Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- COPT Defense Properties (CDP, Financial) reported strong financial performance with FFO per share exceeding guidance by $0.01, reaching $0.65.
- The company executed two strategic acquisitions, expanding data center shell development opportunities and enhancing its defense segment portfolio.
- CDP increased its 2024 FFO per share guidance midpoint to $2.57, implying over 6% year-over-year growth.
- The company achieved high tenant retention rates, increasing its guidance midpoint to 85%, the highest in over a decade.
- CDP's balance sheet remains strong with 100% of its debt at fixed rates, allowing for self-funding of equity components in new investments.
Negative Points
- Occupancy levels slightly decreased, with a short-term reduction due to new investment activities.
- The Des Moines data center project, while promising, involves significant long-term investment and may not deliver until 2027 or 2028.
- The company faces potential dilution in FFO from the Iowa project in 2025 and 2026.
- Higher G&A expenses and some GAAP NOI adjustments partially offset the positive financial results.
- The refinancing of a $400 million bond maturing in 2026 at a higher interest rate could impact future financial performance.
Q & A Highlights
Q: Can you provide details on the timing and leasing strategy for the Des Moines land acquisition?
A: Stephen Budorick, President and CEO, explained that infrastructure completion is expected in 2025 and part of 2026, with initial leases likely signed during this period. Delivery is anticipated in 2027, possibly slipping to 2028. The leasing strategy involves executing pre-leases for data center shells in series, delivering fully leased spaces with rent commencing on delivery.
Q: How does the acquisition yield for Rogers Road compare to development yields in Des Moines?
A: Stephen Budorick stated that both acquisitions and largely pre-leased developments are benchmarked against the same target yield. Rogers Road exceeded their threshold level, but specific numbers were not disclosed.
Q: What is the total expected spend on the Des Moines project, and how will it be funded?
A: Stephen Budorick mentioned that the total spend over the life of the Des Moines development is expected to be $1.2 billion or more. The project is anticipated to be self-funded through retained cash and debt, but joint ventures may be considered if the pace of development exceeds self-funding capacity.
Q: Is there more pricing power on vacancy leasing or renewals, and how does this affect rental rates?
A: Britt Snider, COO, noted that pricing power is more significant on renewals due to tenant investment in spaces, making it difficult for them to leave. The focus is on balancing relationships with tenants and reducing concessions rather than aggressively increasing face rates.
Q: How does the political landscape affect COPT Defense Properties' business, particularly regarding defense spending?
A: Stephen Budorick highlighted that bipartisan support for defense spending increases is expected to continue, regardless of election outcomes. This support is driven by the need to address escalating defense challenges, suggesting that defense spending will remain strong.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
