Welcome to the Corporate Office Properties Trust first quarter 2023 results conference call. As a reminder, today's conference is being recorded. At this time, I will turn the call over to Venkat Kommineni, COPT's Vice President of Investor Relations. Mr. Kommineni, please go ahead. Thank you, Michelle. Good afternoon, and welcome to COPT's conference call to discuss first quarter results. With me today are Steve Budorick, President and CEO, and Anthony Mifsud, 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. Before turning to results for the quarter, I'd like to start by highlighting a few important themes. The fundamentals of our business remain very strong, as does the outlook for defense spending. We continue to see demand for new leasing and renewals at our Defense/IT locations, as evidenced by our 95% portfolio lease rate. Defense tenants working on secure programs can't work from home, and that's resulting in our tenants retaining space in our portfolio. As a result, we expect to achieve a tenant retention rate in 2023 that is at or above our 10-year record high of 81% in 2017. We have good visibility into demand for our current and future development projects. We continue to project FFO per share growth of roughly 4% on a compound basis between 2023 and 2026. We completed the JV equity raise earlier in the year, and we now have capacity to self-fund the equity component of our anticipated development investment going forward. Lastly, based on the strength of our business, our board approved the 3.6% increase in our dividend in February. Now let's discuss results from the quarter. We reported first quarter FFO per share as adjusted for comparability of $0.59, which is $0.02 higher than the midpoint of our guidance. Our core portfolio remained well leased at 95.1%, which represents 100 basis point increase year-over-year. Our Defense/IT segment is 96.7% leased, which is the highest level since we began disclosing the segment in 2015. Our first quarter operating metrics were strong. Same property cash out NOI increased 8.3% year-over-year, which is the highest level in over a decade, leading us to raise full year guidance by 100 basis points at the midpoint. We executed 99,000 sq ft of vacancy leasing, which is right on track with our full year target of 400,000 sq ft. Our overall retention rate was 64%, with our Defense/IT locations at 78%. Total leasing volume of 788,000 sq ft in the quarter included 194,000 sq ft of renewals. cash rent spreads were slightly positive, while GAAP rent spreads were up 4.2%, driven by annual rent increases of 2.4%. Measuring the starting cash rent of the tenant's expiring lease to the starting cash rent of the new lease, the annual compound growth rate achieved on these renewal leases was 3.3% with a weighted average lease term of three years. First quarter retention rate of 64% was influenced by the impact of 55,000 sq ft of expected non-renewals in our regional office portfolio. However, based on our activity and discussions with customers, we raised the midpoint of our full year retention guidance rate by 250 points to 80%-85%. In addition, we expect a retention rate of over 95% on the 2.3 million sq ft of large leases, which we define as leases over 50,000 sq ft expiring through year-end 2024. Included in this total is 1.1 million sq ft of large leases that expire in 2023, for which we expect a 100% renewal rate. In the first quarter, we completed 99,000 sq ft of vacancy leasing with a weighted average lease term of nearly eight years. Recall, our expected leasing volumes in 2023 are lower due to our diminished space available to lease. In our Defense/IT portfolio, we have less than 700,000 sq ft of inventory available, which is the lowest level since 2017, despite the fact that that portfolio has increased by nearly 6 million sq ft during that period. Our vacancy leasing activity ratio remains strong at 75%, with a pipeline of 950,000 sq ft of prospects. Our 1.5 million sq ft of active developments are 92% leased with a total estimated cost of $478 million, consisting of nine projects located in Maryland, Northern Virginia, and Huntsville, Alabama. As previously announced, we signed 464,000 sq ft of development leases in January, consisting of two build-to-suit data center shell leases for our cloud computing customer in Northern Virginia that totaled 418,000 sq ft, and a 46,000 sq ft build-to-suit lease for Davidson Technologies for their new headquarters at Redstone Gateway. We signed an additional 41,000 square feet of development leases, which included a 27,000 square foot lease with Frontier Technology at 8100 Rideout Road, bringing that property to 20% lease, and a 14,000 square foot expansion with KBR at 7000 Redstone Gateway, bringing that property to 78% lease. In total, we've completed 495,000 square feet of development leasing during the quarter, which represents about 70% of our full year goal of 700,000 square feet. Our development pipeline, which we define as projects we consider 50% likely to win or better within two years or less, currently stands at 700,000 square feet. Beyond that pipeline, we're tracking another 1.7 million sq ft of potential future opportunities, which gives us confidence that we'll be able to maintain a healthy development pipeline in the near and medium term. Turning to the defense budget. Last month, the administration submitted the fiscal year 2024 budget request, which calls for a 3.6% year-over-year increase to $827 billion. Between fiscal year 2021 and 2023, the base defense budget increased by roughly $100 billion, or nearly 15%. We expect demand from the 2023 budget increase will materialize in our portfolio starting in 2024, while growth from the 2024 budget will benefit us thereafter. Included in these budget assumptions are further investments in offensive and defensive cyber related programs. The Department of Defense has committed over $13 billion to cyber activities in 2024, which is a $2 billion increase from the prior year. DoD cyber programs have driven 2 million sq ft of cyber leasing in our portfolio over the last 24 months, which equates to 55% of the total new leasing achievement. In February 2023, the Office of the Director of National Intelligence published a sobering threat assessment that revealed China probably represents the broadest cyber espionage threat to our country. If China felt a major conflict with the U.S. were imminent, they would be highly likely to undertake aggressive cyber operations against critical U.S. infrastructure and military assets. Clearly, the cyber threat environment continues to represent a significant security threat and must remain a priority investment choice. The continued need for investment in cybersecurity should support strong demand from cyber tenants in our portfolio. With that, I'll hand the call over to Anthony. Thank you, Steve. We reported first quarter FFO per share as adjusted for comparability of $0.59, which is $0.02 higher than the midpoint of our guidance. Over half of the upside came from lower net seasonal related expenses, and the remainder from the timing of repairs and maintenance expense. As a result of these expense variances, results exceeded our expectations. The same property cash NOI increased 8.3% year-over-year, while same property GAAP NOI increased by 3.7% year-over-year. Included in our same property cash NOI results was the benefit of free rent burn off of two large tenants in the first quarter. Excluding this impact, same property cash NOI increased 3.9% year-over-year. We expect same property growth will moderate during the remainder of the year. Driven by the first quarter's outperformance, we are increasing the midpoint of our same property cash NOI guidance by 100 basis points to 3%-5%. The composition of the same property pool changed with the addition of nine new development properties, which are 92% occupied, and the removal of three fully leased data shells, which were joint ventured. Same property occupancy ended the quarter at 92.1% and is expected to increase throughout the year as leases executed in 2022 commence, including over 160,000 sq ft at the National Business Park during the second and third quarters, which includes 126,000 sq ft of new space with the US government, and a 121,000 sq ft lease with Lockheed Martin at 1200 Redstone Gateway in the third quarter. These gains will be partially offset by a previously reported 54,000 square foot contraction in our regional office segment by CareFirst at Canton Crossing in the second quarter. The location of our defense IT assets has driven our exceptional leasing results, which translates into resilient and growing NOI. Our three largest concentrated defense locations, which consist of the National Business Park, Redstone Gateway in Huntsville, and Lackland Air Force Base in San Antonio, are 98.4% leased in aggregate and account for roughly 45% of our core annualized rental revenue. Adding our fully leased data center shell portfolio, 50% of our core annualized rental revenue comes from assets that are 99.1% leased and have rock solid stability for years to come. Our balance sheet is well positioned to navigate the current volatility in the capital markets environment. We have no significant debt maturities until March 2026. During the quarter, we paid off a $16 million mortgage, which matured in February with our line of credit and unencumbered 7740 Milestone Parkway. Our unencumbered portfolio now represents 96% of total NOI from real estate operations. As a result of the interest rate swaps we entered into effective February 1st, our variable rate debt exposure declined to 2% at quarter end, compared to 15% at the end of 2022. We expect our floating rate debt exposure to increase slightly over the remainder of the year as we fund development on our line of credit, but will remain below 10% throughout the year. As previously announced, in early January, we closed on a 90-10 joint venture with affiliates of Blackstone for three single-tenant data center shells, raising $190 million of equity proceeds. The proceeds from this transaction were used to pay down the line of credit, and at the end of the quarter, we have 80% of the capacity of our line available. Following the completed JV in January, we have no need to sell or joint venture any additional assets to fund our expected $250 million-$275 million in annual development investment. Looking forward, we anticipate self-funding our equity requirements for expected development investments through cash flow from operations while maintaining our strong balance sheet and conservative leverage metrics. In February, we announced a 3.6% increase in our quarterly dividend, which is our first dividend raise in over a decade. The dividend increase illustrates our confidence in strong FFO and AFFO growth. With this increase, we expect our full year AFFO dividend payout ratio will still be roughly 70%. Turning to 2023 guidance, we are narrowing the range of FFO per share by $0.01 at the low and high end and maintaining the midpoint at $2.38 per share. Although results exceeded expectations in the first quarter and the fundamentals of our portfolio continue to be very strong, at this point in the year, we are being conservative and not changing the midpoint of our annual FFO per share guidance. For the second quarter, we are establishing a guidance range for FFO, as adjusted for comparability, of $0.57-$0.59 per share. With that, I'll hand the call back to Steve. Thank you. Summarizing our key messages, we delivered a strong quarter with FFO per share $0.02 above the midpoint of our guidance. Our Defense/IT segment is 96.7% leased, which is the highest rate since we started reporting the segment in 2015. We raised the midpoint of full year same property cash NOI guidance by 100 basis points, driven by a great first quarter. We raised the midpoint of our full year retention rate guidance by 250 basis points to 82.5%, demonstrating our confidence in our renewal leasing. We executed 99,000 sq ft of vacancy leasing, and we are on track to achieve our full year target. Our leasing pipeline remains strong with a vacancy leasing activity ratio at 75% and a development leasing pipeline at 700,000 sq ft. Our 1.5 million square feet of active developments, which are 92% leased, provides a strong trajectory for NOI growth over the next few years. The administration's fiscal year 2024 budget request proposed an additional 3.6% year-over-year increase, or nearly $30 billion, which follows a near 15% increase over the prior two years. We are on track to deliver modest FFO per share growth in 2023, but expect compound annual FFO growth of roughly 4% between 2023 and 2026. We raised our dividend by 3.6%, and we expect to self-fund the equity component of our development pipeline going forward. Let me finish with an anecdote before we open up the line for questions. Earlier this month, I attended a ribbon cut-cutting ceremony down at Redstone Gateway for a 2 building build-to-suit campus, which we developed for a top defense contractor. The properties totaled 262,000 sq ft, and they were delivered in the fourth quarter of 2022 at a total cost of over $100 billion. $100 million, sorry. While we often discuss the mission-critical nature of the work our tenants perform at our facilities, it's trips like these that really reinforce the importance of our tenants' work to our national security. This campus will be home to over 1,000 employees whose primary mission is to expand our nation's missile launch and missile defense capabilities. The buildings contain office space, SCIF facilities, program management and engineering design space, an integration laboratory, a data center, and a 350-person auditorium. This is a great example of mission-critical work that requires specialized, secure space that is adjacent to a government demand driver that it supports and work that cannot be performed from home. We're incredibly proud to play a role in the creation and advancement of such a vital facility supporting critical defense missions of our country. We are greatly appreciative of our relationships with our government and defense contractor tenants, providing them critical facilities and infrastructure to support their national security missions. With that, operator, please open up the call for questions. Thank you, Mr. Budorick. To ask a question at this time, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile our Q&A roster. Our first question comes from the line of Anthony Paolone with J.P. Morgan. Your line is open. Please go ahead. Thank you. You talked about and outlined the, you know, about half of your expirations being over 50,000 square feet and the high retention there. Can you talk about just the roughly other half that's smaller tenants and just any trends there that might be different than what you're seeing more broadly or things that we should watch with that half of the expirations? No, the overall target or expectation with the midpoint at 82.5% suggests that we have just as high a retention performance on smaller tenants in Defense/IT as we do for the larger. Do bear in mind, we got 50,000 sq ft of regional office back year to date, and we're gonna get another block of 50 later in the year. That regional office is a significant factor in the 82.5% retention rate. Okay. Got it. Just other question in terms of thinking about starts for the rest of this year, what's in the planning or how should we think about that? It seems like to hit your development goal, you need to start something as the existing pipeline is pretty full. That's correct. We've got a little over, I think, 100,000 sq ft in our available inventory. There's multiple scenarios that could put us over the 700,000 sq ft, one of which is another data center shell build-to-suit, and the alternative is some additional starts in the Defense/IT locations, most likely Redstone Arsenal. Okay. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Blaine Heck with Wells Fargo. Your line is open. Please go ahead. Great. Thanks. Good afternoon. Just starting on guidance, it seems like there was room to move FFO guidance up given the movement in same store NOI and retention expectations. You know, I get that it's early in the year, but I guess I'm just wondering if there were any other factors other than interest rates that kind of kept you guys conservative at this point. There weren't. I think what we were trying to communicate with the changes that we did make as a result of the performance in the first quarter was the strength in the same office portfolio, as well as in the retention of our expiring leases. I think the one component of the forecast that we really have no control over is variable rate interest. When you look at the change in projected SOFR from where it is, will be at the beginning of May through the end of the year, it's projecting to go down almost 75 basis points. If that doesn't occur, that would impact our interest expense. Every 50 basis points change in interest expense for the balance of the year is about an additional $600,000 of interest expense. At this point of the year, we're not at a point where we can be confident that those rate reductions that are assumed later in the year will actually happen. Generally, we like to put out conservative numbers, and so there's still two quarters left to adjust that expectation if the 1st quarter results flow through and interest rates remain stable. Okay, that's fair. Steve, I was hoping you could talk a little bit about how you're approaching capital allocation decisions more broadly in this kind of volatile environment as you know, evaluate different investment opportunities from acquisitions to development and maybe even thinking about share repurchases. You know, do you think any of these investments provide a much more attractive risk-reward profile at this point? We continue to believe that our incremental capital allocation is best placed in new development at high priority defense locations than it has been for the last seven years since I took over as CEO. There have been a few opportunities to look at some somewhat interesting acquisitions in the marketplace, but the value creation we can deliver to shareholders through our development is superior to that of what we could do through an acquisition, and we'll continue to remain very disciplined, looking to maximize shareholder value through the development process. That's very helpful, Steve. I guess to that point, can you give us your latest thoughts around data center development and whether land costs and power availability continue to be issues that could, you know, maybe impede your ability to develop more on that side of the business in the future? Unquestionably the availability of land, but more so the availability of power is gonna limit the overall opportunity to grow the data center capacity in the market that we serve, which is Northern Virginia, Loudoun and Prince William County. I think the rate of continued progress will be lower than it was, say, five years ago. We continue to identify opportunities and work in harmony with our customers to see if we can find solutions to continue developing for them. We're pretty confident we're gonna have additional development that we will book and secure for our shareholders. Great. Thanks, everyone. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Michael Griffin with Citi. Your line is open. Please go ahead. Great. Thanks. Steve, I wanna go back to the prepared remarks around the defense budget. Do you have any sense, you know, the impact of these budget negotiations, the debt ceiling fiscal cliff? I mean, if they can't reach kind of an agreement in Congress, you know, could that adversely impact, you know, that growth that you're talking about into 2024? You know, it's gonna be a rollercoaster ride getting through to September, unquestionably. We're in no position to project or to predict exactly what the fencing is going to look like between the House and the Senate and the President. It's crystal clear that the one area of broad consensus is that defense spending has to continue to increase. When I say defense spending, I'm not referring to anything pertaining to Ukraine, to meet the global threat environment that we face today. It'll be interesting on the budget. I can't tell you what things will be in place, but there is broad consensus that defense has to be invested in. Gotcha. That's helpful. Maybe turning to Redstone, I noticed you've been winning some business from Cummings Research Park. You know, how big is this opportunity set? Can we just go behind the fence? I know you've got some entitlements to build there. Any update on this as well as, you know, Space Command maybe coming there? Overall, we have over 3 million square feet of additional development capacity inside and outside of the fence. I would characterize about a third of that is inside the fence. We continue to see opportunities of significant size for new facilities to meet new missions, or enhanced capabilities in the marketplace. Timing of those isn't crystal clear in some respects. With regard to the basing decision for Space Command, that's really in the hands of the senior commander of the Air Force at this point, from what we understand. The decision was made, probably going on four years ago. It's been challenged 3 times. In each and every challenge and review, Redstone Arsenal comes out as the number 1 choice. I think it's a matter of time, but, it's a very political decision, and there are multiple states that would prefer it to go there. I can't predict timing. I think it'll be if it's finalized in Alabama, it'll be a big benefit to that market overall. I think there'll be quite a bit of opportunity for our company there. Gotcha. Just last thing on the regional office portfolio. Anthony, I think you talked about 96% of your properties being unencumbered. Are any of the regional office assets encumbered with mortgages and, like, could you hand back the keys on it if the clip came to shelves? All of the assets in the regional office portfolio are unencumbered. There's no mortgages on any of those properties. All right. That's it for me. Thanks for the time. Thanks, Michael. Thank you. One moment for our next question. Our next question comes from the line of Camille Bonnel with Bank of America. Your line is open. Please go ahead. Hi. Just following up on an earlier question around guidance. To clarify, was the driver of the FFO change on the upper range driven by the interest rate variability, or can you speak to what was driving this change? The reduction at the top end was really driven by the fact that we've got a quarter in the books that we, you know, even if interest rates were to, you know, we don't expect interest rates to decline that dramatically, that would get us to the higher end of that range, which would be one of the drivers that would get us there. Okay. Thank you for clarifying it. Most of my questions have been asked, so that's it for me. Thank you. Thanks. Thank you. One moment for our next question. Our next question comes from the line of Tom Catherwood with BTIG. Your line is open. Please go ahead. Thanks. Good afternoon, everyone. Maybe sticking with Redstone. Steve, in the past, you've added some small mixed-use components. Now that the build-out kind of across the whole campus continues to accelerate, is there any thought to carving off parcels for some other complementary uses? I think you did some of this with the hotel that was added back in, I think it was either 2015 or 2016. Good question. We did do a second hotel land lease. That hotel is under development. It should deliver, I think, around year-end, which will be good for the rest of the retail that we had invested in. We had also did a land lease with a daycare facility to support, ultimately, the employees or our customers on the base. We'll do some relevant support, more retail-oriented leasing to enrich the value of our development to our customers. Beyond that, beyond convenience and service, we have no plans to use any of that land for anything but defense contractor and US government development. Got it. Appreciate that, Steve. Maybe pivoting over to the data center shells. I think your first round of second generation leasing is coming up soon. When do those leases roll? Did some of those re-leasing expectations factor into the higher same store NOI guidance? I don't. Well, we have negotiations ongoing on our first renewals. I'll just say stay tuned. It did not factor into our change in same office NOI. The first lease, Tom, that matures is at the end of this year. Any impact of a renewal wouldn't be until 2024. From an NOI standpoint, that property is one that is in one of the Blackstone ventures, so the impact of that for us would only be the change in rent and our 10%. Got it. Understood. We will follow up on that. Last one for me, this is probably doesn't impact you guys, but obviously lots of distress and talks about distressed opportunities when it comes to office. Now, that office is very, very different than your portfolios, and I wouldn't expect there to be distress per se in items leased to DoD or contractors. Are there any opportunities in your markets, whether it's to kind of add some tuck-in acquisitions or some additional land that you're tracking or that you think may be opportunistic within the next year or so? Great question. We are keeping our eyes peeled for such an opportunity. We have yet to find one that fits our requirements. Got it. Appreciate it, guys. That's it for me. Thanks. Thanks. Thank you. Again, to ask a question at this time, please press star then one. Our next question comes from the line of Steve Sakwa with Evercore ISI. Your line is open. Please go ahead. Yeah, thanks. Good afternoon. Steve, a lot of focus obviously on the Defense/IT sector, which is, you know, doing very well, as you pointed out, almost 97% leased. Unfortunately, the 6 regional assets are only 78.5% leased. I was just hoping that you guys could talk a little bit about the demand you're seeing in the regional assets. I know that that's kind of the catalyst to ultimately try and get these sold, which in today's environment, is not exactly the easiest thing to do. Maybe speak to the demand side of what you're seeing on the regional office. Sure. We did sign two leases in regional office in the quarter that added about 11,000 sq ft of occupancy when the space is built. Believe it or not, our pipeline for regional office is at 76.5%. There have been some larger uses that are now in the marketplace canvassing some buildings that we can compete for them. It's too early to be overly optimistic, but there's opportunity out there that we can compete for, which is a good sign. We're down to a final decision with a tenant that's considering 2,100 L. We think we're competing effectively for that tenant. We anxiously await their decision, and we'd love to land that lease. would you sense that the demand is a little stronger in Washington, D.C. or up in Baltimore? Any thoughts on that or types of tenants? D.C.'s demand profile is pretty ugly, except for the trophy office segment. In the trophy office segment, there's diminishing supply. I think it's below 13% availability right now. We believe our asset competes very favorably with other availabilities in that segment. From a volume perspective, we've got quite a bit of prospect activity in Baltimore. I don't expect those deals to move quickly. But we have a couple larger opportunities that are very interesting. Okay. Then on the development side, I know you've historically said that your yields, to some extent, at least on the data center shells, might float with cost, but can you just kinda remind us to the extent that you move forward with another data center shell development or some of the IT, Defense IT? You know, what kind of yields are you looking at today on cost? Maybe what is happening with costs on the development side? Costs have stabilized pretty materially over the last, call it two quarters. Two quarters ago, we were reporting that our year-over-year development on office buildings was about 21%-22%. We have been able to drive our rents up to maintain yields in our target range with that change in cost. We did one build-to-suit in Defense/IT year-to-date. I would say our cash yield is 50 basis points higher than it was, say, 12 months ago. We've elevated our targets to try to achieve, you know, commensurately better cash return with our increased cost to capital. data center shells, I don't really wanna discuss yields. We look at that opportunity with the same lens, trying to achieve returns that are commensurate with our increased cost to capital. I guess maybe just last question. I know we sort of talked about this during the trip in D.C., but, you know, given the power issues in Loudoun County today, do you see your ability to find other, I guess, larger locations in the Northern Virginia area to help supplement your customers' needs for data centers? We're working on a couple right now. It's a little preliminary talk about them 'cause we're not under contract, but I don't think you're gonna see large land availabilities. It's gonna be more moderate-sized parcels that require a little more creativity. We are working on several. Great. That's it for me. Thanks. All right. Thank you. Thank you. I would now like to turn the conference back over to Mr. Budorick for closing remarks. Thank you all for joining our call today. We are in our offices, so please coordinate through Venkat if you would like a follow-up call. Thank you very much for joining us. Thank you for participating in today's Corporate Office Properties Trust First Quarter 2023 Results Conference Call. This concludes the presentation. You may now disconnect. Have a good day.