COPT(CDP) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - FFO per share for 2024 was $2.06, a 6.2$2.66, implying a 3.5% growth over 2024 [8] Business Line Data and Key Metrics Changes - Executed 500,000 square feet of vacancy leasing, representing 45% of the space that was vacant at the beginning of the year [7] - Tenant retention reached 86%, the highest annual level in over twenty years [20] - Occupancy levels were reported at 93.6% for the overall portfolio and 95.6% for the defense IT portfolio [23] Market Data and Key Metrics Changes - Nearly 50% of GSA space contains SCIF improvements, with minimal exposure to GSA leases, generating only 36% of annualized rental revenue [16][17] - The company has seen strong demand for SCIF space, with over 160,000 square feet backfilled with long-term defense contractor leases [21][22] Company Strategy and Development Direction - The company is focusing on defense priorities such as space activities, missile defense, and naval capabilities expansion, which are expected to drive demand in specific markets [9][66] - Plans to commit $200 million to$250 million in capital for new investments and $250 million to$300 million for development projects in 2025 [56][57] - The development pipeline includes 600,000 square feet of active or not yet stabilized developments, with 75% pre-leased [40] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued strong demand for their portfolio, particularly in light of the new presidential administration's defense priorities [19][66] - The company anticipates a healthy year of performance in 2025, with expectations for FFO per share growth and strong tenant retention [48][61] Other Important Information - The company has maintained a strong balance sheet, with 100% of debt at fixed rates [47] - Management noted that the demand for their space remains robust, with a strong leasing pipeline and advanced negotiations for over 170,000 square feet [30] Q&A Session Summary Question: How would you expect demand to evolve in your markets around the three defense priorities? - Management expects strong demand in Huntsville due to potential relocations and expansions related to space command and missile defense [66] Question: Can you provide an update on your data center land in Iowa? - The company is working through power requests and has a path to a gigawatt, but timing remains unclear [72][73] Question: Do you foresee any potential issues with defense budget appropriations? - Management noted bipartisan support for increased DOD funding and does not anticipate a slowdown from customers [81][82] Question: Have you seen any ability to push on pricing with private sector tenants? - The company continues to focus on reducing concessions and maintaining tenant retention rather than aggressively pushing for rent increases [85] Question: What is the outlook for development starts in 2025? - The company plans to start development on RG 8500 in Redstone and is preparing for potential demand increases [93] Question: Are there any risks of move-outs from government leases expected to extend into 2026? - Management does not foresee move-outs and believes the extensions are typical administrative processes [105] Question: What is the natural level of occupancy for the portfolio? - The company considers a natural occupancy level of 95% to 96% but sees opportunities to improve slightly [114] Question: What does the acquisition pipeline look like? - The company is exploring distressed opportunities but maintains strict criteria for acquisitions [121][122]