COPT Defense Properties

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

Thank you, Jonathan. Good afternoon, and welcome to COP's conference call to discuss fourth quarter and year-end 2021 results and guidance for 2022. With me today are Steve Fedorek, President and CEO, Todd Hartman, Executive Vice President and COO, and Anthony Mifsud, EVP and CFO. Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website, in the results press release and presentation, and in our supplemental information package. As a reminder, forward-looking statements made during today's call are subject to risks and uncertainties, which are discussed at length in our SEC filings. Actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them. Steve?

Good afternoon, and thank you for joining us. We finished 2021 with strength and outperformed in all aspects of our business, including leasing, operations, development, and capital markets. The full-year FFO per share is adjusted for comparability. of $2.29 grew 8% over 2020's strong results and is 10 cents higher than our original guidance. Favorable leasing and operating activity in the portfolio drove solid gains in NOI and contributed about 3 cents of upside to 2021 results. The gains were widespread with favorable results in renewal activity, R&M project costs, utility savings, and higher NOI from DC6. Despite challenges in the supply chain environment, we completed and delivered 766,000 square feet of developments with three projects completed earlier than planned. The 562,000 square feet of early commencements contributed roughly two cents to 2021 performance. We executed about 1.2 million square feet of development leasing during the year, outperforming our objective by 18%. Our 2021 activity included three major defense contractor developments, one data shell build suit, and our second fully leased office property for the U.S. government in the secure campus of Redstone Gateway. We had expected this government lease opportunity to occur in 2022, but and were favorably surprised by the early lease action last year. We outperformed in the debt capital markets as well. We seized the opportunity to lock in low interest rates and extend their debt maturity ladder by issuing $1.4 billion of new senior unsecured notes to retire higher-rate, shorter-term debt. This highly successful debt finance activity contributed about four cents of outperformance and more importantly, protects the company from the risk of rising interest rates for years to come. We raised equity capital by completing the sale of DC6 last month, generating $222.5 million to further balance our leverage and support our development activity. Recycling DC6 has been a high priority for the company for several years, And we recognize that the capital market demand for data centers during 2021 created a long awaited opportunity to sell the asset with a full and fair valuation. We were successful in identifying several bidders that possessed data center operating capabilities and the capital to purchase a multi-tenant facility. This sale simplifies our capital allocation, and increases the lease stability in our operating portfolio. We had expected the transaction to close during 2021, and the delay in closing added about a half cent to 2021 outperformance. Turning our outlook to defense spending, which is summarized on slide five, Congress authorized the DOD's fiscal 2022 base budget at $665 billion. representing a 5.8% increase over the fiscal 2021 budget. The expected increase is 5% higher than last year's 0.8% increase, and we expect continued strength in defense leasing demand. Fiscal year 2022 began under a continuing resolution that we expect will be in effect until mid-March. Recall that these have become a normal occurrence as the DOD has started its fiscal year operating under a continuing resolution for 13 of the past 15 years. We do not expect this continuing resolution to have a material impact on our business. Turning to 2022 guidance, we set our FFO range midpoint at $2.34, implying 2.2% growth over 2021's strongly elevated results. The guidance absorbs two percentage points of dilution from the sale of DC-6, as well as the dilution from the Boeing and Transamerica non-renewals. Adjusted only for the dilution from the sale of DC-6, 2022 pro forma growth would be 4.2% at the midpoint of guidance. As slide four illustrates, Our FFO per share has adjusted for comparability. It's compounded at 4.4% annually since 2018 when we finished our programmatic asset sales under our strategic reallocation plan. Our 2022 FFO guidance midpoint suggests that the compound growth will remain at roughly 4%, notwithstanding the dilution from the sale of DC6. We have 1.7 million square feet of active developments that are 96% leased today. As we place them into service, we expect these projects to fuel strong growth in 2023, further extending our compound growth achievement. Our guidance for development leasing in 2022 is 700,000 square feet. Recall that our 2021 success hoped for 205,000 square feet of expected 2022 development leasing, and several data shell development leases await access to critical power at those sites. As slide 11 of our presentation shows, we've averaged about a million square feet of development leasing annually since 2012. During the past three years, we've achieved 4.4 million square feet of development leases, averaging just under 1.5 million square feet a year. Our current development leasing pipeline contains 1.8 million square feet of opportunities, supporting our optimism that 2023 development leasing activity will return close to our long-term average. With that, I'll hand the call over to Todd.