Q1 2024 COPT Defense Properties Earnings Call
Operator: Welcome to the Copped Defense Properties First Quarter 2024 Results Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Venkat Kommineni, COPT Defense's Vice President of Investor Relations. Mr. Kommineni, please go ahead.
Welcome to the cops defense properties first quarter 'twenty 'twenty four results conference call.
As a reminder, today's call is being recorded at this time I will turn the call over to Venkat common any court defenses, Vice President of Investor Relations Mr. Coming any please go ahead.
Venkat Kommineni: Thank you, Lateef. Good afternoon, and welcome to COP Defense's conference call to discuss first quarter results. With me today are Steve Budorick, President and CEO, Britt Snider, Executive Vice President and COO, and Anthony Mifsud, 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 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 SEC files. However, actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them.
Venkat: Thank you Rajeev.
Venkat: And welcome to the Commscope Andrew's conference call to discuss first quarter results with me today are Steve <unk>, President and CEO, Britt Schneider Executive Vice President and CFO.
And Anthony <unk> Executive Vice President and CFO.
Venkat: Liliaceous of GAAP and non-GAAP financial measures that management discusses are available on our website in the results press release and presentation.
Venkat: A supplemental information package.
Venkat: Reminder, forward looking statements made during today's call are subject to risks and uncertainties, which are discussed in our SEC filings actual events and results can differ materially from these forward looking statements and the company does not undertake.
Venkat: Yes.
Stephen E. Budorick: Good afternoon, and thank you for joining us. We're off to a great start in 2024. We reported FFO per share of $0.62 for the first quarter, which was $0.02 above the midpoint of guidance. Same property cash NOI increased 6.1% year over year. The strong performance is driven by our high tenant retention, contractual rent escalation, revenue growth from vacancy leasing achieved last year, strong property operations, and to a lesser extent, new properties added to the same property pool in January. The 2023 St. Property Pool and a Stand-Alone Basin
Venkat: Steve.
Steve: Good afternoon, and thank you for joining us.
Steve: You're off to a great start in 2024.
Steve: We reported <unk> per share of <unk> 62 cents for the first quarter.
Steve: Which was two cents above the midpoint of guidance.
Steve: Same property cash NOI increased six 1% year over year.
Steve: For them, it's driven by our high tenant retention contractual rent escalations.
Steve: New growth from vacancy leasing achieved last year.
Steve: On property operations and to a lesser extent new properties in the same property pool in January.
Steve: The 2023 same property pool, and a stand alone basis generated a four 8% growth.
Stephen E. Budorick: Generated 4.8% We completed 721,000 square feet of total leasing volume, which consisted of 551,000 square feet of renewal leasing, with a 78% retention rate. 160,000 square feet of vacancy leasing, which amounts to 40% of our full year target, and 10,000 Square Feet of Development. We committed $91 million of capital to new investment, which includes two development starts that will provide much needed inventory in our highest occupancy market, The National Business Park and Redstone Gateway, where we literally have no comparable space left to lease.
Steve: We completed 721000 square feet of total leasing Bryan.
Steve: Which consisted of 551000 square feet of renewal leases.
Steve: The 8% retention rate.
Steve: 160000 square feet of vacancy leasing.
Steve: Richemont is 40% of our full year target.
Steve: 10000 square feet of development leasing.
Steve: We generated $91 million of capital to new investments, which includes two development starts that will.
Steve: Provide much needed inventory and are the highest occupancy markets.
Steve: The National business Park in Redstone Gateway.
Steve: We literally have no comparable space left to lease.
Stephen E. Budorick: Our active development pipeline now totals roughly 960,000 square feet. It is 74% pre-leased, excluding the three inventory buildings. Our pipeline is 100% pre-aligned. We placed 73,000 square feet of development space in the service that was 100% leased and unsold.
Steve: Our active development pipeline now totals roughly 960000 square feet.
Steve: It is 74% pre leased.
Steve: The total cost of $381 million, which is nearly $60 million increase from last quarter.
Steve: And <unk>.
Steve: Excluding the three inventory buildings.
Steve: Pipelines are 100% pre lease.
Steve: We placed 73000 square feet of development space into service that were 100% leased in answering.
Stephen E. Budorick: In mid-March, we acquired a 202,000-square-foot building in Columbia Gateway for $15 million, which I will discuss in more detail in a moment. Our business continues to generate increasing AFFO, and our dividend payout ratio remains strong, coming in at 57% for the quarter. Finally, based on our performance and expectations for continued growth, in February, our Board of Trustees approved a 3.5% increase to our dividend, which marks our second consecutive annual increase, following the 3.6% raise in 2020. We are the only REIT in our sector to raise the dividend year-to-date, which demonstrates the confidence we have in the strength and durability of our FFO and AFFO growth profiles. Now, turning to guidance.
Steve: In mid March we acquired a 202000 square foot building in Columbia Gateway for $15 million, which I will discuss in more detail in a moment.
Steve: Our business continues to generate increasing handset.
Steve: And our dividend payout.
Steve: Payout ratio remained strong coming in at 57% for the quarter.
Steve: Finally, based on our performance and expectations for continued growth.
Steve: In February our board of Trustees approved the three 5% increase to our dividend.
Steve: Which marks our second consecutive annual increase.
Steve: The three 6% raise in 2033.
Steve: We are the only REIT in our sector to raise the dividend year to date reached.
Steve: Which demonstrates the confidence we have in the strength and durability of our <unk> growth profile.
Stephen E. Budorick: We increase the midpoint of our 2024 FFO per share guidance by 3 cents to $2.54, which implies 5% year-over-year FFO growth. In contrast, over two-thirds of the NAREIT-defined office rates are expected to see FFO per share decline in 2024, between 2019 and the midpoint of our new 2024 guidance. We expect to generate 25% FFO per share growth, which amounts to a 4.6% compound annual growth rate. This is the second highest growth rate among our peer sets.
Steve: Now turning to guidance.
Steve: We increased the midpoint of 2024 <unk> per share guidance by three two.
Steve: $2.54.
Steve: Which implies 5% year over year after a strong growth.
Steve: In contrast over two thirds of the NAREIT defined <unk> reads are expected to <unk> <unk> per share decline in 2024.
Steve: Between 2019 at the midpoint of our new 2024 guidance, we expect to generate 25% <unk> per share growth.
Steve: Which amounts to a four 6% compound annual growth rate.
Steve: This is the second highest growth rate among our peer set capital go to the median growth through the triple net sector.
Stephen E. Budorick: Comparable to the median growth for the triple net sector and stronger than the multifamily segment over the same period. Our differentiated strategy has, and will, continue to produce differentiated results. Turning to the world, over the past few months, the conflicts between Iran, its proxies, and Israel, as well as Russia and Ukraine, continue to escalate, while China remains an ever-present and growing threat. On March 20,
Steve: Stronger than multi.
Multifamily segment over the same period.
Steve: Our differentiated strategy has.
Steve: And we'll continue to produce differentiated results.
Steve: Turning to the Worldview.
Over the past few months the conflicts between Iran is proxies in Israel.
Steve: Well as Russia, and Ukraine continue to escalate.
Steve: China remains an ever present and growing threat.
Stephen E. Budorick: The FY 2024 Defense Appropriations Act was signed into law. The total amount of transparency is $131 billion. $30 billion, or 4% increase over last year. This is actually larger than the 3.3% increase in the approved NDAA submitted in December and $4 billion higher than the President's initial budget request. The FY 2024 budget and appropriations are separate from the $95 billion and Supplemental Funding for Ukraine, Israel, and Taiwan, which passed the House and Senate with bipartisan support and was signed into law on Wednesday.
Steve: On March 20th P. F Y 2020 for Defense Appropriations Act was signed into law.
Steve: Okay.
Steve: 800.
Steve: A $30 billion or 4% increase over last year.
Steve: This is actually larger than the three three.
Steve: 3% increase in the approved NDA submitted in December.
Steve: $4 billion higher than the presence initial budget request.
Steve: The FY 'twenty 'twenty four budget and appropriations are separate from the $95 billion in supplemental funding for Ukraine, Israel, Taiwan, which passed the house.
Steve: Incentive with bipartisan support and was signed into law on Wednesday.
Stephen E. Budorick: In a time when the global security environment is becoming increasingly complicated, we continue to have a high level of confidence that Congress will continue to work in a bipartisan manner, as they just did, to fund national security interests and support our allies around the world.
Steve: In a time, where the global security environment is becoming increasingly complicated.
Steve: We continue to have a high level of confidence that Congress will continue to work in a bipartisan manner as they just did cause fun national security interests and support our allies around the world.
Stephen E. Budorick: I conclude my remarks by discussing our recent acquisition. In March, we acquired Franklin Center and Columbia Gateway for $15 million, which marks our first acquisition in nine years. Franklin Center is a 202,000-square-foot Class A office building, which sits less than a mile from our headquarters and is 56% leased to a leading defense contractor. This building, constructed in 2008, is the second newest development in the park, is LEED Gold Certified and well maintained.
Steve: I'll conclude my remarks by discussing our recent acquisition.
Steve: In March we acquired Franklin Center in Columbia Gateway.
Steve: For $15 million, which marks our first acquisition in nine years.
Steve: Franklin centers 202000 square foot class, a office building, which sits less than a mile from our headquarters.
Steve: It is 56, 6% leased to a leading defense contractor.
Steve: This building constructed in 2008.
Second newest development in the park.
Steve: Is LEED gold certified and well mannered ties.
Stephen E. Budorick: We still have an opportunity to acquire an asset and keep it in the scrappage for a period of time. We're working to leverage our technology to bring it to an end-time standard. It's great to hold her back.
Speaker Change: We saw an opportunity to acquire an asset.
Okay.
Uh huh.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: Great shareholder value.
Stephen E. Budorick: And the first is the mission. The property must be proximate to a priority knowledge base national defense mission that has permission. Second, the market. The market must have fundamentals that attract defense IT tenants serving the mission. They're depressed.
Speaker Change: Okay.
Speaker Change: Alright.
Speaker Change: Exactly.
Speaker Change: Yes.
Speaker Change: And the first is the mission.
Speaker Change: The property must be proximate to our priority knowledge base national transmission that has permanent.
Speaker Change: Second the market there.
Speaker Change: Thank goodness that fundamentals that attract defence tenants serving the measures.
Stephen E. Budorick: We look for attributes that would lead to high tenant retention, such as high efficiency in planning and operation, or significant tenant co-investment, and specialized improvements such as SCIF. Hand forth the return. The initial cash yield needs to meet or exceed what we earn on our development. The Franklin Center checked all four of these boxes. The strategic rationale behind the deal is quite something, and it is evaluated at opportunity with significant accuracy. We acquired it at a substantial discount through replacement.
Third the property.
Speaker Change: Look for attributes that lead to high tenant retention, such as high efficiency in planning and operations and our significant tenant co investment and specialized improvements such as skiff.
Speaker Change: And fourth the return to it.
Speaker Change: Initial cash yield needs to meet or exceed what we earn on our developments.
Speaker Change: Franklin Center check all four of these boxes.
Speaker Change: The strategic rationale behind the deal is quite simple.
Speaker Change: Evaluate opportunity with significant accuracy upset.
Speaker Change: We acquired it at a substantial discount to replacement cost.
Stephen E. Budorick: Enhancing our relationship with the top 10 U.S. defense contractors, it solidifies our position as the dominant owner in Columbia Gateway. And it provides much-needed inventory, as our Columbia Gateway portfolio is nearly 95% leased, excluding Sakwa. We already have a strong leasing pipeline for the S&P, with a leasing activity ratio of 200%. Which means we have 180,000 square feet of demand for the 90,000 square feet of vacancy we acquired, our entire two and a half million square foot Columbia Gateway Portfolio.
Speaker Change: It enhances our relationship with a top 10 U S defense contractor.
Speaker Change: Solidifies our position as the dominant owner in Columbia Gateway.
Speaker Change: And it provides much needed inventory as our Columbia Gateway portfolio was nearly 95% leased excluding this acquisition.
Speaker Change: We already have strong leasing pipeline for the asset with the leasing activity ratio of 200%.
Speaker Change: Means we are a 180000 square feet of demand for the 90000 square feet of vacancy we acquired.
Speaker Change: Our entire two and a half million square foot Columbia Gateway portfolio the activity ratio was 190%.
Stephen E. Budorick: The activity ratio is 190, with roughly 445,000 square feet of demand for the 235,000 square feet of vacancy. I am highly confident we can unlock value in this asset, as roughly 80% of the defense IT tenancy and the entire Columbia Gateway Park chooses police defense as their limb. So with that, I'll hand it over to Britt.
Speaker Change: With roughly 445000 square feet of demand for the 235000 square feet of vacancy.
Speaker Change: I am highly confident we can unlock value in this asset.
Speaker Change: Roughly 80% of the defense tenancy and the entire Columbia Gateway Park.
Speaker Change: Cap defense as their landlord.
Britt A. Snider: Thank you, Steve. Our business remains strong as the federal government and contractors rise to meet the current challenges that we're all witnessing around the world. The need for secure space continues to grow, and that demand is becoming more and more immediate. This strong demand has benefited us as we've been able to achieve stronger leasing economics by reducing concessions, principally by lowering or eliminating rent abatements in our defense IT portfolio. Our leasing activity ratio for available space strengthened over the quarter to 85% for the total portfolio, despite executing 160,000 square feet of vacancy leasing and adding 90,000 square feet of inventory during the quarter.
Speaker Change: So with that I'll hand, it over to Brett.
Brett: Thank you, Steve our business remains strong as the federal government and contractors rise to meet the current challenges that we're all witnessing around the world.
Brett: The need for secure space continues to grow and that demand is becoming more and more immediate.
Brett: <unk> demand has benefited us as we've been able to achieve stronger leasing economics economics by reducing concessions principally by lowering we're eliminating rent abatements in our defense portfolio.
Brett: Our leasing activity ratio for available space strengthened over the quarter to 85% for the total portfolio. Despite executing 160000 square feet of vacancy leasing.
Brett: And adding 90000 square feet of inventory during the quarter.
Britt A. Snider: The activity ratio is even higher in our Defense IT portfolio at 108%, as we only have 770,000 square feet of inventory available out of 22 million square feet. Looking at our markets, the MVP remains the strongest component of the portfolio with continued demand from our largest customers.
Brett: The activity ratio is even higher than our defense portfolio at 108% as we only have 770000 square feet of inventory available out of 22 million square feet.
Brett: Looking into our markets and the MVP remains the strongest component of the portfolio with continued demand from our largest customers while cyber related businesses continued to both enter and grow within our Columbia Gateway sub market.
Britt A. Snider: While cyber-related businesses continue to both enter and grow within our Columbia Gateway sub-market, missile defense-related businesses and support for other missions at Redstone Arsenal continue to thrive at Redstone Gateway, where we're also seeing increased interest in R&D, testing, and lab space. And lastly, with the completion of the fiscal year 2024 budget, we're pleased to see increased activity in all three of our Navy support locations. And in our other segment, we're making leasing progress in those competitive environments.
Brett: Missile defense related businesses and support for other missions at Redstone Arsenal continue to thrive at Redstone Gateway and we're also seeing increased interest in R&D testing and lab space.
Brett: And lastly, with the completion of the fiscal year 2020, we're pleased to see increased activity in all three of our Navy support locations.
Brett: In our other segment, we're making leasing progress in those competitive environments with success defined in the $5 to 15000 square foot increments.
Britt A. Snider: So success is defined in the 5 to 15,000 square foot environment. At 2100 L Street in D.C., we actually signed a lease yesterday for 16,000 square feet, which stabilizes that building at 92% occupancy. We expect to have additional good news on the leasing front in the coming months. Our portfolio occupancy ended the quarter at 93.6%, with our defense IT portfolio at 95.6%. The 60 basis point quarterly-over-quarter decline for both figures was driven by, one, the acquisition of Franklin Center, which had 90,000 square feet of vacancy, and two, the known non-renewals we discussed last time.
Brett: 100 L Street in D. C. We actually signed a lease yesterday for 16000 square feet, which stabilizes that building at 92% leased.
Brett: In our other segment and expect to have additional good news on the leasing front in the coming months.
Brett: Our portfolio occupancy ended the quarter at 93, 6% with our defense portfolio at 95, 6%.
Brett: The 60 basis point quarter over quarter decline for both figures was driven by one the acquisition of Franklin Center, which had 90000 square feet of vacancy and to the known non renewals we discussed last quarter.
Britt A. Snider: In terms of vacancy leasing, we executed 160,000 square feet during the quarter, and we are well positioned to meet our full year target of 400,000 square feet. Vacancy leasing as a percentage of available space at year end was over 14% in our total portfolio and over 18% in our defense IT portfolio. Half of the leasing volume was signed in the Fort Meade-BW corridor segment, with Columbia Gateway in particular standing out at 40,000 square feet, or 25% of the total.
Brett: In terms of vacancy leasing we executed 160000 square feet during the quarter and we are well positioned to meet our full year target of 400000 square feet.
Brett: Vacancy leasing as a percentage of available space at year end was over 14% in our total portfolio and over 18% and our defense portfolio half of the leasing volume was signed in the Fort Meade BW corridor segment with Columbia Gateway, a particular standout at 40000 square feet or 25% of the total.
Britt A. Snider: And I'd like to share some key leasing stats with you. Roughly 105,000 square feet of vacancy leasing was with defense contractor tenants, and importantly, we actually had nearly 50,000 square feet in our other segment, half of which occurred at Pinnacle Towers in Northern Virginia, where we increased the lease rate by nearly 700 basis points sequentially. Roughly 60,000 square feet, or nearly 40% of the total, was tied to cyber activity.
Speaker Change: And I'd like to share some key leasing stats with you.
Speaker Change: Roughly 105000 square feet of vacancy leasing was with defense contractor types and importantly, we actually nearly 50000 square feet in our other segment.
Speaker Change: Of which occurred at clinical towers in Northern Virginia, where we increased the lease rate by nearly 700 basis points sequentially.
Speaker Change: Roughly 60000 square feet or nearly 40% of the total was tied to cyber activity nearly 70% of combined vacancy and development leasing was repeat business with existing tenants.
Britt A. Snider: Nearly 70% of combined vacancy and development leasing was repeat business with existing tenants. Cash rent spreads on the 551,000 square feet of renewals were down 2.5%, while gap rent spreads were up 3.7%, driven by annual rent increases of 2.4% with a weighted average lease term of 4.1 years. On page 26 of our flip book, we provide detail on two larger renewals that negatively impacted the change in cash flow. These renewals consisted of a 110,000 square foot lease in our defense IT segment in Northern Virginia and a 30,000 square foot renewal in our other segment at 100 White Street in Baltimore.
Speaker Change: Cash rent spreads on a 551000 square feet of renewals were down two 5% our GAAP rent spreads were up three 7% driven by annual rent increases of two 4% with a weighted average lease term of four one years.
Speaker Change: On page 26 of our flipbook, we provide detail on two larger renewals that negatively impacted the change in cash rent. These.
Speaker Change: These renewals consisted of 110000 square foot lease in our defense segment in Northern Virginia and.
Speaker Change: And a 30000 square foot renewal in our other segment at 100 Light Street in Baltimore.
Britt A. Snider: The Northern Virginia renewal was the largest lease signed during that quarter in that market, with starting cash rent on the above-grade space at $40 a foot, which, despite the rent roll-down, is actually still 8% above other deals executed in both the sub-market and all of Northern Virginia. Excluding the impact of these two renewals, cash rent spreads were flat, while gap rent spreads were up 8.1 percent.
Speaker Change: The Northern Virginia renewal was the largest lease signed during that quarter in that market. We're starting cash rent on the above grade space at $40, a foot, which despite the rent roll down is actually still 8% above other deals executed in both sub market in all of Northern Virginia.
Speaker Change: Excluding the impact of these two renewals cash rent spreads were flat, while GAAP rent spreads were up eight 1%.
Britt A. Snider: We continue to expect cash rent spreads to be flat for the full year at the midpoint and retention in the 75 to 85 percent range. The 2.5% cash rent rolldown during the quarter equates to only $450,000 in annual rental revenue or only 0.1% of the total which we anticipate making up over the course of the year. In addition, this impact is inconsequential when compared to the annualized revenue contribution from vacancy leasing achieved in the quarter of approximately $4.8 million.
Speaker Change: We continue to expect cash rent spreads to be flat for the full year at the midpoint and retention in the 75% to 85% range.
Speaker Change: The two 5% cash rent roll down during the quarter equates to only $450000 in annual rental revenue or only <unk>, 1% of the total and which we anticipate making up over the course of the year. In addition, this impact is inconsequential when compared to the annualized revenue contribution from vacancy leasing achieved in the quarter.
Speaker Change: <unk> of approximately $4 $8 million.
Britt A. Snider: As shown on page 25 of the flipbook, we continue to expect the retention on our large leases through year-end 2025 to be over 95 percent. Now turning to development, as you recall, one key aspect of our development strategy is to always maintain some level of inventory at locations where we see strong demand. And when you're fully leased, we will commence a new project to create inventory. The Redstone Arsenal is 98.6% leased and 97.4% occupied across that 2.4 million square foot park.
Speaker Change: As shown on page 25 of the flip book, we continue to expect our retention on our large leases through year end 2025 to be over 95%.
Speaker Change: Now turning to development as you recall, one key aspect of our development strategy is to always maintain some level of inventory at locations, where we see strong demand.
Speaker Change: Hearing fully leased we will commence new projects create inventory.
Speaker Change: The Redstone Arsenal is 98, 6% leased and 97, 4% occupied across that $2 4 million square foot Park.
Britt A. Snider: Twenty of the twenty-four properties are 100% leased, with less than 35,000 square feet of unleased space at quarter end in the operating portfolio. We have 8100 Rideout Road under construction to create office inventory at Redstone Gateway. The project is 42% pre-leased with a leasing activity ratio of 135%, with 100,000 square feet of demand on the 75,000 square feet of vacancy. During the quarter, we also started 9700 Advanced Gateway, a high bay R&D and testing facility.
Speaker Change: 20 of the 24 properties are 100% leased with less than 35000 square feet of unused space at quarter end in the operating portfolio.
Speaker Change: We have 8100 right out road under construction to create office inventory at Redstone Gateway.
The project is 42% pre leased with our leasing activity ratio of 135% with 100000 square feet of demand on the 75000 square feet of vacancy.
Speaker Change: During the quarter. We also started 9700 advanced Gateway, our high Bay R&D and testing facility.
Britt A. Snider: This 50,000 square foot project has a total cost of $11 million and is 20% pre-leased to a defense IT firm headquartered in Huntsville. We have a leasing activity ratio of 150% with 60,000 square feet of demand on the 40,000 square feet of acreage. Similarly, the National Business Park is 99.1% leased and occupied across that 4.3 million square foot park. 29 of the 34 properties are 100% leased, with only 37,000 square feet of unleased space at quarter end.
Speaker Change: This 50000 square foot project has a total cost of $11 million in its 20% lease pre leased to a different site firm headquartered in Huntsville.
Speaker Change: Leasing activity ratio of 150% with 60000 square feet of demand on the 40000 square feet of vacancy.
Speaker Change: Similarly, the National business Park is 99, 1% leased and occupied across that $4 3 million square foot Park <unk>.
Speaker Change: 29 of the 34 properties are 100% leased with only 37000 square feet of on these space at quarter end.
Speaker Change: Accordingly, we started MVP 400 during the quarter, which was 138000 square foot $65 million office project.
Britt A. Snider: Accordingly, we started MVP 400 during the quarter, which is a 138,000 square foot, $65 million office project. We have leasing activity of 150%, with over 200,000 square feet of demand for that project. Our development leasing pipeline, which we define as opportunities we consider 50% likely or better to win within two years or less, currently stands at over 500,000 square feet. And beyond that, we're tracking over a million square feet of potential future development opportunities, which should allow us to maintain a solid development pipeline in the near and medium term.
Speaker Change: We have a leasing activity of 150% with over 200000 square feet of demand for that project.
Speaker Change: Our development leasing pipeline, which we define as opportunities, we consider 50% likely you're better to win within two years or less currently stands at over 500000 square feet and beyond that we're tracking over 1 million square feet of potential future development opportunities, which should allow us to maintain a solid development pipeline in the near and medium term.
Speaker Change: I'll conclude my remarks by highlighting the increased importance of Columbia Gateway is a cyber defense and at hub with a combination of government tenants and a rich concentration of cyber innovators that grow their businesses and space requirements with us.
Speaker Change: There are four factors that contribute to Columbia gateway success.
Speaker Change: And usually commutable location, located midway between Baltimore, and Washington D. C. It provides tenants the ability to attract young educated workers from both cities.
Britt A. Snider: And I'll conclude my remarks by highlighting the increased importance of Columbia Gateway as a cyber defense and IT hub, with a combination of government tenants and a rich concentration of cyber innovators that grow their businesses and space requirements with us. There are four factors that contribute to Columbia Gateway's success. First, an easily commutable location, located midway between Baltimore and Washington, D.C. It provides tenants with the ability to attract young, educated workers from both cities.
Speaker Change: Second is only seven miles to Fort Meade, which is home to a large intelligence agency U S. Cyber command and over 100 federal agencies and military commands.
Speaker Change: Third growth in cyber conduct.
Speaker Change: Fiber funding increased over $2 billion this year, which is over a 40% increase over the past four years and the Dod is requested another $1 billion increase for 2025.
Speaker Change: And finally, our lifecycle landlord proposition, we have a unique ability to attract early to mid stage defense contractors, given our expertise and ability to scale with them and mission critical locations.
Britt A. Snider: Second, it's only seven miles to Fort Meade, which is home to a large intelligence agency, U.S. Cyber Command, and over 100 federal agencies and military commands. Third, growth in cyber funding. Cyber funding increased over $2 billion this year, which is over a 40% increase over the past four years. And the DoD has requested another $1 billion increase for 2025. And finally, our lifecycle landlord proposition. We have a unique ability to attract early to mid-stage defense contractors given our expertise and ability to scale with them at mission-critical locations, a variety of product types, and office suites that foster growth among contractors as they mature, win contracts, and expand their businesses.
Speaker Change: A variety of product types office suites.
Fosters growth among contractors as they mature wind contracts and expand their businesses.
Speaker Change: Columbia Gateway was 94, 8% leased and 92, 9% occupied at quarter end, excluding our Franklin Center acquisition.
Speaker Change: After reserving inventory for our high probability prospects, we had only 40000 square feet remaining to lease in the park with the largest remaining suite at 9000 square feet.
Speaker Change: We often discuss the strength of the MVP in Redstone markets. This acquisition of Franklin Center provides a great opportunity to spotlight, our Columbia Gateway portfolio and provides much needed inventory to allow us to continue to solidify our dominant market position and meet the needs of our defense customers with that I'll hand, it over to Anthony.
Anthony: Brett we reported first quarter <unk> per share as adjusted for comparability of <unk> 62.
Britt A. Snider: Columbia Gateway was 94.8% leased and 92.9% occupied at quarter end, excluding our Franklin Center acquisition. After reserving inventory for our high probability prospects, we had only 40,000 square feet remaining to lease in the park, with the largest remaining suite at 9,000 square feet. While we often discuss the strength of the MVP and Redstone markets, this acquisition of Franklin Center provides a great opportunity to spotlight our Columbia Gateway portfolio and provides much-needed inventory to allow us to continue to solidify our dominant market position and meet the needs of our defense IT customers. With that, I'll hand it over to Anthony.
It was <unk> <unk> above the midpoint of our guidance.
Anthony: The quarter benefited from lower net operating expenses, primarily due to favorable weather conditions increased interest income on our cash balances and slightly lowered net G&A and venture expenses.
Anthony: During the quarter.
Anthony: Okay.
Anthony: From that standpoint.
Anthony: 6% for our defense portfolio.
This strong performance was a combination of the 2023 same property pool, increasing four 8% with the defense portion of that portfolio, increasing six 3% plus the impact of properties that were added to the 2020 for pool.
We increased the midpoint of our same property cash NOI guidance by 50 basis points to six 5%.
Anthony Mifsud: We reported first quarter FFO per share as adjusted for comparability of $0.62, which was $0.02 above the midpoint of our guidance. The quarter benefited from lower net operating expenses, primarily due to favorable weather conditions, increased interest income on our cash balances, and slightly lowered net G&A and venture expenses.
Anthony: Driven by lower than expected free rent concessions on renewals and better operating margins.
Anthony: Same property occupancy ended the quarter at 93, 5%, which is down 30 basis points sequentially from last quarter, but up 90 basis points year over year as.
Anthony: As previously discussed the decline was driven primarily by two downsizes totaling 72000 square feet.
Anthony: First 100000 square foot contractor downsized to 60000 square feet.
Anthony Mifsud: During the quarter, we increased our property tax and economic analysis system by 1.1% for our portfolio and 7.6% for our defense IT portfolio. This strong performance was a combination of the 2023 same property pool, increasing 4.8 percent with the defense IT portion of that portfolio increasing 6.3 percent, plus the impact of properties that were added to the 2024 pool. We increased the midpoint of our same property cash NOI guidance by 50 basis points to 6.5%, driven by lower-than-expected free rent concessions on renewals and better operating margins.
We are tracking a great opportunity to backfill the majority of that space or the government tenant and second the downsize of a law firm in our other segment.
Anthony: We expect same property occupancy to remain relatively stable throughout the remainder of the year.
Anthony: Our balance sheet continues to be strong and well positioned to navigate the higher for much longer interest rate environment. The market is currently anticipating.
Anthony: We have no significant debt maturities until March 2026.
Our unencumbered portfolio represents 95% of total NOI from real estate operations.
Anthony: And at the end of the quarter, we had over 85% of the capacity on our line of credit available and over $120 million of cash on hand.
Anthony: We currently have no variable rate debt exposure.
Anthony Mifsud: Same property occupancy ended the quarter at 93.5 percent, which is down 30 basis points sequentially from last quarter but up 90 basis points year over year. As previously discussed, the decline was driven primarily by two downsizes totaling 72,000 square feet. First, a 100,000 square foot contractor downsized to 60,000 square feet.
Anthony: In February 2023, we entered into interest rate swaps that fixed sofa at 375% for three years on our $125 million term loan and $75 million of our line of credit.
Anthony: The swap rate is over 150 basis points lower than the current one month terms over and has and will continue to provide significant protection and its prolonged elevated rate environment.
Anthony Mifsud: We are tracking a great opportunity to backfill the majority of that space for the government and, second, the downsides of a law firm in our other segment. We expect same-property occupancy to remain relatively stable throughout the remainder of the year. Our balance sheet continues to be strong and well-positioned to navigate the higher-for-much-longer interest rate environment the market is currently anticipating. We have no significant debt maturities until March 2026. Our unencumbered portfolio represents 95% of total NOI from real estate operations. And at the end of the quarter, we had over 85% of the capacity on our line of credit available and over $120 million of cash on hand. We currently have no variable rate debt exposure.
Anthony: Thus far he swaps have generated over $3 million of interest expense savings and based on the current sofa curve. They are expected to remain in the money through the maturity in 2026.
Anthony: We expect 100% of our debt will be at fixed rates late into 2024 as the equity component of our capital investments will be funded from cash from operations after the dividend and the debt component from our existing cash balance and subsequently from our line of credit.
Turning to our recent acquisition the initial cash yield on Franklin Center is 11, 2%.
Anthony: In 2020 for the transaction is roughly half a penny accretive to <unk> per share and a full penny accretive to <unk> per share.
Anthony: $15 million acquisition was funded with cash on hand, and there was no impact to leverage.
Anthony: With respect to guidance, we increased 2024 <unk> per share guidance by <unk> <unk> at the midpoint, implying 5% growth over 2020 threes results.
Anthony Mifsud: In February 2023, we entered into interest rate swaps at a fixed SOFR of 3.75% for three years on our $125 million term loan and $75 million of the line of credit. The swap rate is over 150 basis points lower than the current one-month term SOFR and has and will continue to provide significant protection in this prolonged elevated rate environment. Thus far, these swaps have generated over $3 million in interest expense savings, and based on the current SOFR curve, they're expected to remain in the money through maturity in 2026.
Anthony: The guidance increase is driven by the first quarter strong performance the acceleration of commencement dates on some executed leases and the acquisition of Franklin Center.
Anthony: In addition, given the higher for longer rate environment, we expect slightly higher interest income on cash balances, but are protected against higher variable interest expense because of the previously discussed swaps.
Anthony: Finally, we're establishing second quarter guidance for <unk> per share as adjusted for comparability and a range of <unk> 62 to 64.
Anthony: With that I'll turn the call back to Steve.
Steve: Thank you.
Steve: I'll close by summarizing our key messages.
Steve: To a great start in 2024 with first quarter <unk> per share <unk> <unk> above the midpoint of guidance.
Anthony Mifsud: We expect 100% of our debt will be at fixed rates late into 2024, as the equity component of our capital investments will be funded from cash from operations after the dividend, and the debt component from our existing cash balance and subsequently from our line of credit. Turning to our recent acquisition, the initial cash yield on Franklin Center is 11.2%, and in 2024, the transaction is roughly half a penny accretive to FFO per share and a full penny accretive to AFFO per share. The $15 million acquisition was funded with cash on hand, and there was no impact on leverage.
Steve: Our defense segment is 96, 8% lease which is well ahead of our peers.
Steve: We reported same property cash NOI growth of six 1% of our total portfolio and seven 6% in our defense portfolio.
Steve: We increased the midpoint of 2020 for same property cash NOI growth.
Steve: 50 basis points to six 5% at the midpoint.
Steve: We executed 160000 square feet of vacancy leasing.
Steve: Which puts us in a good position to achieve our full year target of 400000 square feet.
Steve: $381 million of active developments, which are 74% prelease provided a solid trajectory for external NOI growth over the next few years.
Steve: We purchased Franklin Center, a modern LEED gold certified an office building in Columbia Gateway for $15 million at a double digit initial cash yield.
Anthony Mifsud: With respect to guidance, we increased our 2024 FFO per share guidance by $0.03 at the midpoint, implying 5% growth over 2023's results. The guidance increase is driven by the first quarter's strong performance, the acceleration of commencement dates on some executed leases, and the acquisition of Franklin's. In addition, given the higher-for-longer rate environment, we expect slightly higher interest income on cash balances but are protected against higher variable interest expense because of the previously discussed swap. Finally, we are establishing second quarter guidance for FFO per share as adjusted for comparability in a range of $0.62 to $0.64. With that, I'll turn the call back to Steve.
Steve: Our liquidity is very strong and we continue to expect to self fund the equity component of our expected capital investment going forward.
Steve: We raised our dividend three 5% in February which marks our second consecutive annual increase.
Steve: We increased the midpoint over 2024 <unk> per share guidance by <unk>.
Steve: So $2 54.
Steve: Which implies 5% year over year <unk> growth.
Steve: And frankly looking forward, we continue to expect compound annual earnings per share growth.
Steve: Roughly 4% between 2023 and 2026 based on the midpoint of our initial 2023 guidance.
Speaker Change: And with that operator, please open up the call for questions.
Speaker Change: Thank you Mr Bedard.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone.
Stephen E. Budorick: Thank you. I'll close by summarizing our key messages. We're off to a great start in 2024 with first quarter FFO per share, two cents above the mid point of guide. Our defense IT segment is 96.8% leased, which is well ahead of our peers. We reported same property cash NOI growth of 6.1% in our total portfolio and 7.6% in our defense IT portfolio. We increased the midpoint of 2024, same property, cash, and ROI growth by 50 basis points to 6.5% at the midpoint.
Speaker Change: Move yourself on the queue you May press Star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Michael Griffin of Citi. Your question. Please Michael great. Thanks.
Michael Anderson Griffin: Yeah, great. Thanks, maybe you could give a little more color context about the Franklin Center acquisition or are we going to see other assets like this trade in Columbia Gateway was this sort of a one off special to this building and can you give us any sense on kind of the going in and.
Stephen E. Budorick: We executed 160,000 square feet of vacancy leases, which puts us in a good position to achieve our full year target of 400,000 square feet. $381 million of active developments, which are 74% pre-list, provide a solid trajectory for our external NOI growth over the next few years. We purchased Franklin Center, a modern LEED Gold certified office building in the Columbia Gateway, for $15 million at a double-digit initial cash use.
Michael Anderson Griffin: Stabilized cap rate.
Michael Anderson Griffin: Yes. So we gave you the going in cap rate.
Michael Anderson Griffin: Two our flipbook reports that conservative.
Michael Anderson Griffin: 12%.
Michael Anderson Griffin: The cash yield after we stabilize.
Michael Anderson Griffin: It's better way to look at the cap rate.
Michael Anderson Griffin: The acquisition I don't consider this indicative of the value of property in Columbia Gateway.
Michael Anderson Griffin: This particular building was bought as a 100% leased.
Operator: Our liquidity is very strong, and we continue to expect to self-fund the equity component of our expected capital investment going forward. We raised our dividend by 3.5% in February, which marks our second consecutive annual increase. We increased the midpoint of that 2024 FFO per share guidance by three cents to $2.54, which implies 5% year-over-year FFO growth. And finally, looking forward, we continue to expect compound annual FFO per share growth of roughly 4% between 2023 and 2026 based on the midpoint of our initial 2023 guide. And with that, operator, please open up the call for questions.
Michael Anderson Griffin: Asset years ago.
Triple net.
Michael Anderson Griffin: Rester.
Michael Anderson Griffin: And one of the current tenant contracted several years back.
Speaker Change: I don't think they really is the platform.
Speaker Change: Compete against our franchise in our backyard.
Speaker Change: <unk> really seen languished and eventually I believe they are redeploying capital to more strategic assets, which created a great opportunity for us to step in and they have this building to our franchise, which is a double win for our shareholders.
Maybe just to follow up on that with the <unk>.
Speaker Change: Lease expiring in 2026 would you say the probability is high of the tenant renewing or would you expect that space to be released.
Speaker Change: I would say its exceptionally high they will renew.
Speaker Change: Remember, we know that we know.
Speaker Change: The vision they conduct of that building.
Speaker Change: Significant tenant co investment has some very valuable improvements in that building.
Speaker Change: Sure.
Speaker Change: We would have to be an extraordinary loss of business for that tenant to depart the building.
Operator: Thank you, Mr. Budorick. As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again.
Got you that's helpful. And then maybe lastly, just on on renewal leasing for the quarter I saw cash rents declined about two 5% mainly driven by one large tenant in Nova would you consider that more a one off or would you expect we could see cash rents decline continuing.
Michael Anderson Griffin: Please stand by while we compile the Q&A roster. Our first question comes from the line of Michael Griffin of Citi. Your question, please, Michael.
Stephen E. Budorick: Yeah, great, thanks. Maybe you could give a little more color or context about the Franklin Center acquisition. I mean, are we going to see other assets like this trade in Columbia Gateway? Was this sort of a one-off, you know, special to this building? And can you give us any sense of the going in and stabilized cap rate?
Speaker Change: The year.
Speaker Change: I think our current address.
Speaker Change: <unk> two.
Speaker Change: Please refer to visibly see it.
Speaker Change: Youll see the overall.
Speaker Change: Current trends back.
Where we would expect the expected volumes that will be the guidance.
Stephen E. Budorick: Yeah, so we gave you the going in cap rate. That's 11.2.
Great. That's it for me thanks for the time.
Speaker Change: Thanks, Michael.
Speaker Change: Thank you.
Speaker Change: Our next question.
Stephen E. Budorick: Our flipbook reports a conservative 12% Cash Yield After We Stabilize. I guess that's a better way to look at it than the cap rate. The acquisition, I don't consider this indicative of the value of property in Columbia Gateway. This particular building was bought as a 100% leasehold asset years ago by a triple-net investor, and one that the current tenant contracted several years back. I don't think they really had the platform to compete against our franchise in our backyard.
Duane: So on the line Blaine Heck of Wells Fargo. Please go ahead Duane.
Blaine Matthew Heck: Great. Thanks. Good afternoon, there was some audio issues on my side. So im sorry, if I missed anything related to my questions, but first one great to see the new investment on both the development and acquisition side, but just a few questions on that subject.
Blaine Matthew Heck: First can you just talk about the decision to add the two new development projects and what Youre seeing that kind of makes you comfortable with the additional.
Stephen E. Budorick: And I think their leasing languished, and eventually, I believe they were redeploying capital to more strategic assets, which created a great opportunity for us to step in and add this building to our franchise, which is a double win for our shareholders.
Blaine Matthew Heck: Speculative leasing just given that overall development leasing with.
Blaine Matthew Heck: A relatively soft this quarter.
Well development leasing kind of ebbs and flows that can be lumpy.
Blaine Matthew Heck: Several of the prospects for the projects that we started and the one we are under construction.
Stephen E. Budorick: Maybe just to follow up on that, with the lease expiring in 2026, would you say the probability is high of the tenant renewing, or would you expect that space to be released?
Blaine Matthew Heck: RG 100 Huntsville.
Blaine Matthew Heck: Are awaiting the approval of the NDA to proceed which just happened in the last couple of weeks.
Stephen E. Budorick: I would say it's exceptionally high that they will renew. Remember, we know the tenant. We know the mission they conduct in that building. They have significant tenant co-investment, and have some very valuable improvements in that building. It would have to be an extraordinary loss of business for that tenant to depart. Gotcha, that's helpful.
Blaine Matthew Heck: So we expect that lease activity to pick up through the year and drove insight with regard to the decision to start.
Blaine Matthew Heck: At the MVP, we earned 99, 1% leased and occupied we have less than 30000 square feet in the whole park.
Stephen E. Budorick: Gotcha, that's helpful. And then maybe lastly, on renewal leasing for the quarter, I saw cash rents decline by about two and a half percent, mainly driven by one large tenant in Nova. Would you consider that more a one-off? Or would you expect we could see cash rents decline, you know, continuing throughout the year?
Blaine Matthew Heck: We expect no space to non renew in the near time near term and.
Blaine Matthew Heck: And we have a couple of hundred thousand square feet of demand that we're working with tenants on now.
Blaine Matthew Heck: Absolutely a no brainer and a smart defensive move on our part to create inventory to support the.
Stephen E. Budorick: [inaudible] Great.
Michael Anderson Griffin: Great, that's it for me. Thanks for the time.
Blaine Matthew Heck: Our next question comes from the line of Blaine Heck of Wells Fargo. Please go ahead, Blaine.
The ecosystem that we enjoy supporting Fort Meade.
Blaine Matthew Heck: Great, thanks. Good afternoon.
Blaine Matthew Heck: We have every expectation that will be very successful.
Stephen E. Budorick: There were some audio issues on my side, so I'm sorry if I missed anything related to my questions. But, you know, first one, great to see the new investment on both the development and acquisition sides, but just a few questions on that subject. 1st, can you just talk about the decision to add those 2 new development projects and what you're seeing that kind of makes you comfortable with the additional speculative leasing, just given that overall development leasing was relatively soft this quarter.
Blaine Matthew Heck: And then similarly in Redstone gateway.
Blaine Matthew Heck: We have quite a bit of demand developing for high Bay, our R&D and testing.
Blaine Matthew Heck: We decided to build royalty with 20% pre lease.
Blaine Matthew Heck: To satisfy the demand we expect to lease up pretty quickly.
Blaine Matthew Heck: And we think that could be a huge burden.
Blaine Matthew Heck: Important additional product sales.
Blaine Matthew Heck: That we might develop into going forward.
Stephen E. Budorick: Well, you know, development leasing kind of adds and flows; it can be lumpy. Several of the prospects for the projects we started and the one we are under construction on, our G8100 in Huntsville, are awaiting the approval of the NDAA to proceed, which just happened in the last couple of weeks. So we expect at least some activity to pick up through the year on the development side. With regard to the decision to start, at the NBP, we are 99.1% leased and occupied. We have less than 30,000 square feet in the whole park.
Speaker Change: Great. Thanks, Steve.
Speaker Change: Kind of follow up on that last part. So can you talk specifically about tenant prospect that 8100 right out its 42% lease.
Speaker Change: You completed it last year operational data third quarter. This year I guess just talk about more about your prospects. There whether you think you can have that stabilized by the third quarter.
Speaker Change: And then just.
Speaker Change: Maybe for Anthony just remind us of your capitalized interest policies I guess confirm that you'd stop capitalizing on anything at least in the third quarter. This year.
Stephen E. Budorick: We expect no space to non-renew in the near term. And we have, you know, a couple hundred thousand square feet of demand that we're working with tenants on now. It's absolutely a no brainer and a smart, defensive move on our part to create inventory to support the ecosystem that we enjoy supporting Fort Meade. We have every expectation that it'll be very successful. And then similarly, in Redstone Gateway.
Speaker Change: So I'll deal with the easy part.
Speaker Change: Our activity ratios over 100% on the vacancy.
Whether we get it completely followed by the third quarter I hate to predict timing or industry moves pretty methodically.
Speaker Change: No.
Speaker Change: But we are working with tenants and anticipate.
Speaker Change: Some pretty high value leasing opportunities that will get done this year.
Stephen E. Budorick: We have quite a bit of demand developing for high bay R&D and testing, and we decided to build the building with a 20% pre-lease. To satisfy that demand, we expected the building to be leased pretty quickly. And we think that could be a, not huge, but an important additional product type that we might wanna develop into going forward.
Speaker Change: We are so confident we're going to build the building we're in advanced planning in the next room, we'd need to build.
Speaker Change: And then Blaine on capitalized interest you are correct. We so we placed the first tenant into service in the first quarter.
Speaker Change: So capitalized interest on that portion of the building stopped in the first quarter and then.
Blaine Matthew Heck: Great, thanks, Steve. Just to kind of follow up on that last part. So can you talk specifically about tenant prospects at 8100 right out? It's 42% leased.
Speaker Change: On any on lease component of the building are occupied but a portion of the building.
Blaine Matthew Heck: You completed it last year. The operational date is third quarter this year. I guess just talk about more of your prospects there, whether you think you can have that stabilized by the third quarter, and then maybe, for Anthony, just remind us of your capitalized interest policies, and I guess confirm that you'd stop capitalizing on anything unleased in the third quarter this year.
Speaker Change: In the third quarter capitalized interest which switched on.
Blaine Matthew Heck: Perfect. Thanks last one for me you guys bump your expectation for growth year in 2024, but I believe you kept the same expectation for 4% CAGR from $23 26 unchanged does that imply some growth with both forward or maybe just some conservatism with respect to kind of changing that.
Stephen E. Budorick: So I'll deal with the easy part. Our activity ratio is over 100% on the vacancy. Whether we get it completely full by the third quarter, I hate to predict timing. Our industry moves pretty methodically. But we are working with tenants and anticipate some pretty high-value leasing opportunities that will get done this year. We're so confident we're going to fill the building, we're in advanced planning, and the next one we need to build.
Blaine Matthew Heck: Longer term charge target.
Speaker Change: So we're going to save some news for later claim.
Speaker Change: We've set out that benchmark on the 23 to 26.
Speaker Change: Almost two years ago, we went to see therefore drove the metal we will update our forward thinking but.
Speaker Change: It doesn't play a meaningful change to what we think lab next year.
Anthony Mifsud: And then, Blaine, on capitalized interest, you're correct. So we placed the first tenant into service in the first quarter, so capitalized interest on that portion of the building stopped in the first quarter. And then, on any unleased component of the building or unoccupied portion of the building in the third quarter, capital interest would stop.
Great. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Please standby.
Speaker Change: Our next question comes from the line of Camille Banal of Bank of America. Your question. Please Camille.
Camille Bonnel: Hi, everyone I wanted to pick up on some of the drivers of the increase in guidance, particularly the comments are.
Blaine Matthew Heck: Perfect, thanks. Last one for me, you guys bumped your expectation for SFO growth here in 2024, but I believe you kept the same expectation for 4% CAGR from 2023 to 2026 unchanged. You know, does that imply some growth was pulled forward or maybe just some conservatism with respect to kind of changing that longer-term charge target? We've got to save some news for later, Blaine.
Camille Bonnel: Celebrating lease commencement dates can you help us understand how much of that was driven by the efforts and your operations team being able to deliver the space ahead of schedule and budget outcomes that Steve highlighted in his opening remarks are just simply Pat answer questions moving sooner.
It's really the second item that you mentioned so our teams have been able to execute our portion of the required investment in the space sooner than we had anticipated.
Stephen E. Budorick: We've got to save some news for later, Blaine. No, we put out that benchmark on the 23 to 26. You know, almost two years ago, we want to see that fulfilled, and then we'll update our forward thinking. But it doesn't imply a meaningful change to what we think will happen next. Great. Thanks, guys.
Camille Bonnel: Which allows the tenants take control of the space in our for our leases to commence.
Speaker Change: Okay I'll have to go back through the chance that there is this sounds cutting out a bit.
Speaker Change: But just a follow up for the last few quarters. Your same store NOI has benefited from lower than expected free rent concessions.
Camille Bonnel: Our next question, please stand by. Our next question comes from the line of Camille Bonnel of Bank of America. Your question, please, Camille.
Speaker Change: Would you call this a trend and what's driving this one we're hearing in other sectors that question has continued to rise.
Camille Bonnel: Hi, everyone. I wanted to pick up on some of the drivers of the increase in guidance, particularly the comment of accelerating lease commencement dates. Can you help us understand how much of that was driven by the efforts of your operations team being able to deliver the space ahead of schedule? The budget outcomes that Steve highlighted in his opening remarks? Or, just simply, is it the tenants requesting to move in sooner?
Bret: Yes. This is bret.
Bret: It is something that is obviously a helpful trend that we're seeing and something were pushing our asset managers and leasing folks are.
Bret: We're pushing for the lower <unk> because the demand is.
Bret: So near term demand is just incredibly strong and that's how clients are prioritizing what their space needs are that it's hard for them. It actually relates to the development leasing a little bit because theyre looking at what they need now the demands that are coming out for a secure space are are incredibly high and so we feel like we have.
Stephen E. Budorick: It's really the second item that you mentioned, so our team has been able to execute our portion of the required investment in the space sooner than we had anticipated, which allows the tenant to take control of the space and for our leases to commence.
Bret: A very strong position in that regard given that we can provide that kind of space and drive some of those.
Camille Bonnel: Okay, I'll have to go back through the transcript. There's a bit of a problem with the sound. But just to follow up, for the last few quarters, your same store, NOI, has benefited from lower than expected free rent concessions. Would you call this a trend, and what's driving this when we're hearing in other sectors that confessions continue to lag?
Bret: Those concessions in particular free ramped down so it's something we're actively pushing.
Speaker Change: Could you quantify that in terms of like percent abatement that you're giving for lease term than what that compares to.
Speaker Change: Pre pandemic for example.
Speaker Change: I don't have that off hand, but we can certainly.
Speaker Change: Go through all of our data and get that for you.
Britt A. Snider: Yeah, this is Brett. Yeah, I mean, it's obviously a helpful trend that we're seeing and something we're pushing our asset managers and leasing folks to push for lower abatement because the demand is, especially near-term demand, is just incredibly strong, and that's how tenants are prioritizing what their space needs are. It's hard for them. It actually relates to development leasing a little bit because they're looking at what they need now.
Speaker Change: I mean, I'll say, it's definitely something that we've seen I.
Speaker Change: I would say over the past couple of quarters is a trend that we're pushing on but.
We can work to quantify that and get back to you.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: It comes from the line of Tom Catherwood of <unk>. Please go ahead Tom.
William Thomas Catherwood: Thank you and good afternoon everybody.
William Thomas Catherwood: Maybe Fred.
William Thomas Catherwood: I am not mistaken I think a lot of your activity in the Columbia Gateway market in the last maybe 12 to 18 months has been small to mid sized tenants.
Britt A. Snider: The demands that are coming out for secure space are incredibly high, and so we feel like we have a very strong position in that regard, given that we can provide that kind of space and drive some of those concessions, in particular free rent, down. So it's something we're actively pushing.
William Thomas Catherwood: Overflow coming from MVP.
William Thomas Catherwood: But with this now 90000 square foot contiguous block of block of space.
William Thomas Catherwood: Does this allow you to target a different set of tenants can you be more selective kind of given the.
Britt A. Snider: Could you quantify that in terms of like percent abatement that you're giving per lease term and what that compares to? Pre-pandemic, for example. I don't have that offhand, but we can certainly go through that.
William Thomas Catherwood: The activity you already have on the space whats the kind of leasing strategy as you think of that space.
William Thomas Catherwood: Yes.
Speaker Change: Good question.
Speaker Change: Yes.
Speaker Change: Okay.
Britt A. Snider: I don't have that offhand, but we can certainly...go through our data and get that for you. I mean, I'll say it's definitely something that we've seen, I would say, over the past couple of quarters. It's a trend that we're pushing on, but we can work to quantify that, get that.
Speaker Change: In my remarks.
Speaker Change: We are seeing a steady increase demand here.
Speaker Change: Cyber tenants and yes. They are generally smaller in size, but we're also seeing.
Speaker Change: Tenants that come in at 5000 feet and have turned into 70000 feet.
William Thomas Catherwood: comes from the line of Tom Catherwood of BTIG. Please go ahead, Tom.
Speaker Change: Because of the cyber hub in the ecosystem that we've created here.
William Thomas Catherwood: Thank you, and good afternoon everybody. Maybe, Britt, if I'm not mistaken, I think a lot of your activity in the Columbia Gateway market in the last maybe 12 to 18 months has been small to mid-sized tenants, a lot of overflow coming from NBP, but with this now 90,000 square foot contiguous block of space, does this allow you to target a different set of tenants? Can you be more selective kind of given the activity you already have in the space? What's the kind of leasing strategies you think of for that space?
Speaker Change: So we see that as something that has a very nice trajectory for Columbia Gateway and.
Speaker Change: Yes.
Speaker Change: Becoming a much more of a cyber it.
Speaker Change: Got it and then also following up on something else you mentioned in your prepared remarks, Brett you talked about.
Defense budget approval benefiting.
Speaker Change: Navy support portfolio can you provide more detail on that comment and maybe what youre seeing in terms of tenant activity in that in that grouping.
Brett: Yes, I mean, we are seeing I mean the.
Brett: The Navy support demand driver is something that ebbs and flows a little bit but it is something that we are seeing of late where.
Britt A. Snider: Yeah, I mean,
Britt A. Snider: Yeah, I mean, it's a good question; in the past, we've had this in a number of locations, but in terms of my remarks, we are seeing a steady increase in demand here from cyber tenants, and yes, they are generally smaller in size, but we're also seeing, you know, tenants that come in at 5,000 feet and have turned into 70,000 feet. Because of the cyber hub and the ecosystem that we've created here, we see that as something that has a very nice trajectory for Columbia Gateway. It's becoming much more of a cyber IT hub.
Brett: More more contract dollars are coming out and whether it's the navy directly or through their contractors.
Speaker Change: I certainly can't speak to exactly what's what's driving et cetera, what we see in the defense budget, but.
We are definitely seeing an increased activity level there.
Speaker Change: And a lot of phone calls coming in.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: These additional space in particular secured space.
Speaker Change: We're very pleased to see that demand increasing.
Speaker Change: Got it and then final one for me, maybe Steve again, great to see the the acquisition of Franklin Center and I know.
William Thomas Catherwood: Got it. And then also, following up on something else you mentioned in your prepared remarks, Britt. You talked about the defense budget approval benefiting the Navy support portfolio. Can you provide more detail on that comment and maybe what you're seeing in terms of tenant activity in that grouping?
Speaker Change: Acquisitions can.
Speaker Change: It can be opportunistic it can be kind of one offs.
Speaker Change: But what are you seeing as far as product potentially coming to market I know there had been some talk of maybe in the.
Britt A. Snider: Yeah, I mean, we are seeing the Navy Support Demand Driver is something that ebbs and flows a little bit, but it is something that we are seeing of late where more contract dollars are coming out, and whether it's the Navy directly or through their contractors. I certainly can't speak to exactly what's driving it, except for what we see in the defense budget, but we're definitely seeing an increased activity level there, and a lot of phone calls coming in asking how we can achieve additional space, and in particular, secure space. We're very pleased to see that demand increase.
Speaker Change: <unk> grew 28, South corridor in northern Virginia, with some buildings potentially coming up that might fit into your portfolio in a deeper sense of could there be other opportunities out for our comp this year in the market.
Speaker Change: There've been a couple three opportunities in northern Virginia.
Speaker Change: Some of them have been deferred.
Speaker Change: And a couple of resolve two or another investor is willing to pay.
Speaker Change: More than we would.
Speaker Change: I guess, so we pay we painfully went through our criteria.
William Thomas Catherwood: Got it. And then, final one for me, maybe Steve, you know, again, great to see the acquisition of Franklin Center. And I know acquisitions, you know, can be opportunistic; they can be kind of one-offs. But what are you seeing as far as products potentially coming to market? I know there has been some talk of maybe the like Route 28 South Corridor in Northern Virginia with some buildings potentially coming up that might fit into your portfolio. In a sense, could there be other opportunities for COP this year in the market?
Speaker Change: We're extremely disciplined and if we can't meet our development yield.
Speaker Change: Acquisition, there, we're not going to buy.
Speaker Change: Got it that's it for me thanks, everyone.
Speaker Change: Thanks, Thank you.
Reign Zhong: Our next question comes from the line of reign Zhong of Jpmorgan. Please go ahead Ray.
Ray Zhong: Hi, Thanks for taking my question. My first question is on Franklin Center.
Ray Zhong: You guys sounds like there is no more.
Ray Zhong: Dollar to be put into the asset itself. It's just a matter of leasing up is that the right way to think about that.
Stephen E. Budorick: There have been a couple, three opportunities in Northern Virginia. Some of them have been deferred, and a couple resolved where another investor was willing to pay more than we would. Like I said, we painfully went through our criteria, and we're extremely disciplined. If we can't beat our development yield on an acquisition, we're not going to buy it.
Ray Zhong: Yes.
Speaker Change: Generally yes.
Speaker Change: The building was very well cared for and it's one of the like we said the second newest proteins and PERC is really quite proud of it.
Speaker Change: We've got just a couple of million dollars for some.
Speaker Change: Public.
Speaker Change: Combination and sprint.
Speaker Change: Revenue generators in kind of the initial arrival experience.
William Thomas Catherwood: Got it. That's it for me. Thanks, everyone.
Speaker Change: Great.
Speaker Change: Okay.
Speaker Change: On the priority list.
Ray Zong: Our next question comes from the line of Ray Zong of J.P. Morgan. Please go ahead, Ray.
Speaker Change: Gotcha, and then a second part of Franklin Foundry, you guys provided a going in cash yield on stabilized cash yield and also mentioned that most likely is a renewal of the existing tenants, but there is some vacancy just curious to know within that stabilized yield that you provided.
Ray Zong: Hi, thanks for taking my question. My first question is on Franklin Center. You guys, it sounds like there's no more dollars to be put into the asset itself. It's just a matter of leasing it out. Is that the right way to think about that?
Stephen E. Budorick: Yeah, we, well, generally yes. The building was very well cared for and it's one of the, like we said, second newest buildings in the park. It's really quite prominent. We budgeted a couple of million dollars for some, you know, public accommodation enhancement, punching up elevators, and kind of the initial arrival experience.
Speaker Change: Is that under the assumption of just current tenant renewing or.
Speaker Change: Sumit its going to lease up to more like 90% of it ourselves. So just trying to think about upside and downside on that yield.
Sumit: Yes, theres much more upside than downside.
Sumit: At 12% stabilized cash yield.
Ray Zong: Thank you. Gotcha.
Stephen E. Budorick: And then the second part of Franklin Center is, you guys provided going cash yield and stabilized cash yield. And also mentioned that, most likely, it's a renewal for the existing tenant, but there's still some vacancy. Just curious to know, within that stabilized yield that you provided, is that under the assumption of just the current tenant renewing, or, you know, assuming it's going to lease up to more like 90% or so? So just trying to think about upside and downside on that yield.
Sumit: It was established to cover absolutely every bad thing that could possibly happen concurrently I think we're going to blow that away.
Speaker Change: Got it and then any mark to market you can get on that because I noticed.
Speaker Change: On a GAAP basis I think.
Speaker Change: It's a little lower than cash basis, just curious on the mark to market.
Speaker Change: The value of the Mark to market over the remaining lease term was just under 1 million $5.
Stephen E. Budorick: Yeah, there's much more upside than downside. That 12% stabilized cash yield was established to cover absolutely every bad thing that could ever possibly happen concurrently. I think we're going to blow that away.
Speaker Change: It was I think $4 per.
Speaker Change: Per foot.
Speaker Change: Higher than market.
Speaker Change: Correct.
Speaker Change: Got it and then all of them.
Ray Zong: Got it. And then any mark-to-market you can give on that because I noticed, on a cap basis, I think the rent is a little lower than cash basis. Just curious about the mark-to-market there.
Speaker Change: Yes, and then my second question is on data Center, and I think Theres. Another exploration later this year any color you can provide on mark to market I noticed that the rent is a little bit on the higher side versus the ones that renewed just want to get a sense on market there.
Stephen E. Budorick: The value of the mark-to-market over the remaining lease term was just under a million and a half dollars. It was, I think, four dollars a foot.
Ray Zong: hired a market. Correct. Gotcha. And then I have a quick, yeah. And then my second question is about the data center.
Speaker Change: The.
Speaker Change: Patients with a tenant are being finalized now.
Stephen E. Budorick: I noticed there's another expiration later this year. Any color you can provide on the market? Notice that the rent is a little bit on the higher side versus the one that just got renewed. Just want to get a sense of the market there.
Speaker Change: We expect US we expect a strong mark to market on that lease despite the fact that its.
Speaker Change: Current rent is a bit higher than where our renewal last year.
And it.
Speaker Change: So wouldn't want to put a percentage out there right now since we're still in discussions with that with our tenants.
Ray Zong: The negotiations with the tenant are being finalized now. We expect a strong market on that lease despite the fact that its current rent is a bit higher than where our renewal last year ended, so I wouldn't want to put a percentage out there right now since we're still in discussions with our tenant. Gotcha. That's it for me. Thank you.
Speaker Change: Gotcha, that's all for me thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: It comes from the line of Peter Abramowitz of Jefferies. Your line is open Peter.
Hi, yes. Thank you.
Another one on the yelled at Franklin Center. So I think Steve you just mentioned you would expect some upside to that.
Ray Zong: Gotcha, that's it for me, thank you.
Peter Abramowitz: Just looking assuming you get to say kind of at 90% stabilized occupancy if you are at 11%.
Peter Dylan Abramowitz: comes from the line of Peter Abramowitz of Jeffries. Your line is open.
Peter Dylan Abramowitz: Hi, yes, thank you. So just another one on the yield at Franklin Center. So I think, Steve, you just mentioned you would expect some upside to that, just looking, assuming you get to, say, kind of 90% stabilized occupancy, if you're at 11%, which is 56% occupancy today, if you're trying to quantify that upside, is it fair to say you'd get kind of into the mid to high teens if you were getting to 90% stabilized occupancy? Yes. Gotcha, that's helpful.
Peter Abramowitz: Just 56% occupancy today, just trying to quantify that upside is it fair to say get.
Peter Abramowitz: Kind of into the mid to high teens.
Peter Abramowitz: Getting to 90% stabilized occupancy.
Peter Abramowitz: Yes.
Speaker Change: Got it that's helpful.
Speaker Change: And then just another one on the development side.
Speaker Change: Can you just kind of touch on you talked about the two new projects that you have and are looking to lease up.
Speaker Change: In Redstone can you just talk about.
Peter Dylan Abramowitz: And then just another one on the development side. Could you just kind of touch on, you talked about the two new projects that you have, and you're looking to lease up in Redstone. Could you just talk about the depth of the pipeline for demand on the build-to-suit side, and just kind of what you're seeing there, and what you expect for the rest of the year? Yes, sir.
Speaker Change: The depth of our pipeline for demand on the build to suit side.
Speaker Change: And just kind of what Youre seeing there what you expect for the rest of the year.
Speaker Change: Yes, so our overall development leasing pipeline is there.
Speaker Change: A little over a half million square feet right now.
And that includes several possibilities for build to suits.
And then leasing up what we've started.
Speaker Change: We're under construction.
Stephen E. Budorick: Yes, so our overall development leasing pipeline is at a little over a half million square feet right now, and that includes several possibilities for built suits and then leasing up what we've started and we're under construction.
Speaker Change: Gotcha, I guess is that something.
You are aware.
Speaker Change: Alright, well wait to hear is that something that you think could pick up just on the back of.
Speaker Change: Some of the strong growth in defense budget.
Peter Dylan Abramowitz: I guess is that something you think could pick up, just on the back of some of the strong growth in the defense budget. I would imagine that 23 demand is kind of coming through right now. Well, you know, it's my belief that, or feeling.
Speaker Change: I would imagine that 23 demand is kind of coming through right now.
Speaker Change: Well.
Speaker Change: My belief that.
Speaker Change: We're feeling.
Speaker Change: All companies are feeling the pressure of the cost of capital right now.
Stephen E. Budorick: Well, you know, it's my belief, or feeling, that all companies are feeling the pressure of the cost of capital right now. And I think even our customers with good, Business Opportunity, and Growth are being very prudent about major investment decisions. So I think we get the must-have developments, and I think there's a wait-and-see on the want-to-have. So I actually believe over the next few years, if the rates are proven, that our development opportunities will increase from where they are today. But we still see a good opportunity to meet our financial objectives in this environment.
Speaker Change: And I think even our customers with good.
Business activity and growth are being very prudent about major investment decisions. So I think we get the must the must have developments.
Speaker Change: There is a wait and see and why it has.
So.
Speaker Change: I actually believe over the next few years if the rates.
Speaker Change: Proved that our drove an opportunities will increase from where they're today.
Speaker Change: But we still see good opportunities.
Speaker Change: Meet our financial objectives in this environment.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Richard Anderson: Comes from the line of Richard Anderson of Wedbush Securities. Please go ahead, Richard.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Richard Anderson of Wedbush Securities. Please go ahead Richard.
Richard Anderson: I think you said me. Rich Anderson here. Yeah, it's been a little in and out. So if I missed anything, I apologize. You might want to check your Wi-Fi account and make sure it's up to speed.
Richard Anderson: Thank you said in May rich Anderson here.
Yes.
Richard Anderson: <unk>.
Richard Anderson: Interference if I missed anything I apologize I might want to check your Wi Fi account make sure it is up to speed.
Richard Anderson: Just kidding. Franklin Center. Did the yield projection assume, and again, I think I might have missed this, a roll down on the existing tenant? 2026. So, Rich, we put out a very conservative.
Speaker Change: Just kidding.
Speaker Change: Lynn Center.
Speaker Change: Did you does it does.
Speaker Change: The yield projections assume and again I think I might have missed this a roll down on the existing tenant in 'twenty to 'twenty six.
Stephen E. Budorick: So, Rich, we put out a very conservative future cash yield, which kind of embodies saying we think they could go wrong, going wrong concurrently. So, again, the yield would absorb a rent rolldown. It would absorb more investment in the common area and the structure of the building than we plan to spend. And it would absorb higher TIs than we typically give, which is a very conservative number in a forward-looking, publicly disclosed environment where we never want to be overstating our opportunities. As I said to an earlier caller, you might have missed, but I expect to beat that target and potentially be very well handled.
Speaker Change: So rich we put out a very conservative future cash yield.
Speaker Change: Hi.
Speaker Change: If I could go wrong.
Speaker Change: Concurrently.
Speaker Change: Okay.
Speaker Change: We've observed where rent roll down it would reserve it would.
Speaker Change: Is there more investment in the common area.
Speaker Change: Structure of the building and we plan to spend.
Speaker Change: And it would absorb a higher <unk> than we typically give this is a very conservative number.
Speaker Change: Forward looking publicly disclosed environment, where we never want to be overstating our opportunity.
Speaker Change: As I said to an earlier caller you might have missed it.
Speaker Change: Expect to beat that target.
Stephen E. Budorick: You described the building as very well cared for but still unable to compete with the engine of CDP in the vicinity. What would have stopped a tenant from moving over to a very well cared for building in the vicinity of everything else? It just seems odd to me that if it's a nice building, it looks nice, the pictures look nice, why wouldn't it have been more competitive versus your 97% occupancy vicinity?
Speaker Change: And potentially very handily.
Speaker Change: Yes.
Speaker Change: You described the building is very well care for but.
Speaker Change: Yes, it's still unable to compete with the engine of CDP.
Speaker Change: In the in the vicinity.
Speaker Change: What would what would have stopped.
Speaker Change: Wanted to move over to Larry well cared for building in the proximity.
Speaker Change: Of everything else.
Speaker Change: It just seems odd to me that.
Speaker Change: It's a nice building it looks nice mix Theres look nice.
Speaker Change: <unk> been more competitive versus your 97% occupancy.
Speaker Change: Vicinity.
Stephen E. Budorick: It's a hard thing for me to answer that with specificity. But, you know, to kind of get comfortable with it. 80% of the defense contractor business in Columbia Gateway is with us. And we've been a defense IT landlord in this market for, you know, over 25 years. So we've been public. We've got great relationships, and we have relationships with most of the tenants that are in the market somewhere else. So we just tend to dominate in this business part.
Speaker Change: It's a hard thing for me to answer that with specificity, but.
Canada.
Speaker Change: Get comfortable with the 80% of the trans contractor business.
Speaker Change: Columbia Gateway is with us.
Speaker Change: And we've got a defense.
Speaker Change: In word in this market for over 25 years. So we've been public we've got great relationships that we have.
Speaker Change: Relationships with most of the tenants that are in the market somewhere else. So we just tend to dominate in this business.
Stephen E. Budorick: And I would just add to that, you know, we have an additional 200,000 square feet of The Man that we've seen since we took over. And that just shows what Steve is saying about the relationships that we have with our assets here. And one last comment.
Speaker Change: And I would just add to that we have.
Speaker Change: Additional 200000 square feet of <unk>.
Speaker Change: And there we're seeing since we took over so again that just shows what Steve is saying, which is the relationships that we have to.
Speaker Change: <unk> our assets here one last here.
Stephen E. Budorick: The prior owner, from another part of the country, different structure, a triple net lease investor, no particular operating presence on the East Coast, and they have to rely on the fee management crowd. And, you know, hypothetically, that service component of the business doesn't bring the relationships that we have, where we do that primarily directly.
Speaker Change: The prior owner.
Speaker Change: The other part of the country different structure triple.
Speaker Change: A triple net lease Investor No particular operating presence in the east coast and they have to rely on the <unk> crowd.
Speaker Change: And hypothetically that service component of the business doesn't bring the relationships that we have where we do that primarily directly.
Richard Anderson: May progress on L Street, I think you said it was fully stabilized now, I know there was some leasing in Baltimore, how are you closing in on some of these other, quote unquote, other asset sales? Could it be a this year event or is that not a likely outcome at this point?
Speaker Change: Okay.
Speaker Change: May progress on <unk>.
Speaker Change: I think you said fully stabilized now I know there was some leasing in Baltimore.
Speaker Change: Are you closing in on some of these other quote unquote other asset sales could it be a this year event or is that is that not not a likely outcome at this point.
Stephen E. Budorick: I don't see it this year, Rich, what transactions that have happened in D.C., and the U.S. Tyson's Corner in Baltimore; I just don't think you have the depth of capital to make a market on those assets.
Speaker Change: I don't see it this year rich.
Speaker Change: What were transactions that have happened in D C.
Speaker Change: Our very optimistic from the buyer standpoint.
Speaker Change: They don't represent cap rates, we would except where the asset that valuable for the sense of timing.
Richard Anderson: Okay, and last question for me. You've heard the 4% CAGR through 2026 on FFO. What does that assume on same-store cash NOI growth? I know you're doing six and a half this year. It's probably not sustainable at that level, I'm guessing. What's the right way to sort of set expectations from an internal growth perspective?
Speaker Change: And then outside of that in Tysons corner in Baltimore, I still think the depth of capital.
Speaker Change: To make American on those assets.
Speaker Change: It takes some time.
Speaker Change: Okay and last question for me.
Speaker Change: This 4% CAGR through 2026 on <unk>, what does that what does that assume on a same store cash NOI growth I know youre doing $6. Five this year, that's probably not sustainable at that level, if I'm guessing.
Stephen E. Budorick: I'm not sure I can answer that question. We haven't really run the math on it in that way. And do recall, we put that target out several years ago, and we're going to continue to report against that target until we hit it, and then we'll consider our new benchmark that we've put forward. The intent is to convey our confidence in continuing to produce growth in a challenging financial environment and to convey the strength of our business that we continue to prove quarter in and quarter out. Okay, fair enough. Thanks very much.
Speaker Change: What's the right way to sort of set expectations from from an internal growth perspective for.
Speaker Change: People like us.
Speaker Change: I'm not sure I can answer that question, we havent really run the math on it in that way.
Speaker Change: If you recall, we put that target out several years ago, and we're going to continue to report against that target until we hit it and then we would consider our new benchmark that we've put forward the intend to convey our confidence.
Speaker Change: <unk> to produce growth.
Speaker Change: The challenging financial environment.
Speaker Change: It can drive the strength of our business that we continue to improve quarter over quarter.
Speaker Change: Okay fair enough thanks very much.
Dylan Burzinski: Our next question comes from the line of Dylan Burzinski of Green Street. Your question, please, Dylan.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line.
Speaker Change: Dylan Brzezinski of Green Street.
Dylan Burzinski: Western please Dylan.
Dylan Burzinski: I actually don't have any more questions. Sorry. Thanks, guys.
Dylan Burzinski: I actually don't have any more questions. Thanks, guys.
Dylan Burzinski: Good to talk to you, though John.
Dylan Burzinski: Good to talk to you though, Dylan. Good talking to you guys, too.
Speaker Change: Good talking to you guys too.
Speaker Change: Okay.
Stephen E. Budorick: Thank you. I will now turn the call back to Mr. Budorick for his closing remarks.
Speaker Change: We'll see you soon.
Speaker Change: Yes.
Speaker Change: Thank you I will now turn the call back to Mr. <unk> for closing remarks.
Stephen E. Budorick: Well, thank you all for joining our call today and the enriching questions that we got to discuss. We are in our offices all afternoon, so please coordinate through Venkat if you'd like a follow-up call or want to talk about something we mentioned in more detail.
Speaker Change: Well. Thank you all for joining our call today and the interesting questions.
Speaker Change: Got to discuss.
Speaker Change: We are in our offices all afternoon. So please coordinate through rent kit if you will.
Speaker Change: Like follow up color talking about something we mentioned in more detail. Thank you.
Operator: Thank you for your participation today in the CUP Defense Properties First Quarter 2024 Results Conference Call. This concludes the presentation. You may now disconnect. Good day.
Speaker Change: Thank you for your participation today and the cops defense properties first quarter 'twenty 'twenty four results conference call. This concludes the presentation you may now disconnect good day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Good.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
[music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: <unk>.
Speaker Change: Yes.
Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].