COPT Defense Properties

Welcome to the COPD 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 Komaneni, COPD Defense's Vice President of Investor Relations. Mr. Komaneni, please go ahead.

Thank you, Lateef. Good afternoon and welcome to COPD Defense's Conference Call to discuss first quarter results. With me today are Steve Podorek, President and CEO, Britt Snyder, Executive Vice President and COO, and Anthony Misud, 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 file. 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'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 escalations, 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 same property pool on a standalone basis generated 4.8% growth. 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 leasing. We committed $91 million of capital to new investments, which includes two development starts that will provide much needed inventory in our highest occupancy markets, the National Business Park and Redstone Gateway, where we literally have no comparable space left to lease. Our active development pipeline now totals roughly 960,000 square feet. It is 74% pre-lease with a total cost of $381 million dollars. which is a nearly $60 million increase from last quarter. And excluding the three inventory buildings, the pipeline's 100% pre-leased. We placed 73,000 square feet of development space in the service that were 100% leased in Huntsville. 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 FFO, 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 2023. 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 profile. Now turning to guidance. We increased the midpoint of 2024 FFO per share guidance by $0.03 to $2.54, which implies 5% year-over-year FFO growth. In contrast, over two-thirds of the NAE REIT defined office REITs 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 set, comparable to the median growth for the triple nets 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 worldview. 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 20th, the FY 2024 Defense Appropriations Act was signed into law. a $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 FY2024 budget and appropriations are separate from the $95 billion in supplemental funding for Ukraine, Israel, and Taiwan, which passed the House and Senate with bipartisan support and was signed into law on Wednesday. In a time where 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. I'll 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-amendatized.