COPT Defense Properties (CDP) 2020 Q4 法說會逐字稿

Welcome to the Corporate Office Properties Trust Fourth Quarter and Full Year 2020 Earnings Conference Call.

As a reminder, today's call is being recorded.

At this time, I will turn the call over to Stephanie Krewson-Kelly, Corporate Office Properties Trust, Vice President of Investor Relations.

Ms. Krewson-Kelly, please go ahead.

Thank you, Carmen.

Good afternoon, and welcome to COPT's conference call to discuss fourth quarter and full year 2020 results as well as our guidance for 2021.

With me today are Steve Budorick, President and CEO; Todd Hartman, Executive Vice President and COO; and Anthony Mifsud, EVP and CFO.

Reconciliations of GAAP and non-GAAP financial measures management discusses on this call are available on our website in the results press release, supplemental information package and results presentation posted on our website.

As a reminder, forward-looking statements made during today's call are subject to risks and uncertainties, which are discussed at length in our SEC filings.

Actual events and results can differ materially from those forward-looking statements, and the company does not undertake a duty to update them.

Steve?

Good afternoon, and thank you for joining us.

2020 was a challenging but strong year for our company.

We drive nearly 90% of our rents from locations that support the defense activities, the United States government and its contractors engaged in national security, defense information technology, cybersecurity activities, among others.

These missions are not correlated with the general economy, and the work executed in these buildings never shuts down.

Our strategy of concentrating buildings around U.S. defense installations, executing priority missions is unique among REITs.

Our performance during the economic uncertainty of 2020 and our outlook for this year demonstrate the strength of our unique investment strategy.

From a leasing perspective, our ability to execute development leasing last year was unimpeded.

In contrast, our vacancy leasing volumes were significantly reduced in the second and third quarters as a result of the strict shutdown restrictions.

In terms of operations, our rent collections remained very high due to the exceptional credit of our tenants.

In total, we collected 99.7% of gross rents between April and year-end.

We made the combinations to retail and amenity tenants to help them bridge the financial gap caused by the shutdowns.

In aggregate, these reserves and concessions represented 1% of our annualized rental revenue, including $1.8 million of reserves against straight-line rents.

Beyond rent and combinations, our parking revenues were $2.6 million lower than our original plan.

Although these amounts were largely offset by operating expense savings, our operations absorbed $4.6 million of pandemic-related impacts during the year.

Notwithstanding these impacts, we met or exceeded expectations on multiple fronts.

Our initial guidance for FFO per share as adjusted for comparability had a midpoint of $2.08.

When the shutdowns began, we lowered the midpoint by $0.01 to $2.07 to create capacity to absorb unanticipated events.

By the time we held our third quarter call, we had absorbed the impacts from the COVID shutdowns and had good visibility on the remainder of the year.

With that, we increased the midpoint of guidance to $2.09.

As detailed in last night's reporting, our 2020 FFO per share of $2.12 beat the midpoint of our initial guidance by $0.04 and grew 4.4% over 2019 results.

During the year, we raised debt and equity capital on attractive terms.

And as a result, we have 0 debt maturities to address during 2021, and we ended the year with debt-to-EBITDA at a conservative 6.2x.

We completed a total of 3.6 million square feet of leasing last year.

Development demand was strong throughout the year, and we met our pre-pandemic goal of leasing 1 million square feet.

Our 81% retention rate matched our 20-year record.

Notably, our average term on renewals was 4.2 years.

And excluding the short-term Boeing renewals, our average term is 4.7 years.

Vacancy leasing volume was adversely affected by the pandemic shutdowns.

While first quarter volume was strong and fourth quarter volume recovered, the shutdowns dramatically suppressed vacancy leasing volumes in the second and third quarters.

The 416,000 square feet we completed during the year was about 60% of our pre-pandemic plan.

This reduction in leasing productivity impacts our 2020 same-property outlook.

Most importantly, we placed 1.8 million square feet that were fully leased into service during the year, surpassing the prior company record by more than 600,000 square feet and fueling FFO per share growth.

Our ability to place large volumes of highly leased developments into service is a key to our long-term growth.

And in 2021, NOI from these developments will more than offset the effects of last year's delayed vacancy leasing.

National defense spending drives demand for our IT -- defense/IT locations and the defense spend environment remains healthy.

Congress appropriated the fiscal year 2021 defense budget at the beginning of this calendar year, passing the National Defense Authorization Act was solid bipartisan and bicameral support.

The base DoD budget increased another 1% over fiscal 2020 levels, and the consensus in the defense industry is that it will continue to grow by roughly 1% per year for the next several years.

In 2021, we expect demand for new development to remain solid.

In our development leasing pipeline, we're tracking over 2 million square feet of demand across several of our defense/IT locations.

This demand includes solutions for government customers and defense contractors, including hyperscale cloud computing.

Based on the breadth and depth of demand, we set our development leasing guidance at 1 million square feet for 2021.

In all, we forecast recently completed and current development projects will contribute up to $23 million of NOI to 2021 results.

This NOI will drive FFO per share between 2% and 5% higher than 2020's elevated results.

Additionally, the midpoint of our 2021 FFO per share guidance is $0.01 higher now than the guidepost we provided in October.

With that, I'll hand the call over to Todd.

Thank you, Steve.

At the end of 2020, our core portfolio was 94.3% occupied and 95% leased, representing gains of 120 basis points and 40 basis points, respectively.

These year-over-year gains were led by strong increases at the National Business Park and in our NoVA Defense/IT and Navy subsegments.

Additionally, our Huntsville operating portfolio nearly doubled during 2020 to 1.5 million fully occupied square feet.

During 2020, we achieved a very strong 81% renewal rate.

Leasing CapEx on renewals remained among the lowest in the office sector, averaging only $2.03 per foot per year of term.

Cash rents rolled down an average of 2.1%, with annual escalations averaging 2.4%, both in line with expectations.

First year cash on expiring leases relative to first year cash of the renewed lease compounded at 2.5% annually, demonstrating the internal growth embedded in our lease structures.

We renewed 6 large office leases totaling 775,000 square feet, including early renewals of 4 large office leases scheduled to expire in 2021.

On Slide 13 of our presentation, the 2 large 2021 expirations, totaling 250,000 square feet are government leases that will be renewed shortly.

As Slide 11 shows, our quarterly vacancy leasing achievement started out the year with a healthy 143,000 square feet in the first quarter than was suppressed for 2 quarters and recovered in the fourth quarter to 142,000 square feet.

Although 2020 vacancy leasing volume totaled 416,000 square feet or roughly 75% of our 5-year average volume, it was still 40% below our original 2020 plan.

The million square feet of development leasing achieved during the year included 5 fully leased build-to-suit projects for defense contractors totaling 680,000 square feet at 4 of our 6 Defense/IT subsegments: 1 at the National Business Park, 1 at Redstone Gateway, 1 in San Antonio and 2 data center shell build-to-suits in Northern Virginia.

During the year, we also completed 238,000 square feet of development leasing with the U.S. government, including 210,000 square feet and 100 secured gateway in Huntsville, which is now fully leased and occupied and an 18,000 square foot lease on new development in the Pax River portion of our Navy group.

Regarding our leasing outlook for 2021, we entered the year with solid momentum for new developments and recovering demand for operating properties.

In our operating portfolio, we have sound prospects for current availability, and our activity ratio is 75%.

For example, in Columbia Gateway, we have 6 concentrations of vacancy representing 240,000 square feet.

We're working with 22 prospects totaling 230,000 square feet or 96% of the available space.

All but one of these prospects requires occupancy in 2021.

With 80,000 square feet of availability, 6721 Gate Columbia gateway represents our largest block of vacant space in the park.

In the fourth quarter, we backfilled 20,000 square feet and are tracking 140,000 square feet of additional demand.

In Northern Virginia, we had 290,000 square feet of vacancy and are pursuing 240,000 square feet of demand.

Lastly, at the National Business Park and excluding 310 NBP, which is reserved for the U.S. government, we signed 140,000 square feet of vacancy leasing in 2020, bringing the Park to 92% occupied and 96% leased.

Also at the NBP, we have 5 blocks of vacancy, totaling 130,000 square feet against which we are pursuing 90,000 square feet of demand, half of which is now under lease negotiation.

Regarding 310 BP, we continue to have confidence the government will lease the 135,000 square feet of availability during the year.

Demand for development continues to look strong.

Even though we completed 0.5 million square feet of development leases in December, we are still pursuing over 2 million square feet of potential transactions in our development leasing pipeline, which supports our goal of executing another 1 million square feet this year.

Roughly 75% of the demand is from U.S. Government and defense contractors for new office facilities and 25% is for data center shelves.

Turning to our active development projects.

In the fourth quarter, we placed 582,000 square feet of fully leased space into service, bringing our total volume for the year to a record 1.8 million square feet and increasing the size of our operating portfolio by over 9%.

These developments were fully leased and their NOI will contribute significantly to 2021 results.

Our 11 active developments totaled 1.5 million square feet and are 84% leased with availability concentrated in 3 projects.

At 4600 River Road in College Park, Maryland and an 8000 Rideout Road in Redstone Gateway, we are tracking significantly more demand than available space and expect both projects to stabilize during the year.

And at 2100 L Street, our trophy building in Downtown D.C. has roughly 85,000 square feet of availability.

Like many major urban markets, the Downtown D.C. office market shut down during the pandemic.

Encouragingly, we are now working with 76,000 square feet of early-stage prospects.

During 2021, we expect to place 670,000 square feet into service that are now 81% leased.

Based on the activity we're tracking, we expect further leasing gains during the year.

I'll conclude my remarks with an update on progress at DC-6.

The U.S. government contractor that executed a 3.1-megawatt lease last spring finalized their supercomputing deployment during the fourth quarter and is paying full rent on the premises, adding roughly $3 million of annualized NOI.

That lease has a 5-year term, a 5-year renewal option and a 3.1-megawatt expansion option.

Discussions with our 11.25-megawatt customer have progressed nicely since the holiday break, and we have narrowed the open negotiating points.

The original lease continues in full force in effect on a perpetual term unless either party exercises a termination with 6 months' notice or the lease is amended or replaced.

With that, I'll turn the call over to Anthony.

Thanks, Todd.

Fourth quarter and full year FFO per share as adjusted for comparability of $0.56 and $2.12 exceeded the high ends of our elevated guidance by $0.02.

Fourth quarter results benefited from higher revenues at DC-6 and gains on the sale of an alternative investment.

Property operations were solid.

Lower free rent concessions and operating efficiencies, net of the COVID impacts, drove a 1.6% increase in same-property cash NOI for the year.

And same-property occupancy ended the year at 92.1%.

During the fourth quarter, we formed a new joint venture with Blackstone.

In 2 transactions, we raised $165 million of equity, ending the year with debt-to-adjusted EBITDA ratio of 6.2x.

We achieved strong pricing on both transactions, demonstrating the value we create through development.

Our 2021 plan is summarized on slides 25 and 26 of our presentation and continues to be straightforward and low risk in nature.

NOI from development placed into service is the main driver of this year's growth.

We placed a record 1.8 million square feet into service last year, 2/3 of which occurred in the second half of the year.

The incremental revenues plus those properties we expect to place into service this year should contribute to between $21 million and $23 million of cash NOI.

At the midpoint, 99% of this NOI is contractual.

We plan to invest between $275 million and $300 million in development and have no acquisitions planned.

We will continue to prudently fund our development investment and expect to sell additional joint venture interest in data center shells to maintain existing leverage levels.

Based on our current portfolio of wholly owned data shells plus the 2 under development, we can monetize approximately $650 million of equity value from this subsegment to fund future requirements.

Lastly, we forecast the same-property occupancy pool ended the year between 90% and 92% occupied, which is impacted by the deferred vacancy leasing in 2020 by approximately 2%.

Based on these occupancy levels and assuming normal expense levels, we forecast same-property cash NOI will be flat to down 2% for the year.

Same-property cash NOI is impacted by the reduction in 2020 vacancy leasing as well by approximately 1.5% to 3%.

Additionally, we have built in some capacity for possible early renewal and contraction activity in some of our nondefense tenants, which impacts our outlook for both same-property statistics.

Based on these assumptions, we are establishing a range of FFO per share of $2.16 to $2.22.

The midpoint of which is $0.01 higher than the midpoint implied by the growth guidepost we provided in October.

With that, I'll turn the call back to Steve.

Thank you.

Our strategy is built on 3 fundamental pillars: invest in assets with durable demand characteristics that afford protection from broader economic cycles, create value for shareholders by managing our portfolio to high-occupancies and low-recurring capital expenditures and developing new assets at costs well below their market value and maintain a strong and durable balance sheet with flexibility to respond to disruptions in the capital markets and to seize opportunities quickly.

For the last 5 years, we have implemented this strategy with great discipline, allocating our capital investments as follows: targeting markets and properties that support essential U.S. government defense missions, such as signals in human intelligence, missile defense, space exploration, law enforcement, cyberactivity and hyperscale cloud computing; investing in advantaged land positions, best located to serve the priority defense missions we target; and executing low-risk, value-creating new developments.

Our performance in 2020 and our high visibility into 2021 demonstrate the high level of durability in our cash flows.

Investor appetite for our data shelves has demonstrated the impressive value creation our developments provide to our shareholders.

Our bond offering during 2020 illustrated that the debt market recognized and rewarded us for the resilience of our portfolio and franchise, achieving the most attractive debt structure in our history.

Over the past 9 years, we've completed approximately 10 million square feet of development leasing, averaging 1.1 million square feet per year.

During the past 3 years, we've executed 4.3 million square feet of development leasing and averaging over 1.4 million square feet per year.

We completed our strategic asset reallocation plan in 2018.

And since that time, our new developments and durable operating portfolio produced growth in our FFO per share as adjusted.

So in conclusion, COPT has entered an era of growth, driven by durable operating portfolio, a strong balance sheet and a reliable, low-risk development program that is producing incremental NOI annually.

We look forward to seizing the impressive opportunity before us in 2021.

And with that, operator, please open up the call for questions.

(Operator Instructions) Our first question is from Manny Korchman with Citi.

Anthony, just looking at your guidance for DC-6, can you tell us what timing and rent roll down assumptions are based into the NOI range that you provided there?

Sure.

So the range assumes that we have the current rent the tenant is paying for the first quarter and that the renewal is executed at the beginning of the second quarter, at which point, the rent roll downs -- rolls down between 10% and 15%.

Great.

And then maybe this is looking too far forward, but I'll ask anyway.

You've now presented your large maturities coming up in 2022, with retention ratios that are obviously lower than what you had last year, at least for the commercial users.

How are those discussions with those corporate users going, if at all?

So with both of those customers, we had fairly advanced negotiations to extend and contract before the pandemic shutdowns occurred.

And since that time, the active discussions have been hold, we expect them to heat up this year.

And we're -- since we were negotiating contraction before the pandemic, we continue to expect them to contract.

And they're both in Downtown Baltimore.

And maybe one last quick one for me.

Anthony, you mentioned some alternative investment sales that led the gains in 4Q.

What else is on the books that we might expect to drive gains or losses in the future?

So we have a pretty limited amount of those investments left.

It's about $3 million to $3.5 million remaining.

So they're in a fund that the company invested in, and they manage the liquidation of that fund.

So the timing of that is very difficult to predict.

So it sort of comes and goes as the fund is sold off.

The fund is a private equity fund that creates -- brings new defense technology to market with start-up companies.

And we invest in it to create opportunities to be the landlord for those tenants that they successfully create.

Our next question comes from Craig Mailman with KeyBanc Capital Markets.

I'm just curious, it sounds like vacancy leasing could be picking up a little bit here.

I'm just curious what you guys think was a trigger for that.

Is it just the ability to actually tour space?

Or with the vaccine news, are people kind of feeling a little bit better about making long-term decisions?

And also, just curious, anything you guys are seeing discernibly on like different types of space usage or floor plan layouts as, you know, we get to the, hopefully, the back end of the pandemic?

So I'll take that in layers.

Certainly, during the second and third quarter, there was very little showing activity, which creates kind of a void in the natural deal flow, and that had a component to it.

Activity picked up in the fourth quarter.

It remains strong now.

I would estimate that 60% to 70% is defense contractors.

And much of that activity is either in anticipation or contingent on contract awards that continue to flow at a pretty healthy rate out of defense installations around our properties.

In terms of the space planning, we really have not seen a material change in the densities for the tenants that we've planned.

It's a bit surprising.

But even the leases that we had executed in April -- March and April, it went on to fulfill their interior plan -- their interior build out as had been planned before the pandemic.

Okay.

That's helpful.

Any kind of -- how are the dynamics on rents kind of progressing here?

Or is it totally -- is it face rent?

Or is it TIs?

Kind of what's the conversation going like as people come back and want to take space?

So -- but for Downtown D.C., economics are stable in all of our markets, if that's strengthening in some.

In Alabama, we have a lot of activity right now, in essence, each new lease that we execute sets a new kind of high watermark-for-market rent.

National Business Park, Columbia Gateway very stable.

We'll find out soon what the impact is in Downtown D.C., but I would expect concessions to go up and rates to remain stable.

Any of the pickup in Huntsville, I know space force, I think, that was the location that they picked for that.

Is it just way too early for that to be a demand generator?

Yes.

It's way too early, Craig.

It's very exciting but early.

Certainly, the award has been announced.

Other states are contesting the award.

It will be challenged for some time.

But there is activity evaluating space requirements down there, both short and long term.

And it could potentially create opportunity with the government and, unquestionably, will create an opportunity with contractors.

And then just one last one.

310 NBP, sounds like you guys are feeling better about that.

But with the administration change, is there going to be any changes at the top of that tenant organization that will require another review of this space like you guys have kind of had as there's been turnover there that could delay it?

I don't expect that to be true.

I think it's a matter at a much lower level than the new cabinet positions are going to be evaluating.

Our next question comes from Blaine Heck with Wells Fargo.

I feel like we ask this every quarter, but just to get an update.

Can you talk about the likelihood of you guys expanding your DC Shell program to cater to some other tenants, given that's cloud computing and all that goes with it has become increasingly competitive?

So we routinely have exploratory discussions with other tenants, potential tenants.

Heretofore, their development model or their procurement model isn't a great alignment with our strategy.

And that the bulk of those people want to lease fully developed data centers where the landlords borne all the capital risk.

The customer that we've got a great relationship with now, it's an ideal model for us because we're putting in a few hundred dollars a square foot, and they're taking measurably more capital risk by taking our Shell and developing it to a Tier 3 data center.

To the extent we had a customer who is interested in a similar program, we would welcome the opportunity.

All right.

That's helpful.

And then just one for Anthony.

Can you just give us a little bit more detail on your equity needs for this year?

Maybe a little bit on potential size and timing on an expected DC Shell JV?

Sure.

So the data center shell equity that we need is between $200 million and $225 million.

We have groups of those assets that we have available to us to venture throughout the year as some of them have been placed in service for longer than 2 years, which is sort of our benchmark for tax purposes.

So our plan is that, that would most likely go out in, call it, even -- call it, 1/3 beginning in the second quarter and transactions closing in the second, third and fourth quarters.

Our next question comes from Steve Sakwa with Evercore ISI.

Most of my questions have been asked.

But can you just remind us what the size of the land bank is to further the data center shell business?

And are you actively looking for more land out of Northern Virginia?

So the land -- I don't have acreage available to me.

Okay.

I do now.

53.

We have 53 acres, Steve.

And all of that land is adjacent to current or recently completed developments.

We have a notional schedule of when they'll be developed.

Right now, the long pole in the tent is getting power.

With the extreme level of development activity over the last 2 years, both of the power suppliers are strained to get additional critical power to these sites.

But from a company program, I'd say we've got 2 to maybe 2.5 years of run time before we need to buy more land.

Sorry, just to convert that, that 3 acres would equate to what kind of developable square footage?

It's a little -- almost 1.2 million square feet.

Our next question comes from Tom Cat Ward with BTIG.

Following up actually on Steve's question.

One thing that did jump out, it looks like the data center shells you started in the fourth quarter were on the land that had been in the Defense/IT buckets, there wasn't a decrease in the data center shell land.

Are we reading that right?

And is there kind of some more potential to repurpose land elsewhere in your portfolio for data center shells?

Well, you get a cookie, Tom.

That was very good analysis.

Yes, that was personal land in Fairfax County that we have held for office development.

And some customer-specific needs allowed us to make that available to our data center shell tenant, and we executed leases on that.

I don't think there's much more of that in Northern Virginia.

Got it.

Got it.

And then, Steve, you alluded to the challenges with getting power in at these data center shells.

And the 2 that you started in the quarter seemed to have longer development time lines than other ones you've done.

Is that because of the kind of constraints on getting the power in?

Or are these developments a little different from what you've done before?

So yes and no, but I pointed out that they are in a different county.

They're in Fairfax County, which is notoriously bureaucratic.

So we've got a very long development schedule to allow us sufficient time to get through a rezoning and then all the approvals we need to develop the asset.

Additionally, we need time to get to critical power as well.

Got it.

Understood.

And then last one for me.

Well, one final note.

To the extent we can accelerate the approvals and the access to power, we will deliver those early.

Got it.

And then one last one.

Steve, you had mentioned the expectations for 1% Defense Department budget increases going forward.

One of the things that kind of hit the news recently but has been overwhelmed by other stories was the cyber hack on government and defense agencies.

Given that, that was a growing portion of your portfolio, are you seeing a reallocation of either dollars or attention to that space?

And what does that -- I imagine that could be -- have some upside for Columbia Gateway and BP.

What are you guys seeing so far?

I think it's early.

In fact, we see impacts of those kinds of exogenous events when contracts flow out of the government agencies into tenants.

And then we'll experience that demand.

I would expect significant increases in funding to address the issue, but also that, that demand would materialize maybe another 12 months down the road.

Our next question from comes from Jamie Feldman with Bank of America.

So I guess along the same lines as the last question, you had mentioned 1% growth in the defense budget expected over the next 3 years.

But if you were to look at the more relevant piece of the budget that ties to your business, like Defense/IT and cyber, why do you think the growth rate looks like that for that segment over the next several years?

So it's a little early.

They pass the budget, but we don't have access to the documents.

They have not yet published the green book, which allows us to mine that data for more program-level changes.

Certainly, I think cyber would probably grow north of 5% for the next several years, if not higher.

And then other programs I just can't speak to.

You're saying 5% per year?

Yes.

Okay.

And then you had mentioned for 2022, the 2 large leases in question are both Downtown Baltimore.

I mean does that -- and everything else seems like it's doing really well.

I mean, does that make you rethink at all your Baltimore exposure opportunity to maybe sell those assets and move on?

Well, we've always considered those assets that we would recycle at the right point in time.

One of the reasons we held on to them is we wanted to enter the era of growth we talked about in our discussions, certainly, selling them before we get the renewals established would be silly.

But I would certainly say that those 1 or 2 of those assets could be considered for sale in the next 24 months.

Okay.

But you don't want to market them until you figure out these 2 leases?

Well, absolutely not.

I mean we sold them at the worst possible time.

Okay.

And then I know you guys -- you provide your guidance in terms of cash, cash NOI growth, same-store growth and leasing spreads.

Can you give us a sense of what those look like on a GAAP basis?

So our leasing spreads on a GAAP basis are between, call it, 5% to 7% in terms of converting the cash roll downs into GAAP spreads, given the increases that we have embedded in those assumed renewals.

Positive 5% to 7%?

Yes.

Okay.

And what about same-store NOI?

Same-store NOI is -- I don't got that in front of me.

I have to get back to you on that, Jamie.

Our next question comes from Jay Kornreich with SMBC.

Just looking at your portfolio, as it lends itself more heavily to the D.C. metro area, which makes sense considering the business you're in.

How do you guys think about stretching beyond that as you've entered San Antonio and Huntsville?

So what do you -- how do you think about expansion in those markets and potentially in other markets as well?

Well, we try -- we have pursued missions that are knowledge-based not a troop or weapon's production-based.

And we have scoured the country for good opportunities periodically for the last decade.

The -- I would recommend you give us a phone call where I could go into more detail.

But the locations that we serve are places where the missions have very high priorities.

So they will have high levels of consistent funding and our knowledge base, which suggests they need office property in manufacturing or residential.

So we're pretty committed to the locations we have.

Our next question comes from Dave Rodgers with Baird.

You guys have addressed a lot.

But 2 questions.

One, maybe on 2100 L, would you guys consider selling that before any kind of 2-year hold period?

Or is that still going to be subject to that same thinking?

Just trying to consider when that could potentially go for you, if that's still a plan.

And then the second question, I think Todd mentioned it, but maybe Todd and Steve, you guys could tackle this.

The occupancy loss in 21, obviously, it's a lower backfill that's showing up there.

But when you see the lower retention this year, is there any thematic to that either geographic component of the portfolio or program that negatively impacted the lower retention?

Well, let's take them one at a time.

So I'll take the first one, Dave.

So in order to create the flexibility to monetize 2100 L, there was -- a structure has been created for that asset to be owned within a REIT within our REIT.

So we have a structure that will allow us to sell, which is not a common kind of structure within in the district.

So we have a structure that would allow us to be able to monetize that asset before the 24-month period is up.

And then with regard to the renewals, we've built into our assumption some pretty conservative numbers on commercial office tenant contractions during the year and capacity to absorb an early renewal with the contraction if the opportunity is presented, specifically regarding those 2 tenants in Downtown Baltimore.

So those are the 22 explorations, but there's just room to absorb them this year, is what you're saying?

Yes.

We put some capacity for one or the other.

And then when we look at commercial tenants renewing, we've handicapped some contraction, kind of generally, more specifically.

And our next question is, please forgive me, Omotayo Okusanya with Mizuho.

Yes.

That was actually pretty good.

So quick question about same-store forecast for next year, the occupancy guidance of 90% to 92%.

You were at 92% for 2020.

What could kind of get you to the lower end of that range?

And even if you were at the higher end, which is the same number you were at in 2020, you still kind of forecast about a flat same -- cash same-store NOI growth.

Can you just walk us through that a little bit?

So the lower end, it would be represented by less leasing that has been contemplated in our plan earlier over the year.

And remind you, we've got a pretty manageable revenue risk number.

But to the extent we weren't able to hit that target, that would be reflected in fewer square feet at the end of the year and a lower achievement.

The higher end is the converse of that.

We generate more leasing than the midpoint of our plant.

And then what's the corollary?

And the corollary on the same-office cash NOI growth is that the occupancy is a point in time at the end of the year.

And based on how those leases commence throughout the year and contribute to that cash number is why we end up at the flat at the high end.

Okay.

So the average is probably lower for the full year versus the actual year-end number?

Correct.

Our next question comes from Chris Lucas with Capital One Securities.

Just a couple of quick ones for me.

2100 L was placed into service in the fourth quarter.

Did that contribute any GAAP revenue in the fourth quarter?

It was very small.

It was like a week.

So de minimis.

Okay.

And then that doesn't change, I guess, the expected cash rent start dates for that lease?

It does not.

Okay.

And then, Anthony, just as it relates to the alternative investment sale, that is included in your FFO adjusted for comparability?

It is.

We had a small one in...

And it's [$1.2 million]?

Yes.

Our next question is from Jamie Feldman with Bank of America.

Just a quick follow-up.

I just want to understand your thought process on saying April 1 for the DC-6 renewal.

How did you guys choose that date?

Fairly randomly.

No, just based on the kind of progress that we've had since the holiday break, checking off the open issues with the tenant.

Okay.

All right.

And what still needs to get done?

Are you able to discuss that?

I really don't want to go into any further detail on points.

I think on the last call, I conveyed that we had a bundle of -- we addressed all of the issues that were open with positions we'd be willing to accept.

And challenge them to narrow the gap, and we're making some pretty good progress.

But ultimately, it's got to be good for our shareholders or we won't agree to it.

And I'm not showing any further questions in the queue.

I will now turn the call back to Mr. Budorick for his closing remarks.

So thank you all for joining our call today.

We are in our offices this afternoon, so please coordinate through Stephanie if you like a follow-up call.

Thank you.

And thank you for your participation today in the Corporate Office Properties Trust Fourth Quarter and Full Year 2020 Conference Call.

This concludes the presentation.

You may now disconnect.

Good day.