COPT(US:CDP)2023-04-28 18:50Financial Data and Key Metrics Changes - The company reported first quarter FFO per share as adjusted for comparability of $0.59, which is $0.02 higher than the midpoint of guidance [6][15] - Same property cash NOI increased 8.3% year-over-year, the highest level in over a decade, leading to a raised full year guidance by 100 basis points at the midpoint [7][15] - Same-property occupancy ended the quarter at 92.1% and is expected to increase throughout the year [16] Business Line Data and Key Metrics Changes - The Defense/IT segment is 96.7% leased, the highest level since reporting began in 2015 [7][21] - Total leasing volume for the quarter was 788,000 square feet, including 194,000 square feet of renewals [8] - The overall retention rate was 64%, with Defense/IT locations at 78% [9] Market Data and Key Metrics Changes - The fiscal year 2024 budget request calls for a 3.6% year-over-year increase to $827 billion, with a significant focus on cyber-related programs [12][13] - The Department of Defense has committed over $13 billion to cyber activities in 2024, which has driven two million square feet of cyber leasing in the portfolio over the last 24 months [13] Company Strategy and Development Direction - The company continues to project FFO per share growth of roughly 4% on a compound basis between 2023 and 2026 [6][22] - The company plans to self-fund the equity component of its anticipated development investments going forward [19][22] - The focus remains on new development at high-priority defense locations, with a disciplined approach to maximizing shareholder value [35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a tenant retention rate in 2023 at or above the 10-year record high of 81% [5] - The company anticipates self-funding its equity requirements for expected development investments through cash flow from operations [19] - Management acknowledged the volatility in the capital markets but emphasized a strong balance sheet with no significant debt maturities until March 2026 [17] Other Important Information - The company completed 99,000 square feet of vacancy leasing with a weighted average lease term of nearly eight years [10] - The unencumbered portfolio now represents 96% of total NOI from real estate operations [17] - The company raised its quarterly dividend by 3.6%, marking the first increase in over a decade [19] Q&A Session Summary Question: Trends in smaller tenant expirations - Management indicated that retention performance on smaller tenants in Defense/IT is expected to be high, but noted the impact of regional office non-renewals [26][27] Question: Guidance on FFO - Management explained that the conservative guidance is influenced by potential interest rate variability, which is beyond their control [31][32] Question: Capital allocation in a volatile environment - Management stated that incremental capital allocation is best placed in new development at high-priority defense locations, emphasizing the value creation through development over acquisitions [34][35] Question: Demand in regional office assets - Management noted that there is some demand in the regional office segment, with a pipeline at 76.5%, but remains cautious about the speed of deal closures [60] Question: Development yields and costs - Management confirmed that development costs have stabilized, and they are targeting yields that are commensurate with the increased cost of capital [63]