COPT Defense Properties

Welcome to the Corporate Office Properties Trust Second Quarter 2020 Earnings Conference Call. As a reminder, today's call is being recorded. At this time, I'll turn the call over to Stephanie Kirsten Kelly, COPT's Vice President of Investor Relations. Ms. Kirsten Kelly, please go ahead.

Thank you, Kevin. Good afternoon, and welcome to COP's Conference Call to discuss second quarter results. With me today are Steve Bedorek, President and CEO, and Anthony Mifsud, EVP and CFO. Reconciliations of GAAP and non-GAAP financial measures management discusses on this call are available on our website and in the results press release supplemental information package and results presentation posted on our website. As a reminder, forward-looking statements made during today's call are subject to risks and uncertainties, which are discussed at length in our SEC filings. Actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them. Steve?

Thank you. We had another great quarter, outperforming guidance for FFO per share and same property cash NOI growth. And we're on track to achieve the highest tenant retention rate in 20 years. We affirm our existing 2020 guidance with a conservative posture and continue to expect healthy growth in 2021. Our high concentration of US government, high priority defense tenants, and essential non-defense businesses offer uniquely strong credit and cash flow advantages that have insulated our operations during the shutdowns. Regarding our operations, each of our 174 properties have operated continually during the shutdowns, and our company continues to execute our normal workflows seamlessly. 85% of our portfolio houses tenants whose mission work cannot be performed remotely. This includes 65% of our space that is either in a secure campus or has skipped environments, and another 20% that has other high security requirements. Most of our tenants have their employees working in rotating weekly shifts with longer work days to create distancing, so our building utilization is much higher than most other office environments. Across our 19.8 million square foot portfolio, our tenants' employees have experienced only 41 confirmed cases of COVID-19, which speaks to the quality of the management practices of our operating teams and our tenants' leadership. Rent collections remain relatively unaffected by pandemic shutdowns. During the quarter, we collected 99.9% of expected rents and 99.2% of rents before rent relief. July rent collections were extremely high as well, totaling 99.3% of expected buildings and 98.5% of rents before rent relief. Thus far, total rent accommodations granted to address shutdown impacts remain below 1% of annualized rental revenues. Roughly half the relief granted went to retail and amenity tenants, in exchange for lease extensions. These tenants' businesses are an important part of our tenant value proposition, and we moved aggressively to help them stay in business. Our total rent accommodations increased slightly in the past month, primarily driven by relief granted to two fitness operators in Maryland whose businesses are enduring longer shutdowns than our food retailers. During the quarter, We completed nearly 1 million square feet of total leasing and 1.6 million square feet during the first six months. Our development leasing remains strong and virtually unaffected by pandemic-related restrictions. During the quarter, we executed 276,000 square feet of development leasing, which included a large lease with the U.S. government at 100 Secured Gateway, a build-to-suit with a defense contractor for 7100 Redstone Gateway, and three 14,000 square foot expansions with our cloud computing tenant and existing data center shelves in Northern Virginia. During the second quarter, our development leasing pipeline increased to 2.1 million square feet, notwithstanding our leasing achievement during the quarter. Our development leasing pipeline remains diversified with healthy concentrations of government, defense contractor, and data shell opportunities, and we remain on track to meet or exceed our 1 million square feet of development leasing this year. Renewal leasing volumes and tenant retention rates are very strong as well. We completed 613,000 square feet of renewals in the quarter, which equated to a strong renewal rate of 76%. During the first six months, We completed 1.1 million square feet of renewals representing an extremely strong 81 percent renewal rate. We're increasing our tenant retention rate guidance for the full year from the previously elevated range of 75 to 80 percent to a new range of 80 to 85 percent. This year's renewal rate should exceed our 20-year record of 80 percent retention set in 2017. Lease economics on renewals were in line with guidance in the quarter, and for the six months, cash rents rolled down 3.2% and 2% respectively, and annual escalations on renewing leases averaged 2.4%. Vacancy leasing is the one area of activity that has been affected by the shutdowns. During the second quarter, the brokerage shutdowns caused our leasing activity ratio to decline by nearly a third, from 75% at the end of February to about 50% in early July. We achieved 70,000 square feet of vacancy leasing in the second quarter, which was 50% of the volume achieved in the first quarter. And in recent weeks, our leasing activity ratio has improved as restrictions ease. Some 2020 activity could, however, push into 2021. Regarding active developments, we remain on track with our original completion schedules. We have 1.9 million square feet under development, representing 14 separate projects that are 84% pre-lease. During the quarter, we placed into service 412,000 square feet that were 97.5% lease, and for the six months, we placed 642,000 square feet of development in the service that was 99% leased. Before year end, we expect to place an additional 820,000 square feet in the service that are 100% leased. This will bring our total for the year to approximately 1.5 million fully leased square feet and represents a total of investment of $344 million. My final comment is an update on our wholesale data center, DC6. During the quarter, we completed a new 3.1 megawatt lease with a government contractor that will bring a long-term supercomputing contract into our facility. That transaction increased DC6 to 90.6% lease. Additionally, the renewal process with the 11.25 megawatt user IS PROGRESSING FAVORABLY, AND WE EXPECT TO COMPLETE THE RENEWAL DURING THIS QUARTER. SO IN SUMMARY, OUR CURRENT OPERATIONS CONTINUE TO BE MINIMALLY IMPACTED BY PANDEMIC-RELATED SHUTDOWNS AND RESTRICTIONS. OUR BUILDINGS ARE FULLY OPERATIONAL, AND OUR RENT COLLECTIONS REMAIN EXCEPTIONALLY HIGH. DEVELOPMENT DEMAND CONTINUES TO BE ROBUST, AND AT 81% FOR THE FIRST SIX MONTHS, Our tenant retention is on track to set a new 20-year record. While the pace and volume of vacancy leasing was affected by shutdowns during the second quarter, that will not affect this year's results, and we continue to expect healthy FFO growth in 2021. With that, I'll hand the call over to Anthony.