Q3 2023 COPT Defense Properties Earnings Call
Welcome to the cops defense properties third quarter 2023 results conference call.
As a reminder, today's call is being recorded at.
At this time I will turn the call over to Venkat commentary cops defense Vice President of Investor Relations. Mr. <unk>. Please go ahead.
Thank you Abigail good afternoon, and welcome to your cough defenses conference call to discuss third quarter results with me today are Steve <unk>, President and CEO and Anthony Mifsud.
Mr Executive Vice President and CFO 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 in our S. E T.
Filings actual events and results can differ materially from these forward looking statements.
<unk> does not undertake a duty to update them.
Good afternoon, and thank you for joining us.
Aaron Best group strategy and differentiated portfolio.
[noise] continues to generate strong operating results.
And support the positive outlook, we have for our business for the coming years.
And September 15th the company adopted a new name.
Defense properties.
New ticker C V P.
And a new logo, which combine some important symbols of our current customers.
The shield shape as a symbol of military strengthened defense activities.
Sure.
First the United States of America, which is not only the country, we serve but our number one tenant.
The Eagle is a symbol of the U S Army.
The star assemble in the U S Navy.
And then like Enbrel assembler, both the U S Air Force and U S Cyber command.
We rebranded to better inform investors of our capital allocation strategy and portfolio quality.
And to provide investors with a loud reminder, that we completed the transformation of our portfolio back in 2018.
Over the past 12 years, we sold over 10 million square feet.
We acquired only 1.5 billion square feet.
Redeveloped over 11 million square feet.
And today, 70% of our portfolio has been developed by us. These.
These modern efficient buildings were developed for the missions we serve.
And are located in the best Defense 80 locations.
The key point is Scott defense properties is not the old corporate office property stress.
And that's why we changed the name to <unk>.
Provide clarity to investors.
This is a different company.
And we've created a unique platform that is up for re peers.
Turning to highlights from the quarter.
We delivered strong results with <unk> per share at the midpoint of our guidance.
Our franchise portfolio is 97% leased.
Which is the highest level since we began disclosing segment.
2015 and.
It represents a 70 basis point year over year increase.
We raised the midpoint full year same property cash NOI guidance, but another hundred basis points, driven by another strong quarter and great performance year to date.
We remain on track to achieve our full year goals for vacancy.
And development leasing.
We placed 443000 square feet of development and projects into service during the quarter.
98% leased.
Our 1 million square feet of Iraq developments are 90% pre lease.
We raised $345 million of exchangeable notes in September.
And when combined with our free cash flow.
Have the necessary capital to fund our expected development investment through late 2026.
We narrowed the range of <unk> <unk> per share guidance and expect to deliver per share growth.
2% this year.
It was 1% higher than our initial expectations.
Okay.
Moving to specific results for the quarter.
We reported third quarter <unk> per share as just preparing for ability of 60 cents.
The total portfolio is 95, 1% leased.
At 94, 1% occupied.
Same property cash NOI increased four 5% over the third quarter of last year.
Increased six 2% during the first nine months of the year.
We executed 151000 square feet of vacancy leasing.
With a weighted average lease term is over eight years.
This brought our total for the nine months ended to 337000 square feet.
Based on our pipeline of demand across our portfolio that is in advanced negotiations, we're highly confident of meeting or exceeding.
Our full year target of 400000 square feet.
Our overall portfolio leasing activity ratio remained strong at 71%.
The pipeline of 861000 square feet of vacancy prospects.
In our defense portfolio.
We have 695000 square feet of available inventory.
And our activity ratios and even more impressive 104%.
Yeah.
Turning to quarterly leasing results.
Total leasing volume was 521000 square feet.
Included 370000 square feet of renewals.
Our retention rate was 82%.
And as 82, 5% year to date.
In our experience a key portfolio.
The retention rate was also 82%.
87, 3% year to date.
Cash rent spreads were up one 7%.
GAAP rent spreads were up nine 3%.
Driven by annual rent increases of two 7%.
The weighted average lease term of four two years.
Year to date.
Rent spreads are up one 2% on a cash basis.
Seven 5% on a GAAP basis with a weighted average lease term of four four years.
Measuring the starting cash rent from the tenants expiring lease.
So the starting cash rent that the renewal lease.
The compound annual growth rate achieved on these leases.
Was two 5% for the quarter.
And three 1% for the nine months ended.
On page 21 of our flipbook.
We provide our large lease disclosure, which details our view of renewals through 2025.
And we continue to expect portfolio retention can be extremely strong.
Looking forward over the next nine quarters.
We have $6 8 million square feet of leases expiring.
Which includes $3 8 million square feet of large leases.
Which we define as leases over 50000 square feet.
We expect to retention rate roughly 95% and these large leases.
Our 1 million square feet of active developments are 90% leased.
With a total estimated cost of $337 million.
<unk> seen a six projects located in Maryland.
The Virginia and Entre, Alabama.
We expect to place 380000 square feet of these projects into service during the fourth quarter that are 100% lease.
Our development leasing pipeline.
Which we define as opportunities, we consider 50% likely to win or better within two years or less.
Currently stands at 700000 square feet.
Down from the 1 million square feet reported last quarter.
That figure declined as we remove the opportunities associated with space command at Redstone Arsenal.
Given the President's recent decision to.
To maintain the command in Colorado Springs.
However, we do remain optimistic that future.
Future opportunities through space command may arise in the Redstone gateway.
Beyond that we're tracking another one 2 million square feet of potential future development opportunities, which should allow us to maintain a solid development pipeline in the near and medium term.
We achieved though driving leasing during the third quarter.
During the first nine months of the year, we executed 495000 square feet of development leases include.
Including three full building build to suits.
And 30000 square feet of development lease up.
We are actively negotiating leases with several defense contractors.
Including one, including one with our cloud computing customer.
We remain confident in achieving our 700 square foot development leasing growth for the year.
Our consistent demand and high occupancy levels at the National business Park.
In Redstone gateway compel us to develop in advance.
Inventory to accommodate this demand from U S government and contractors.
The National business Park is down 90, 944% leased with only 25000 square feet of ground lease space in the $4 3 million square foot Park.
And the largest rig can suite.
It's already 7800 square feet.
Our operating portfolio at Redstone Gateway is 98% leased.
And we have solid demand for the 100000 square feet of development space.
J D 100 Rideout road.
We expect fully leased in coming months.
With the MVP essentially full.
We commenced development of an inventory building during the fourth quarter.
<unk> 400.
We'll cross roughly $65 million.
It will total 140000 square feet.
We have a healthy pipeline of activity.
With 180000 square feet of tenant interest.
And we're highly confident we will pre leased the majority.
If not all of this space during the construction period.
Similarly at Redstone Gateway.
Plan to commence our next inventory development early next year.
The lease up is 8100 right out road is completed.
With good visibility into year end, we narrowed our <unk> per share guidance range, while keeping the midpoint unchanged.
Given the strength of our operating portfolio.
Our highly leased development pipeline.
And minimal interest rate exposure.
We continue to expect compound annual <unk> per share growth.
Roughly 4% between 2023 and 2026.
The midpoint of our original 2023 guidance.
And with that I'll hand, the call over to Anthony Thank you Steve.
We reported third quarter <unk> per share as adjusted for comparability of <unk> 60.
Which was at the midpoint of our guidance.
Quarter benefited from an uptick in occupancy and revenue recognition from developments placed into service, partially offset by higher interest expense.
We have generated excellent growth in same property cash NOI with the results that continued to surpass our initial expectations.
Driven by the year to date outperformance and our forecast for the remainder of the year, we are increasing the midpoint of our same property cash NOI guidance by another 100 basis points to 6%.
This represents a 300 basis point increase in the midpoint for same property cash NOI growth from our initial guidance established at the beginning of the year.
This increase was driven primarily by a reduction in free rent concessions and lower than expected net operating expenses.
Same property occupancy ended the quarter at 93, 4%, which is up 60 basis points sequentially from last quarter and up 120 basis points year over year, driven largely by the following lease commencements.
70000 square feet by Lockheed Martin at 1200, Redstone Gateway after taking occupancy of 52000 square feet in the second quarter and 90000 square feet in our Fort Meade BW corridor subsegment.
We lowered the midpoint of our same property year end occupancy guidance by 25 basis points to 93, 5%.
The decline is driven by lease commencements that will slip into 2024.
For context, the 25 basis point reduction in same property year end occupancy only amounts to a 50000 square foot timing change.
During the quarter, we also successfully issued debt in the public markets.
Last month, we issued $345 million of exchangeable notes maturing in 2028 with a coupon of 525%.
The rationale for the deal is simple.
First and foremost so eliminates the execution and pricing risk in a challenging market environment.
We are now able to fully fund our expected development through late 2026, and third there is no cash drag from the proceeds.
We typically accumulate the debt component of our development investment on our line of credit and then replenish that capacity with a capital markets transaction.
Our forecast at the beginning of the year assume that we would need to access the capital markets in the fourth quarter of 2024 in order to reload our line of credit.
Given the uncertainty volatility and risk in the capital markets, we reversed our sequence locking in attractive rates in advance.
With this structure, we were able to source that capital in an interest rate that was roughly 200 basis points below where we could have priced five year unsecured bonds.
Given the fact that in just seven weeks since the offering priced the underlying five year U S. Treasury rate has increased over 40 basis points, we have clearly achieved our goal.
The proceeds from this offering coupled with the retained cash flow provides us the necessary capital to fund the $250 million to $275 million of expected annual development investment over the next three years without having to source outside capital.
We used a portion of the proceeds to pay down our line of credit, which given where sofa rates are today is accretive by over 120 basis points.
Until funds are invested into development projects, we're able to invest the remaining proceeds at flat to slightly positive spreads relative to the debt coupon.
Given the fact that our development projects generate long term growth in <unk> and NAV.
We never wanted to be in a position, where we have to say no to one of these opportunities because of a lack of capital.
This transaction serves to reinforce our fortress balance sheet is in keeping with our successful track record of sourcing attractively priced capital and sources are and funds our expected development investment through late 2026.
As a result of our rebranding in September we made a few disclosure changes.
We combined two of our reportable segments, eliminating the regional office segment and reclassifying those assets to other.
With this reclassification, we will no longer be reporting our core portfolio and we'll report our assets as part of either our defense it portfolio or other.
Reflecting our intention to sell these assets when functioning markets return.
Based on those shortened hold periods, we determined that the carrying amounts of these properties were not recoverable from future on discounted cash flows and sale proceeds.
As a result, we recognized impairment losses of $253 million on these properties and a parcel of land marketing these assets down to their combined fair value of $311 million.
The magnitude of the impairment loss reflects valuations based on the current extreme market conditions.
However, as we reached the point of sale improvements in market conditions could lead to somewhat to significantly better sales prices.
Our balance sheet is well positioned to navigate the current volatility in the capital markets.
We have no significant debt maturities until March 2026.
Encumbered portfolio now represents 96% of total NOI from real estate operations.
At the end of the quarter, we had over 85% of the capacity on our line of credit available and over $200 million of cash on hand.
We have no variable rate debt exposure as the proceeds are from our exchangeable note offering were used to repay to pay down the unhedged balance of our line of credit.
In February we entered into interest rate swaps that kept sofa at 375% for three years on our $125 million term loan and $75 million of our line of credit.
As over 150 basis points lower than the current one month term sofa and provide significant protection in this higher for longer rate environment.
We expect 100% of our debt will be at fixed rates until late into 2024 as we initially fund development investment from our existing cash balance and subsequently funded from our line of credit.
With only two months left in the year, we are maintaining the midpoint of <unk> per share at $2 40.
But narrowing the range by one penny at both the Hallo and high end.
This midpoint represents a 2% increase in <unk> per share over 2020 two's results.
For the fourth quarter, we are affirming our guidance range for <unk> as adjusted for comparability of 60% to 62 per share.
With that I'll hand, the call back to Steve.
Thank you.
They typically closeouts trail by summarizing our key messages for the quarter.
However, this quarter I'd like to end by reminding investors of 10 key differentiators of our business our strategy and our portfolio.
Relative to peers that we reviewed at our recent Investor day.
One <unk>.
Our underlying economy is national defense and the missions realign with our high priority knowledge base National Defense missions.
<unk>.
These vision locations have permanence, and therefore are building locations are irreplaceable.
Three.
We have advantage land positions to grow which provides a clear path for future growth.
Sure.
Our tenant relationships are built on decades of trust is our top 15 tenants have on average for leases.
We are located in three to four of our markets.
Five the ratio work must be performed and secure working space, which protects us from work from home trends.
Skip facilities are hard to procure and very expensive to construct requiring.
Requiring significant tenant co investment.
Our assets, which makes tenants unable or unlikely to relocate.
Supporting our industry, leading retention rates.
Six defense contracting is very profitable business.
In financial distress as a major risk indicator for vulnerability to SPN ash.
For this reason, we have extremely strong tenant credit quality.
And seven <unk>.
Our low risk development pipeline drives reliable external growth.
Over the last seven years, we've allocated capital to over 7 million square feet of highly pre leased defense projects.
Eight.
Our deeply experienced employees, who carry high security credentials.
30 year track record of both constructing and operating secured facilities.
<unk> full government campuses skiffs.
Anti terrorism force protected properties.
Nine.
She is very strong and we are pre positioned to fund incremental development through 2026.
With no need for further debt or equity capital and no near term debt maturities.
And finally, the global threat environment entire national security.
And that of our allies.
Continue to escalate.
Virtually assuring continued strong investments in defense.
As we've watched the tragic events unfold over the past several weeks.
It provides a stark reminder of the importance of having a strong defense posture and the significance of intelligence and surveillance to the security of our country.
Operator, please open up the call for questions.
Thank you Mr. <unk> to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.
Okay.
Yes.
Okay.
Our first question comes from Kamil <unk> with Bank of America. Your line is open.
Hello, Sir then a lot of changes in the government and we're heading into an election year.
Just wondering if you still are confident on the outlook for the Vod funding plans on 2024 and is there anything you foresee that could change there.
Well, that's a bit of a according to us.
Right now there has been a pretty care that class three weeks in the house.
What I can tell you is both.
The house and Senate Armed services committees they.
I recommend recommended roughly a 3% increase in defense.
I think the worst case scenario would be in an environment, where they go to a continuing resolution.
And reduced defense by approximately 1%, but remember this reduction will be vastly different than the sequestration set occurred years ago.
Because it is that mandated ratably across the Dod.
And the Dod can prioritize where those cuts go.
And as I said in May.
10 key points the missions we support.
High priority knowledge base missions, there will be well funded.
Appreciate that color.
Can you talk next to the returns you're underwriting on the New development you had started this quarter.
Has there been any significant change in hurdles competitive projects.
12 months ago.
So we've pushed up our targeted cash yield I believe the targeted cash yield on that two elements eight in the quarter.
Got it.
And last one from me.
Can you talk to some of the third party broker assumptions mode.
The impairment adjustments on your regional assets.
<unk> now called <unk>.
Bucket.
Yes.
So I'll describe the process, we engage two sets of investment sales teams.
Suddenly gave us pricing and all of those assets.
And the spot market viewpoint.
They sell forward today.
We amalgamated the data in <unk>.
Why that.
The assets individually and as a result of that $251 million mark to market.
Okay.
I guess just trying to understand.
The underwriting is conservative enough or could we see more adjustments down the road.
Although we wanted to make sure that we retain very realistic.
Kind of a.
<unk> view of value.
So there is no sugarcoating in those numbers.
Got it thank you for taking my questions.
Thank you.
One moment for our next question.
Our next question comes from Nick Joseph with Citi. Your line is open.
Thanks, maybe just following up on your first comments regarding the defense budget.
What's happening in.
Yes.
Current negotiations that were engaged soon by any means.
<unk>.
I don't know what impact in the future might occur because of this budget all the deals that we're working on now.
Theres been no discussion concerned about passage of a budget.
Thanks, and then just on the.
There are the other bucket at this point.
So as you walk through the write down what are you looking for in terms of actually putting those assets on market are actually executing on a sale is it stability of interest rates is it something else as you talk to those brokers.
When do you actually think you will look to move away from them.
Early tests it is kind of a different story.
I'll just deal with Dell.
Will we ever.
<unk> first.
<unk> thousand 100, <unk>, we'd like to get stabilized above 85% criminal leased standpoint.
Similarly, hundredweight needs a bunch of leasing.
The other assets are more stabilized.
But I think most importantly outside of DC, it's functioning of a healthy debt market for office investors.
Which will require some better pricing that's available today.
To engage into a procurement.
Thank you very much.
A moment for our next question.
Our next question comes from Blaine Heck with Wells Fargo. Your line is open.
Thanks, Good afternoon.
Steve how do you feel about pricing power in general I mean, you guys increased your expectation slightly for rent spreads last quarter, but you are still kind of hovering around flat are there any indications that you guys can continue to see or should we expect those kind of rent spreads to remain pretty range bound.
Okay.
I would expect them to remain reasonably a range bound remember our quarter to quarter statistics can be somewhat misleading depending on how long the terms of the expiring leases work.
With our compound growth embedded in our lease structures.
Get longer leases.
The move to a reset point.
Not uncommon for them to have grown above the current market.
It reduces the mark to market that we get.
Thats why we always remind you what's the compound growth from start rent start rent in the bucket of leases, we complete the quarter because our growth manifests itself in the structure and not on the mark to market.
Okay.
Alright, that's helpful I guess.
Following up on that can you just talk about what kind of annual rent increases or escalator. If you guys are putting into leases on newly signed deal and how that kind of compares with historical averages and then maybe remind us what the average escalator is in your portfolio.
So currently we're.
Seeking escalators in the 3%.
Range, where typically we would have printed two 5%.
I would say the weighted average embedded this is entirely a guess.
We're around two 7%.
Yeah, Blayne, that's consistent with what we accomplished in the third quarter escalators on the renewal leases were two 7%.
Great. That's helpful. And then maybe sticking with you Anthony just on guidance. The increase in same store guidance is certainly a positive but didn't flow through to you an increase on on <unk>. So just wondering if thats the timing issue or whether that same store improvement was kind of offset by higher interest expense or something else.
Okay.
It was really what.
What was creating the incremental cash so we have had.
Success renewing space within our portfolio with limited free rent concessions compared to what we had forecasted so that results in increases in.
Cash NOI from a GAAP basis, that's pretty minor increase because the GAAP rent would have been included in our forecast.
And with respect to interest expense because we.
Essentially are fully fixed right now there's really no interest rate exposure for the balance of the year that would have offset that so it's mostly coming from that.
Strength of leasing activity we've had.
Got it that's helpful. Thanks, guys.
Next question.
Our next question comes from Tom Catherwood with BTG. Your line is open.
Thank you and good afternoon everybody.
And following up on.
One of your responses to that.
The Dod budget.
<unk> highlighted this 14, 7% increase in the budget since 2021.
But when we get kind of under the Hood on that are there also reallocations amongst that budget, giving.
More proceeds to priority missions that youre clusters are serving and do you have if that's the case do you have a sense maybe.
It's the whole budget is up 14, 7% do you have a sense of how much the missions that your properties are serving how much harder that is it is it more than that is it is it flat with that or is that not something you track.
So it's hard to get into that level of detail because the green brick doesn't tend to provide it.
The one that is called out as cyber.
Cyber is I believe up like 15% year over year comp.
Compounded is extremely strong right for the last decade.
And in the Fort Meade area, a lot of our leasing demand is tied cyber.
Yes.
You didn't ask Bob pointed out it takes.
Roughly 18 months after those increases to manifest itself into contractor demand. So.
So from a 14% increase we still think we have quite a bit of runway.
Demand notwithstanding what happens to this budget.
Got it I appreciate that.
And then at the Investor Day, you guys had done a deep dive on skiffs in the costs and what it takes to certify them from a tenant perspective, who typically manages that.
Yes build out process, so they going out and hiring the designer and consultants and contractor similar like they do for a regular office fit out.
So it depends on the tenant.
I think what you'll find is a few of the larger national platforms.
I'll handle that themselves with their own consultants.
For instance in the building you toured.
With us, which was $5 60, MVP that particular tenant is managing that.
<unk> development themselves with third parties.
More came in with the small and medium sized contractors, they come to us because of our expertise and capability of managing them through that process.
Getting their online as quickly as you can so.
It's kind of split.
That is that peer either way if you will do it themselves.
Understood understood and then last one for me.
Over on 'twenty 100, L Street, any updates on on tenant activity or kind of near term leasing expectations.
Well I'm reluctant to be too assertive.
Particular topic.
We're close to a deal in August it ended up being a no deal which was pretty disappointing we do have activity.
As a percent of vacancy or activity ratio is 58%. We've got one large prospect we're working with.
Got a couple of preliminaries behind that.
But that market continues to move in a very slow and deliberate way.
Got it thanks for the answers.
Okay.
One moment for our next question.
Okay.
Sure.
Our next question comes from Richard Anderson with Wedbush Securities. Your line is open hey, Thanks, good afternoon.
So on the new basis on the on the other assets.
<unk> $311 million.
What would that imply if you were to sell it the entirety of it today in terms of the cap rate sort of trying to get a sense of.
The sort of potential.
Dilution from a transaction understanding you are not doing at this moment, but just wanted to sort of triangulate that a little bit.
So rich if you take the.
The annualized quarterly cash NOI from those properties.
And deduct that.
The land component of Canton land Thats part of that $311 million that cap rate is about eight 8%.
Okay.
Were any of the people that helped you in the valuation interested themselves.
So there are service firms they were interested in selling them on we're ready, but you weren't interested in buying.
Alright.
Okay.
Wedbush would look great on top of one of those buildings.
Yes.
Hey, good website, it's available in several spots.
Yes, well.
Corporate office signs need to be dusted off maybe.
So the other question I have is you talked about.
What I would call spec development.
MVP and Red Redstone understood you want to be ready for demand.
A larger percentage of spec development or are you comfortable having.
Tired <unk> within the development portfolio and would there be any more outside of MVP and redstone that you'd be willing to take that type of strategy.
Well I'll answer the glass component for snow outside of MVP rates, we'd be.
Hi, Lee Reticent started spec building.
At both Red certainly an MVP, we see the demand.
Interest capture we need to get going.
So we have more than 100% of the capacity of MVP 400.
Looking for space solutions now.
Roughly a third of the building group.
Actually negotiating lease terms.
And there are multiple tenants are extremely confident that will be released.
Frankly were.
Working on what's next alternative as we get this one really we want to make sure we deliver another one as well.
Okay.
And specifically for MDC.
I'm sorry go ahead rich total is one at a time.
At MBP and Redstone.
To be.
The evolving or emerging demand, we see we didn't see the demand we wouldn't start the building and we don't use the word spec we use inventory because we have nothing left to lease.
Fair enough.
And this might be in the range of a silly question, but I'll ask it anyway.
He has been around for a while now.
Building further and further away from the hub of activity.
Does that really become an issue where just proximity.
Is less appealing to people or nowhere near that type of stress in terms of the development.
And that's really never an issue.
Because the advantages of being at the MVP are ubiquitous part.
<unk>.
Throughout the entirety of the part.
The shuttle services run through the entirety of the park.
And the ability to.
Work in harmony with competitors or partners on contracts is not impaired by the short distance between MBP, South and north So it's really better factor, Okay, and then last Anthony for you I understand.
The debt raise and having yourself covered through 2026, no need for outside capital does that mean.
This positions.
Is it all just cash flow generation.
To cover the difference between what you raised and what you have to spend over the next three years or could there be.
A meaningful asset sale component to that financing activity over the next few years. Thanks.
No. It's all our base plan is built on.
Our sources that are the debt that we have raised and now have in the bank and the equity component of the development investment is funded from cash from operations after our dividend.
If we have the opportunity to.
Take advantage of developments that are in excess of that amount then we would look to different.
Different ways to capitalize that but our base plan of $250 million to $275 million of development each year is.
Effectively fully funded right now.
Okay awesome, thanks very much.
Our next question.
Our next question comes from Dillon presents Keith with Green Street. Your line is open.
Yes.
Thanks for taking the question.
Just on development leasing.
You guys mentioned year, you're still likely to hit that 700000, 700000 square foot Mark this year, but as we look out towards 24% 25, I guess what are you guys have baked into your estimates should we expect you guys to remain in that 700000 square foot range are slightly lower or just how should we be thinking about that.
Well I think about it more as dollars square feet.
And Anthony gave you the range of $250 million to $235 million each year.
One of the facts CF directly guys as developments roughly 30% more expensive.
Today than it was two and a half years ago.
If the money, we invest that we generate the growth.
Square footage.
I don't want to give any guidance looking forward, but we do have 1.25 million square feet of projects.
Have actively had discussions with customers on.
We currently do not believe our 50% likely to win in two years or less.
So we're pretty confident we'll have some substantial square footage numbers Scott.
Thanks, Thats all I had.
Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
One moment for our next question.
Our next question comes from Jay <unk> with Evercore ISI. Your line is open.
Alright. Thanks for taking my question I was wondering if you could just provide a little bit of color on the breakdown of the development leasing pipeline are they more focused on new needs expansions renewals any color there would be great.
Yes.
So most of them I would say, our new business opportunities with defense contractors.
In the current pipeline.
There is about 31% of the square footage that we.
Said is roughly 700000 square feet.
Associated with the data Center show.
The other 69.
Percent are defense contractors, and a variety of locations and our partners.
With regard to the 125 million square feet beyond that.
Yes.
Only about 15% data center shell.
85% defense contractor pretty broad base.
In.
Three or more of our locations.
Defense contractor in the U S government.
That's helpful. Thank you and then just on the data Center point. There can you just talk about your appetite for potentially going to new markets I know Northern Virginia has the power constraint. So just curious your thoughts on potentially developing in.
Non let's call it core market for data centers.
Well, we will be happy to follow our core customer to a new market.
Provided it was a.
Established data center market.
Strong expectation of long term value.
If it were a <unk>.
Secondary tertiary market that has that will establish I don't think we put our capital into that.
Sounds good thank you.
Alright, thank you.
This concludes the question and answer session I will now turn the call back to Mr. <unk> for closing remarks.
So first welcome back rich it's good to have you on the call.
Thank you all for joining the call today, we are in our offices. So please coordinate through venkat, if you'd like to follow up.
Thank you for your participation today and the coach Defense properties third quarter 2023 results Conference call. This concludes the presentation. You may now disconnect good day.
Okay.
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