are there is enough equity capital costs in that math.

To maintain or slightly improve our leverage ratios.

Speaker 46: Um, and, you know, we think that the cost of that capital will, um,

And we think that the.

Speaker 47: may ebb and flow, but within that.

The cost of that capital will.

May ebb and flow but.

But within that range.

Speaker 9: And then I don't think you guys talked about the demand for the care first space that they're giving back. I know it's not until later this year. Is there any interest in that or do you think that fits for a while?

Okay.

And then I don't think you guys talked about the demand for that the carefirst space that theyre, giving back I know, it's not the later this year.

And is there any interest in that or do you think that fits for a while.

Speaker 4: Oh, no, we think that'll lease up awfully quickly, frankly, the building only has like one 11,000 square foot space.

We think that will lease up quickly.

They are building.

<unk> has like 111000 square foot space, it's effectively 100% leased earlier today you can get there.

Speaker 10: effectively 100% lease today. You got that lease. Yep. So it just has a really strong demand profile. We don't get the space till September , the end of September . So, you know, I'd give it six months, but we'll be chipping away at that right away.

Yes.

It just says it really strong demand profile, we don't get the space till September the end of September .

So I'd give it six months, but we will be chipping away at that right away.

Speaker 48: Okay. And then last for me, just any thoughts on the latest from the GSA in terms of plans to reduce space and how you think that might impact your portfolio, your markets overall? I just.

Okay, and then last from me just any thoughts on the latest from the GSA in terms of the plans to reduce space and how you think that might impact <unk>.

Portfolio your markets overall.

The latest buses from them.

Speaker 49: So we don't really follow the GSA that much because we don't do any GSA leasing.

So we haven't really followed the GSA that much because we don't do any GSA leasing.

Speaker 50: The bulk of their contraction activities would affect, you know, the B class.

The bulk of their.

Contraction activities.

Speaker 4: or maybe older A in downtown D.C., a market we're not really exposed to. Besides $2,100, our only D.C. asset is adjacent to the Navy Yard. It's a defense contractor location. It's not really a GSA area, but to remind people, we have less than $100,000.

Correct.

<unk> class.

Or maybe over a in downtown D. C market, we're not really exposed to are besides just wondering 100, though early dcs.

It was adjacent to the Navy yard, it's a defense contractor location.

It really GSA area.

But to remind people we have less than 100000.

Speaker 51: square feet of GSA leases throughout the company, and 45,000 of that is a court system in downtown Baltimore where our building is located immediately next to the courthouse.

Square feet of GSA leases throughout the company.

45000 of that is.

Court system in downtown Baltimore, where building is located immediately next to the courthouse.

Alright, great. Thank you.

Speaker 2: Thank you. And once again, as a reminder, if you have a question, please press star then one. Our next question comes in line of Tom Catherwood from BTIG. Your question, please.

Thank you Jamie.

Thank you and once again.

If you have a question. Please press Star then one our next question comes from the line of Tom Kathryn with from <unk>. Your question. Please.

Speaker 52: Excellent. Thanks, everyone. Maybe Todd, the renewal and guidance implies roughly 400,000, maybe just under 500,000 square feet of expected move-outs this year. Kind of what you talked about with CareFirst and 100 Light Street and I think a few others in the regional office portfolio, it seems like roughly half of that is regional office. So that would kind of by our math imply that this is a pretty light year on the move-outs.

Excellent thanks, everyone.

Todd.

Renewal guidance implies roughly 400000, maybe just under 500000 square feet of expected move outs. This year kind of what you talked about with <unk> at 100 Light Street, and I think a few others in the regional office portfolio. It seems like roughly half of that is regional office. So.

That would kind of by our math imply that this is a pretty light year on the move outs and the defense IP portfolio. Just said another way it seems like youre going to be well above average on the renewables. There is that is that a fair statement.

Speaker 53: in the defense IT portfolio, just another way it seems like you're going to be well above average on the renewals there. Is that a fair statement?

Yes, I would consider that a fair statement.

Speaker 54: We're tracking good activity on the rentals outside of the ones that you've already identified as transamerican care.

We're tracking.

Good activity on the renewals.

Outside of the ones that you've already identified transamerica and caregivers.

Speaker 12: Got it. And that kind of ties into the next part, which is to get up to your.

Got it and that kind of ties into the next part which is to get up to your.

Speaker 55: Let's call the midpoint of same-store occupancy the 92%. It looks like by our math, you'd be kind of slightly below the vacancy leasing that you did this year. So you'd be something in the $550,000 to $600,000 square feet.

Let's call it midpoint of same store occupancy of 92% it looks like by our math you'd be kind of slightly below with a vacancy leasing that you did this year youll see something in the.

Speaker 56: of vacancy leasing from where your pipeline is sitting right now? Is it kind of on par with where you were to start last year? Or is it kind of moderated somewhat, which is kind of leading you to be a little more conservative on that guy?

$550 to 600000 square feet of vacancy leasing where your pipeline is sitting.

Right now is it kind of on par with where you were to start last year or is it kind of moderated somewhat which is kind of leading you to be a little more conservative on that guidance.

Speaker 57: I would say our vacancy leasing is on par with last year at this point. Yeah, but in terms, Tom, in terms of how that impacts our.

I would say our vacancy leasing is on par with last year at this point, but in terms of Tom in terms of how that impacts are.

Speaker 58: Our year-end same-office occupancy guidance, it's not that linear. You know, if you, the 2021 same-office pool at the end of the year was 93.4%.

Our occupier year end same office occupancy guidance, it's not that linear.

If you.

The 2021, the same office pool at the end of the year was 93, 4% leased.

Speaker 59: um and 91.3% occupied so

And 91, 3% occupied.

Speaker 5: it's really part of the 2021 transactions that were leased in 21 that will occupy during 2022, offset by the non-renewals that you mentioned earlier, plus the benefit of any leases that get executed in 2022 and commence in 2022. So it's not as linear as it is.

So.

It's really the Avenue, it's really part of the 2021 transactions that will be released in 'twenty, one that will occupy during 2022 offset by the non renewals that you mentioned earlier plus the benefit of any.

Any leases executed in 2022 and commence in 2002.

So it's not us.

Speaker 60: it makes total sense. So kind of said another way, it would be more a timing of getting at least done and then commence.

It's not as linear as that.

Yes.

It makes total sense, so kind of set another way it would be more a timing of getting that lease done and then commenced.

Speaker 12: less than as opposed to running slower than last year.

Bless that as opposed to.

Running slower than last year.

Speaker 61: Got it. And then last one for me, something jumped out in the presentation, it might have been in other ones and if I missed it, I apologize, but on page 10, you guys touched on expected cap rates for your assets if they were sold and a lot of them lined up with what we would expect, but the one that was kind of eye-opening for us was the sub 4%

That's correct.

Got it and then last one for me kind of something jumped out in the presentation. It might've been in other ones and if I missed it I apologize, but on page 10, you guys touched on.

Expected cap rates for your assets, if they were sold and a lot of them lined up with with what we would expect but the one that was kind of eye opening for US was the sub 4% on U S. Government leased secure facilities can you provide kind of a little bit more color on that.

Speaker 62: on U.S. government least secure facilities. Can you provide kind of a little bit more color on that? Is that, would that just be assets kind of considered behind the fence in most of your locations? And has that, it seems like that has compressed.

Would that just be assets kind of considered behind defence and most of your locations.

Speaker 12: over this past year and any thoughts you have and that would be helpful.

It seems like that has compressed over this past year and any thoughts you have on that would be helpful.

Speaker 4: Well, we have compressed that estimate, but we've compressed it based on market comp.

Well, we have compressed that estimate.

Well, we've compressed it based on market comps for high value.

Speaker 4: for high-value assets and other segments. So for instance, the data center shell,

Yes, it's in other segments. So for instance, the data Center show.

Speaker 63: sales market last year had comps below 4. And if you're willing to buy a data center shell below 4, you'd be very willing to buy the U.S. government assets that we have below 4. But there are also some comps around the country with great credit tenants.

Sure.

Sales market last year.

Comps below four.

And if you are willing to buy.

Data Center show.

Low for you you'd be very willing to buy the U S government assets that we have below four but there are also some.

Comps around the country with great credit tenants.

Speaker 64: like Microsoft on full building leases that are being marketed or expect to close below 4%. So we think it's a pretty fair statement.

Like Microsoft on full building leases that are being marketed or expect to close below 4%.

We think its pretty fair statement.

Yes.

I appreciate that color Steve that's it from me thanks, everyone.

Speaker 65: Thank you. Our next question comes from the line of Dave Rogers from DeHerb. Your question, please.

Thank you. Our next question comes from the line of Dave Rogers from Baird. Your question. Please.

Speaker 5: Hey, Steve, just wanted to follow up on that last point, page 10, sub-4 cap rates for data center shelves. Obviously, you're going to sell some more of those this year, it sounds like. How do you think about just kind of selling more, getting leverage down kind of in line with your kind of high-quality secondary office peers, if that's the peer group we want to use, versus kind of the trickling it out and then kind of waiting for some of these bigger, you know, chunkier transactions, like 2100L and the regional office sales? So, maybe the question is, you know, why not maybe rip some of the Band-Aids off and kind of get the range-bound issues around the stock and move those away?

Steve just wanted to follow up on that last point page 10 sub for cap rates for data center shells, obviously youre going to sell some more of those this year it sounds like.

How do you think about just kind of selling more getting leverage down kind of in line with your kind of high quality secondary office peers, if thats the peer group, we want to use.

Versus kind of the tripling it out and then kind of waiting for some of these bigger chunkier transactions like 'twenty 100 al in the regional office sales so.

Maybe the question is why not maybe some of the band AIDS off and kind of get the range bound issues around the stock and move those away.

Speaker 66: Well, Dave, we've been talking for years about establishing a company that can grow and replenish and recycle capital, the fuel.

Well.

Dave we've been talking for years about establishing the company that can grow and replenish and recycled capital to fuel.

Speaker 4: our development and if we rip our band-aid off, we're going to rip our earnings off as well and that's not the way we want to run the company.

Our development, if we ramp our band it off we're going to Rip our earnings after as well.

Speaker 67: Moreover, those assets, I don't consider them a problem, I consider them...

And Thats the way, we want to run the company.

Moreover, those assets I don't consider a problem I consider them.

Speaker 68: you know, a long-term tremendous investment for our shareholders. And to the extent opportunities in the future would allow me to keep those and sell other things, I prefer to keep them.

A long term.

A tremendous investment for our shareholders and to the extent opportunities in the future would allow me to keep those in so things.

Speaker 69: So we'll face the decision to recycle when we need to.

I prefer to keep them.

Well, we will face the decision to recycle when we need to.

Speaker 5: It's not in our base plan. And, Dave, with respect to the balance sheet and with respect to leverage, each one of the four debt transactions that we've executed over the past 18 months have priced

But.

It's not in our base plan.

David with respect to our balance sheet and with respect to leverage.

At <unk>.

Each one of the four debt transactions that we've executed over the past 18 months.

Speaker 5: either equal to or better than triple B flat or B double A two price.

<unk> priced.

They're equal to or better than triple b flat or <unk> pricing.

Speaker 70: And the fixed income investors recognize the strength of the company's cash flows and their stability, regardless of where the agencies have us pegged.

And the fixed income investors recognize the strength of the company's cash flows and their stability.

Regardless of.

Where the agencies have us pegged.

Speaker 71: I think they are focused on – our fixed income investors are focused on that portion of the portfolio. They see our continued increase of interest in fixed charge coverage as a – because of the stability – combined with the stability of the cash flows as a huge positive for us. So

I think we are.

They are focused on our fixed income investors are focused on that portion of the portfolio.

Portfolio.

Our continued increase of interest in fixed charge coverage is up.

Because of the stability of combined with the stability of the cash flows is a huge positive for us.

Speaker 72: If we were to do that and reduce leverage, we don't think there'd be an incremental interest reduction for our shareholders.

So.

If we were to do that and reduce leverage.

We don't think there'll be an incremental.

Interest reduction for our shareholders.

Speaker 73: Yeah, I agree with that. I guess just from the equity side, I think there could be a meaningful change, but we could always take that offline, but I appreciate the answers and the added.

Yes, I agree with that I guess, just from the equity side I think there could be a meaningful change, but we could always take that offline, but I appreciate the answers and the added color. Thank you.

Speaker 2: Our next question comes in the line of Chris Lucas from Capital One Securities. Your question please.

Thank you. Our next question comes from the line of Chris Lucas from capital One Securities. Your question. Please.

Speaker 74: Hey, good afternoon, everybody. Anthony, just a quick one. Just wanted to understand the sale of DC-6, does that, do the proceeds from that provide all of the equity you need to meet your development spend for 2022?

Hey, good afternoon, everybody Anthony just a quick one just wanted to understand the sale of DC six does that with the proceeds from that provide all of the equity you need to meet.

Development spend for 2022.

Speaker 75: Uh, it, it doesn't meet all of it. So if we, in order to, uh, based on what we're expecting to spend, um, we, our plan includes the assumption that we, uh, either sell an asset or venture, uh,

Hi.

It doesn't mean all of it so if we in order to based on what we're expecting to spend.

We are planning includes the assumption that we either sell an asset or adventure.

Speaker 76: data center shell to generate the incremental capital, which is in the fourth quarter.

Data center shell to generate the incremental capital which is in that Sir.

In the fourth quarter.

And the competition.

Speaker 77: combination of free cash flow at throughout the year plus the proceeds from DC six fund

The combination of free cash flow at throughout the year plus.

Proceeds from DC six fund.

Speaker 5: The fact that it's sold after the end of the year, part of that is really funding a portion of what we invested last year to

A portion of it you have to remember that.

The fact that it's sold after the end of the year.

Part of that is really funding a portion of what we invested last year too.

Speaker 78: reduce our leverage that we that we had reported as of 1231. So what's that delta in terms of the equity gap that

Reduce our leverage.

That we had reported as of 12 31.

So what's the delta in terms of the equity gap.

No.

It's about cornerstone.

$75 million.

Okay, great. Thank you.

Speaker 79: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Mr. Budorek for any further remarks.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Mr. <unk> for any further remarks.

Speaker 80: Thank you all for joining the call today. It was really a great call. We're in our offices, so please coordinate through Stephanie if you'd like to follow up.

Thank you all for joining the call today. It was really a great call. We're in our offices are please coordinate through Stephanie if you'd like.

Speaker 2: Thank you for your participation today in the Corporate Office Properties Trust's fourth quarter and year-end 2021 results conference call. This concludes the program. You may now disconnect. Good day.

Thank you for your participation today at the corporate office properties Trust fourth quarter and year end 2021 results conference call.

Concludes the program you may now disconnect good day.