COPT Defense Properties

Welcome to the Corporate Office Properties Trust Fourth Quarter and Full Year 2020 Earnings Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Stephanie Kusunkele, Corporate Office Properties Trust Vice President of Investor Relations. Ms. Kusunkele, please go ahead.

Thank you, Carmen. Good afternoon, and welcome to COPS Conference Call to discuss Fourth Quarter and Full Year 2020 results, as well as our guidance for 2021. With me today are Steve Bedorek, President and CEO, Todd Hartman, Executive Vice President and COO, and Anthony Misfud, EVP and CFO. Reconciliations of GAAP and non-GAAP financial measures management discusses on this call are available on our website 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 those forward-looking statements, and the company does not undertake a duty to update them. Steve?

Good afternoon, and thank you for joining us. 2020 was a challenging but strong year for our company. We derived nearly 90% of our rents from locations that support the defense activities of the United States government and its contractors engaged in national security operations. defense information technology, cybersecurity activities, among others. These missions are not correlated with the general economy, and the work executed in these buildings never shuts down. Our strategy of concentrating buildings around U.S. defense installations, executing priority missions, is unique among REITs. Our performance during the economic uncertainty of 2020 and our outlook for this year demonstrate the strength of our unique investment strategy. From a leasing perspective, our ability to execute development leasing last year was unimpeded. In contrast, our vacancy leasing volumes were significantly reduced in the second and third quarters as a result of the strict shutdown restrictions. In terms of operations, our rent collections remain very high due to the exceptional credit of our tenants In total, we collected 99.7% of gross rents between April and year end. We made accommodations to retail and amenity tenants to help them bridge the financial gap caused by the shutdowns. In aggregate, these reserves and concessions represented 1% of our annualized rental revenue, including $1.8 million of reserves against straight line rents. Beyond rents, accommodations, our parking revenues were $2.6 million lower than our original plan. Although these amounts were largely offset by operating expense savings, our operations absorbed $4.6 million of pandemic-related impacts during the year. Notwithstanding these impacts, we met or exceeded expectations on multiple fronts. Our initial guidance for FFO per share as adjusted for comparability had a midpoint of $2.08. When the shutdowns began, we lowered the midpoint by a penny to $2.07 to create capacity to absorb unanticipated events. By the time we held our third quarter call, we had absorbed the impacts from the COVID shutdowns and had good visibility on the remainder of the year. With that, we increased the midpoint of guidance to $2.09. As detailed in last night's reporting, our 2020 FFO per share of $2.12 beat the midpoint of our initial guidance by 4 cents and grew 4.4% over 2019 results. During the year, we raised debt and equity capital on attractive terms, And as a result, we have zero debt maturities to address during 2021, and we ended the year with debt to EBITDA at a conservative 6.2 times. We completed a total of 3.6 million square feet of leasing last year. Development demand was strong throughout the year, and we met our pre-pandemic goal of leasing 1 million square feet. Our 81% retention rate matched our 20-year record, notably our average term on renewals was 4.2 years, and excluding the short-term Boeing renewals, our average term was 4.7 years. Vacancy leasing volume was adversely affected by the pandemic shutdowns. While first quarter volume was strong and fourth quarter volume recovered, the shutdowns dramatically suppressed vacancy leasing volumes in the second and third quarters. The 416,000 square feet we completed during the year was about 60% of our pre-pandemic plan. This reduction in leasing productivity impacts our 2020 same property outlook. Most importantly, we placed 1.8 million square feet that were fully leased into service during the year, surpassing the prior company record by more than 600,000 square feet, and fueling FFO brochure growth. Our ability to place large volumes of highly leased developments into service is a key to our long-term growth, and in 2021, NOI from these developments will more than offset the effects of last year's delayed vacancy leasing. National defense spending drives demand for our defense IT locations, and the defense spending environment remains healthy. Congress appropriated the fiscal year 2021 defense budget at the beginning of this calendar year, passing the National Defense Authorization Act with solid bipartisan and bicameral support. The base DOD budget increased another 1% over fiscal 2020 levels, and the consensus in the defense industry is that it will continue to grow by roughly 1% per year for the next several years. In 2021, we expect demand for new development to remain solid. In our development leasing pipeline, we're tracking over 2 million square feet of demand across several of our defense IT locations. This demand includes solutions for government customers and defense contractors, including hyperscale cloud computing. Based on the breadth and depth of demand, we set our development leasing guidance at 1 million square feet for 2021. In all, we forecast recently completed and current development projects will contribute up to $23 million of NOI to 2021 results. This NOI will drive FFO per share between 2% and 5% higher than 2020's elevated results. Additionally, the midpoint of our 2021 FFO per share guidance is a penny higher now than the guideposts we provided in October. With that, I'll hand the call over to Todd.