COPT Defense Properties

Welcome to the COPS Defense Properties Third Quarter 2024 Results Conference Call. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Venkat Komineni, COPS Defense Vice President of Investor Relations. Mr. Komineni, please go ahead.

Thank you, Kevin. Good afternoon, and welcome to COPS Defense's conference call to discuss third quarter results. With me today are Steve Bedorek, President and CEO, Britt Snyder, Executive Vice President and COO, and Anthony Misfud, 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, 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 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 produced strong results in the third quarter and continue to outperform our projections. Importantly, we executed two strategic acquisitions, which I'll touch on shortly. FFO per share is adjusted for comparability to 65 cents, one cent above the midpoint of our quarterly guidance. We increased the midpoint of 2024 FFO per share annual guidance, again, by one cent to $2.57, which implies over 6% year-over-year growth. We continued to produce very strong operating results, which has led us to enhance our full year outlook on three key guidance metrics, including same property cash NOI growth, tenant retention, and capital invested in development and acquisitions. There are two key points I'd like to emphasize. The first is on internal growth. Our teams continue to do an outstanding job operating in our portfolio and managing costs, and we've outperformed in terms of vacancy leasing with broad-based achievement across our segments, and we expect to exceed our full-year vacancy leasing target by a good margin. The second is on external growth. We executed two acquisitions during the quarter. The first significantly expands our data center shell development opportunities to a new market, and the second highlights the advantages of our unique franchise in the defense segment. The common thread is that they both center on one of our key competitive advantages, which is our longstanding deep relationships within the defense IT sector. In September, we acquired 365 acre parcel near Des Moines, Iowa for $32 million. For some time now, we've been working in harmony with our cloud computing tenant to find the right market and land to support their growth. We identified advantages the Des Moines market has to offer and proposed a development program to help them accelerate their capacity expansion objectives. We're in active dialogue with our tenant as we plan the site, and I can tell you they are just as excited about the opportunity as we are. Let me share some points about Des Moines. It is the fifth largest hyperscale market in the United States. It has ample power distribution and supply. The regional utility, MidAmerican Energy, generates 62% of their power from renewable sources. Des Moines has connectivity to long-haul fiber lines, and it has a highly skilled contractor community with deep expertise in data center construction. Moreover, the state and local governments are highly supportive. and have welcomed the hyperscale data center business with open arms, offering favorable tax incentives. Des Moines has been a location of choice for some of the largest hyperscalers, including Microsoft, Meta, and Apple. These three companies have roughly 850 megawatts of owned operational capacity, with another gigawatt of capacity planned or under construction as shown on slide 13 of our flipbook. Their investment into data center campuses in Des Moines will total roughly $10 billion in full buildup. For context, the nearly two gigawatts of operational and planned utilization by just these three hyperscalers in Des Moines, Iowa, when added to our planned development, will exceed the electrical capacity generated by the Hoover Dam by 50%. Our 365-acre land parcel has zoning that allows for data center development and has a clear path to both power and fiber. Our initial plans contemplate 15 buildings, totaling 3.3 million square feet, supported by approximately one gigawatt of electrical capacity. We acquired the land for $90,000 an acre, which is a 20% discount to the most recent data center land assemblage just two miles south of our site. To put this in perspective, the acreage we acquired in Iowa for $32 million would cost in excess of $1 billion in Northern Virginia at today's asking price. The anticipated benefits of this investment are as follows. One, it increases our wholly owned data center shell program from 2 million square feet today to nearly 5.5 million square feet at full build-up. Two, it capitalizes on the explosive growth in data center capacity driven by advancements in cloud computing and AI. Three, it expands our tenant relationship to a market with access to power, a supportive municipality, attractive land values, and long-term growth potential. And finally, and most importantly, It will result in significant value creation for our shareholders. This acquisition is an important milestone in a multi-year effort to expand our data center shell development opportunities, and we look forward to providing additional detail as we progress through the planning phase. Also in September, we acquired 3900 Rogers Road in San Antonio for $17 million. The 80,000 square foot Class A office building sits just five miles from our 1 million square foot US government campus. It was constructed in 2005 and it's in great condition. We've been expecting this opportunity because the mission growth on our US government campus has pushed the limits of occupancy. We identified a suitable vacant property and negotiated purchase terms in advance of the RFP issuance. When the opportunity arose, we were perfectly positioned to compete for and win this award. Similar to our other full building leases with the U.S. government, this mission will fund investment in high security and operational redundancy improvements around and throughout the building. The triple net lease has a nine and a half years of term with 3% annual escalation. We capitalized on this opportunity and acquired the building at roughly 50% discount through replacement costs and immediately executed two leases at rents that meet our investment yield target. This investment adds another strategic defense IT asset to our portfolio, which we expect to be leased for decades to come. And with that, I'll turn the call over to Brett. Thank you, Steve.