Copt Defense Properties Q4 FY2025 Earnings Call

Welcome to the COPT Defense Properties Fourth Quarter and Full Year 2025 Results Conference Call. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Venkat Kommineni, COPT Defense's Vice President, Investor Relations. Mr. Kommineni, please go ahead.

Thank you, Jonathan. Good afternoon, and welcome to COPT Defense's conference call to discuss fourth quarter and full year results. With me today are Steve Budorick, President and CEO; Britt Snider, Executive Vice President and COO; 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 could 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. 2025 was another great year for the company as we outperformed on virtually all of our operating and financial metrics. FFO per share was $2.72, which is $0.06 above the midpoint of our initial guidance and represents an increase of 5.8% over 2024's results and marks our seventh consecutive year of FFO per share growth. Same-property cash NOI increased 4.1% year-over-year, driven by a 40 basis point increase in our average occupancy. We executed 557,000 square feet of vacancy leasing, which represented 47% of the space we had vacant at the beginning of the year. We also executed 477,000 square feet of investment leasing at a weighted average lease term of 13 years. We committed $278 million of capital to new investments which consisted of 5 projects in 4 different markets and these projects are 81% pre-leased. Importantly, 4 of 5 projects represent expansions with existing tenants. In late December, we committed roughly $155 million to 2 build-to-suit projects in our Fort Meade BW Corridor and San Antonio markets. First, we committed $66 million to a fully pre-leased development with ARLIS, which is the University of Maryland's Applied Research Laboratory for Intelligence and Security to expand their footprint in our park. This 110,000 square foot project will expand our Discovery District campus which currently totals 415,000 square feet and is 98.4% leased. This new ARLIS facility will serve as the Capital Quantum Benchmarking Hub to test and evaluate quantum computing prototypes for national security in a partnership between the State of Maryland and DARPA, the Defense Advanced Research Projects Agency. In 2024, the University of Maryland received a $500 million contract from the DoD to support ARLIS and their mission of addressing complex national security problems. Second, we committed $88 million to a 132,000 square foot fully pre-leased development project in San Antonio with an existing Defense/IT tenant. Our team did a tremendous job of adding incremental density to our already fully leased high-security 1.1 million square foot campus to create this additional development opportunity. In aggregate, our active developments, along with those projects placed in service or acquired in 2025 will generate an incremental $52 million of cash NOI on a stabilized annual basis, which will be realized as projects are completed and placed into service. The incremental NOI will phase in between 2026 and 2029, which will be the first full year benefiting from the total amount. $48 million of this is contractual and the balance is from leasing up the remaining availability at 8500 Advanced Gateway. Britt will discuss the very strong pipeline of activity we have for RG 8500. For 2026, we're establishing the midpoint of FFO per share guidance at $2.75, which implies $0.03 or 1.1% growth over 2025's outstanding results. Our guidance absorbs a $0.09 increase in financing costs. Excluding this impact, 2026 FFO per share would have totaled $2.84 and 4.4% year-over-year growth. Anthony will provide details on the specific assumptions included in our guidance but we're already off to a great start to the year with capital commitments and investment leasing. In January, we committed $146 million to yet another fully pre-leased development project at the National Business Park, once again with an existing Defense/IT tenant. This is another high-security specialized facility that will total 236,000 square feet. Earlier this week, we executed a full building lease for NBP 400 with an existing tenant that is a top 10 U.S. defense contractor for 148,000 square feet and a lease term of nearly 11 years. Turning to the Defense budget, 3 days ago, President Trump signed the FY 2026 Defense Appropriations Act. This base budget is $841 billion, an $8 billion increase over the President's initial request. Adding the $113 billion in allocated DOD funding that was in the Big Beautiful Bill amounts to a Defense Budget of over $950 billion, the largest defense-based budget in our nation's history and a 15% year-over-year increase. The President's fiscal year 2027 budget request is expected to be submitted in the coming weeks, but he publicly announced the need for a $1.5 trillion Defense Budget. Regardless of where the final number ends up, his comments send a strong policy signal of the President's commitment to increase investment in Defense, and we expect the overall size of the defense budget to continue to increase throughout the next 3 years. Importantly, the initial FY 2026 Defense Appropriations Act enjoyed very strong bipartisan support, recognizing the increasingly complex global threat environment. A recent editorial published in the Wall Street Journal was titled 'A Serious Defense Budget at Last,' highlighting new technologies that proliferate in ways that threaten the U.S. homeland, including hypersonic missiles, space and cyber weapons, drones, and the weaponization of AI. The editorial's conclusions are perfectly aligned with the administration's 'peace through strength' philosophy and recognize that investment in Defense is infinitely less costly than a war. Given this backdrop, we continue to expect that the priority missions our portfolio supports will be well-funded in the near and medium term to safeguard national security. These missions include intelligence, surveillance and reconnaissance, cybersecurity, missile defense, space activities, among others. Space is the newest war-fighting domain, and achieving uncontested dominance in this theater is of paramount importance to the country's defense. In support of this objective, we expect the $175 billion multiyear Golden Dome initiative and the relocation of Space Command's headquarters to Huntsville to drive growth in demand from both government and contractors at the Redstone Gateway for the foreseeable future. Before I turn the call over to Britt, let me reflect on our performance over the past few years. In 2019, we entered our era of growth as we had largely completed our strategic reallocation plan and our FFO per share for that year was $2.03. 7 years later, the midpoint of our 2026 guidance is $2.75, a 35% increase and represents a compound annual growth rate of 4.4%. Between the initial midpoint of 2023 and 2026 guidance ranges, FFO per share is expected to grow at a compounded rate of 4.9%, over 20% higher than what we had projected back in 2022. And with that, I'll turn the call over to Britt for some details.

Thank you, Steve. We finished the quarter with strong occupancy at 94% in the total portfolio and 95.5% in the Defense/IT portfolio. Year-over-year, occupancy increased 40 basis points in the total portfolio and 10 basis points in the Defense/IT portfolio. Our buildings remain highly leased with our total portfolio at 95.3% and our Defense/IT portfolio at 96.5%. The lease percentage for the total portfolio increased 20 basis points from the end of last year, driven by our incredibly strong vacancy leasing performance. I want to give special recognition to our entire team who contributed to these outstanding results in terms of both vacancy and investment leasing. In fact, we executed 557,000 square feet of vacancy leasing during the year, which exceeded our initial target by 40% or over 150,000 square feet. In our Defense/IT portfolio, we executed 424,000 square feet, which alone exceeded our 400,000 square foot initial goal for our entire portfolio. The vacancy leasing achieved represented 47% of our available inventory at the beginning of the year for the total portfolio and 58% within our Defense/IT portfolio. Half of this leasing was tied to either secure space, cyber activity, or a combination of both. In our Defense/IT portfolio, over half of our vacancy leasing and 90% of our investment leasing was executed with existing tenants. We enjoyed broad-based leasing activity across our markets. Notably, we executed roughly 110,000 square feet in our Navy support market, which represented 73% of our available inventory in that group at the beginning of the year. Many of you have asked about this market over the past few quarters, and we delivered. The lease rate in this portfolio increased nearly 200 basis points over the year and the occupancy rate increased over 400 basis points. We also executed over 130,000 square feet in our other segment, the highest level in over a decade, representing 29% of our available inventory at the beginning of the year. Leasing achievement in the other segment included over 40,000 square feet at our property in Tysons Corner and nearly 90,000 square feet in Baltimore. Year-over-year, the leased rate in our other segment increased nearly 300 basis points and the occupancy rate increased nearly 400 basis points. For 2026, we have again set a vacancy leasing target of 400,000 square feet, representing 1/3 of total available inventory at the beginning of the year. Our leasing activity ratio is 74%, equating to 870,000 square feet of prospects on 1.2 million square feet of availability, with 10% of this activity in advanced negotiations. Turning to renewal leasing, we executed 2 million square feet for the year with tenant retention of 78% and cash rent spreads of 1.1%. In our Defense/IT portfolio, we executed 1.9 million square feet for the year with tenant retention of 79% and cash rent spreads up 2.7%. The government had an administrative delay in processing lease renewals expected in the fourth quarter, which included 700,000 square feet of secure full building leases in San Antonio. This delay negatively impacted our tenant retention and cash rent spreads relative to our guidance. To quantify the impact of these delayed renewals, tenant retention would have been 84% or over 600 basis points higher, and cash rent spreads on renewals would have been 2.4% or over 130 basis points higher. Our 2026 guidance assumes a midpoint for tenant retention of 80% and cash rent spreads up 2% at the midpoint. In 2026, we have 2.2 million square feet of government leases expiring, virtually all of which we expect to renew. Nearly 1 million square feet of this total is at our campus in San Antonio, consisting entirely of secure full building leases with the government that expire in the first quarter of 2026. This group of leases accounts for 1/3 of the expiring square feet in our Defense/IT portfolio this year and over 40% of the expiring annualized rental revenue. We expect 100% retention on this nearly 1 million square feet as lease economics have already been finalized; we are just waiting for the government to finish processing the paperwork. We believe this process will be completed, and this batch of leases will be renewed in the first quarter. Turning to our large lease retention, on Slide 20 of our flip book, we provide an update on leases in excess of 50,000 square feet that expire between mid-2024 and year-end 2026. Overall, we now expect tenant retention of over 95% on the entire 4 million square feet of these large lease renewals, as we expect 100% retention on the remaining 12 leases totaling 1.9 million square feet, which are all with the U.S. government and half of which are at our campus in San Antonio. Additionally, since we started providing this disclosure 3.5 years ago, we have renewed over 4 million square feet of large leases with a retention rate of over 97%. Moving on to development, we commenced 3 developments over the past few months, and our active development pipeline totals nearly $450 million of capital commitment. The active pipeline totals 880,000 square feet and is 86% pre-leased. 5 of our 6 development projects are 100% pre-leased now that we've executed the full building lease at NBP 400. The only development with space available is our 8500 Advanced Gateway project in Huntsville, which was just constructed as an inventory building in one of our highest occupied parks. We commenced construction on 8500 Advanced Gateway a year ago, and the roughly 400,000 square feet of prospects on the remaining 125,000 square feet of availability speaks to the strength of tenant demand at Redstone Gateway. The project is currently 20% pre-leased, as we signed a 32,000 square foot lease in the fourth quarter with a Defense/IT tenant whose technology is central to the Golden Dome initiative. We are in advanced negotiations on a 32,000 square foot lease with another defense contractor, which is also supporting Golden Dome and has been a tenant of ours for over 20 years. This lease will increase the pre-lease rate at 8500 Advanced Gateway to 40%. We are already progressing planning and design for our next inventory building at Redstone Gateway, and once 8500 Advanced Gateway approaches 60% pre-leased, we expect to commence the next inventory development. Finally, at 8100 Rideout Road in Huntsville, which is an inventory development we delivered last year, we are in advanced negotiations with one of our top Defense/IT tenants to expand into the remaining 27,000 square feet of availability. Once executed, the only space available in our 2.4 million square foot Redstone Gateway operating portfolio will be a single 10,000 square foot suite, and we are in advanced negotiations with a defense contractor on that space. Our development leasing pipeline, defined as opportunities we consider 50% likely to win or better within 2 years or less, currently stands at nearly 1 million square feet. Recall, the pipeline stood at 1.3 million square feet at the end of the last quarter. Since then, we achieved over 650,000 square feet of investment leasing, and we added another 300,000 square feet of high probability prospects. This activity should allow us to maintain a solid development pipeline in the near and medium term. And with that, I'll hand it over to Anthony.

Thank you, Britt. We reported 2025 FFO per share of $2.72, which was $0.02 above the midpoint of our revised guidance and $0.06 above our initial guidance. The year benefited from earlier-than-expected lease commencements and success in flipping expected non-renewals to renewals, lower-than-anticipated net operating expenses, including nonrecurring real estate tax refunds. The Stonegate acquisition in late October, additional interest and other income on investments, and lower net interest expense from the timing of development funding, which was partially offset by higher interest expense from our October bond offering. During 2025, same-property cash NOI increased 4.1%, well above the midpoint of our original guidance of 2.75%, driven by a 40 basis point increase in same-property average occupancy and operating expense savings that positively impacted FFO per share. Same-property occupancy ended the year at 94.2%, in line with the midpoint of updated guidance and 20 basis points higher than initial guidance. The 10 basis point decline over the quarter was driven by a few previously discussed non-renewals in the Fort Meade BW corridor, each under 30,000 square feet. In October, we issued $400 million of 5-year unsecured notes at a yield to maturity of 4.6%. The bonds priced at a credit spread of 95 basis points and are currently trading at spreads that are tighter than our higher-rated office peers. The proceeds from the offering will be used to repay our $400 million 2.25% bond, which impacts 2026 FFO per share based on the higher interest rate between the new bond and the maturing bond. Our decision in September to prefund this bond maturity was driven by our conservative and risk-averse nature and the tight execution window that exists for any issuer early in the first quarter. This decision not only eliminated any execution risk, but also removed any underlying treasury rate risk. The 5-year treasury at the time of our offering was 3.67%. Since our deal priced, the 5-year has traded at or above that rate in 90% of the trading days open for issuance. With respect to guidance, we expect another solid year of performance in 2026. We are establishing FFO per share at a range of $2.71 to $2.79, implying 1.1% growth at the midpoint. The $2.75 per share midpoint takes into account a $0.17 increase in NOI from rent increases and lease commencements in the operating portfolio, partially offset by nonrecurring real estate tax refunds, along with increases in NOI from developments and one acquisition placed into service during 2025 and 2026. This is partially offset by $0.09 from higher financing costs, $0.015 from the delivery of NBP 400 into the operational portfolio, and $0.03 from the net effect of lower interest and other income on investments and higher G&A. Same-property cash NOI is projected to increase 2.5% at the midpoint. This guidance is impacted by nonrecurring real estate tax benefits in 2025, which reduced the 2026 growth rate by 100 basis points. We expect same-property occupancy to end the year between 93.5% and 94.5% and be relatively flat throughout the year. Regarding uses of capital in 2026, we expect to spend $200 million to $250 million on active and future projects and to commit $225 million to $275 million of capital to new investments. We take a conservative approach to our AFFO payout ratio, which has averaged roughly 60% over the past 2 years and is forecasted to be under 65% in 2026. At this level, the portfolio continues to generate sufficient cash to fund the equity component of our anticipated investments on a leverage-neutral basis. Finally, I'd like to take a moment to discuss the impact of placing our development NBP 400 into service this year and our overall approach to capitalize costs as it relates to development. We will place NBP 400 into service on April 1, which marks 1 year from the completion of the core and shell of the building. At that point, as our long-standing policy compels us, we will stop capitalizing interest and operating costs associated with the project. This results in a $0.015 impact to 2026 FFO per share, which is absorbed in our guidance. Our policy is to capitalize interest and operating expenses, the largest component of which is real estate taxes associated with properties undergoing development or redevelopment. We continue to capitalize these costs until a property becomes operational, which we define as the earlier of 90% occupancy or 1 year from substantial completion of the core and shell. Historically, we capitalize only a small fraction of our overall interest expense, with capitalized interest averaging roughly 5% of our gross interest over the past 3 years. In 2026, we forecast we will capitalize less than 8% of our gross interest expense. While delivery of NBP 400 will temporarily reduce total portfolio occupancy by 60 basis points beginning in the second quarter and FFO per share in the second and third quarters, our guidance assumes the lease we just executed with a defense contractor will commence in the fourth quarter. We believe our policy regarding capitalized costs related to development and redevelopment projects is illustrative of our conservative approach to adhering to GAAP standards and avoids accumulating excess basis in our projects, which would deteriorate our expected yields. With that, I'll turn the call back to Steve.

Thanks. I'll close by summarizing our key accomplishments and messages. 2025 was a year of outstanding achievements, delivering strong performance across all segments of the portfolio and all departments of the business, resulting in FFO per share growth of 5.8% year-over-year and representing our third consecutive dividend increase, for a total 10.9% increase over the last 3 years. For 2026, we expect this will be our eighth consecutive year of FFO per share growth. We again set a target for vacancy leasing at 400,000 square feet, an aggressive goal given the limited amount of unleased space in our portfolio. We expect tenant retention will remain strong at 80%, and we expect to commit $250 million of capital to new investments, of which we've already committed $146 million. Our liquidity remains very strong, and we expect to continue self-funding the equity component of our capital investments. We now anticipate compound annual FFO per share growth of nearly 5% between 2023 and 2026, and we're already off to a great start. We expect to deliver another strong year of results. Before I wrap up, I want to make a comment about the passing of my good friend and former colleague, Roger Waesche. Sadly, Roger passed away suddenly on January 8. Much of the foundation that we have built over the past decade is a result of the leadership and foresight of Roger Waesche. Roger worked for the company for over 3 decades, serving in a wide range of leadership roles, culminating with being the company's third Chief Executive Officer from 2011 to 2016. We have no need to idealize him beyond what he was because that was more than enough. A loving husband and father, a man of great faith and integrity, a fierce and loyal friend, a man of great intelligence and kindness, and a colleague and leader who cared deeply for all those he encountered. Those of us who had the privilege to work with and alongside Roger are better off because of it. He is greatly missed. Operator, with that, please open up the call for questions.

Our first question comes from Seth Bergey from Citi.

I guess just starting off with the development pipeline. Are you starting to see opportunities from the Golden Dome and the new kind of defense appropriations trickle into that pipeline visibility? Or are projects related to that still on the come?

I think the answer is both, Seth. Britt talked about the big backlog of prospects we have for RG 8500 in the 400,000 square foot range. Many, if not most, of those pertain to Golden Dome. I believe they represent initial footprints, early moves to get into the action. I think, subsequently down the road, you'll see larger requirements as awards are made and the contractors ramp up to perform the actual creation of the Golden Dome.

I'll just add a couple of things to that, too. They're really trying to move that process forward from a contracting standpoint. The Missile Defense Agency's Shield contract could afford the DOD with quite a bit more flexibility to process orders more quickly. They are looking to fast track, especially some of the space-based interceptor contractors through OTAs or other transactional authority. We're seeing it not just through the tours, but also how they're setting up for these contracts to be awarded. Expect some velocity this year.

Great. And then just a second one on the leasing assumptions around tenant retention, 80% at the midpoint. I guess for the 20% that would not be retained, given the type of tenant that you have, where are those tenants going? Is there like a cited reason for move out? Or could that be conservative just given where your retention has been in the past couple of years?

When you look at our non-renewals from year to year, it's typically smaller tenants that are vulnerable to a relocation because they need a little less space or a little more space. Probably 70% of non-renewals are just getting smaller tenants into the right-sized space. Some of those are non-defense tenants. Often, it's our asset managers managing their inventory to accommodate the growth of larger defense tenants. There's always a little friction in there. But I have to remind you, for a decade, we've delivered 80% retention. It's a pretty astounding number.

And our next question comes from the line of Blaine Heck from Wells Fargo.

Just following up on potential additional investments, specifically the roughly $100 million of additional investments earmarked for guidance in 2026. I guess what do you think the mix between acquisitions and developments will be in that total? Can you also talk about the profile and yields that you're targeting on acquisitions? Outside the activity in Huntsville you described, are there any additional near-term development projects that you're eyeing at the moment?

Well, we talked about our development pipeline having roughly 1 million square feet. A big chunk of that is smaller contractors for 8500, but there are some build-to-suit opportunities. Our yield targets haven't really changed for developments. We target an 8.5% cash-on-cash yield at the commencement of the lease. Regarding acquisitions, when they occur, we consider them opportunistic. We don't have any built into our guidance, if you will. Typically, the yield on that acquisition has to exceed what we can do on our development opportunities for us to make the move.

Got it. That's helpful color. And then just switching gears, you guys have been pretty steadfast in your messaging around not needing equity as a source of funds to support your investment initiatives. But given that the stock performance has been very strong thus far this year, I'm wondering whether you'd be more open to issuance at these levels. I guess, how equity would rank in your options for funding sources? Alternatively, are there any assets that you would consider for dispositions if you were to add significant developments or acquisitions this year?

There are many aspects to that question. It’s encouraging to be in a position where we could think about issuing equity, but that’s more of a last resort for us. As we have clearly stated, we can manage our expected development investments with the cash we generate internally. We actually have the flexibility to increase our debt ratio modestly for a year or two, which would be a temporary situation. Regarding asset sales, there are several that we’ve expressed a desire to sell, all of which are in the other segment, not in defense. The timing of these sales isn’t primarily tied to our development pace but is more influenced by market conditions in those areas, allowing us to achieve efficient sales that protect shareholder value.

So I guess just asked another way, you don't feel like your hesitation to issue equity has held you back at all from taking on more projects. Is that correct?

Not at all.

And our next question comes from the line of Anthony Paolone from JPMorgan.

First one, just on the starts that you anticipate for 2026. It sounds like maybe the follow-up for 8500 in Huntsville. Are there any others in the plan?

Well, we have our eye on a few, but we're not going to tell you where they are. We're working on several other opportunities. Yes, you're right. We expect to start an inventory pretty quickly after 8500 gets committed.

Okay. If we're looking beyond 2026, your investment spending has been pretty consistent the last couple of years in your guidance for 2026. However, if we look at what's left to spend on the developments currently in place, it sounds like you'll still have a couple of hundred million to spend after 2026. If you start some things this year, that will add to that. Should we expect development spending or investment spending to ramp a bit in the next couple of years?

From a spending standpoint, yes, because if you look at the development chart in our supplement, you'll notice that the two buildings we committed to, one in late December and one in early January have placed in service dates that are in 2027 and late 2028. You're correct, the significant spending for those won't occur in 2026; it will occur in 2027 and 2028. There will be incremental funding for the commitments we've made this year as well as the commitments we expect to make in 2026 and beyond.

Okay. My follow-up on all of that because it seems like the business is going well, a few years ago you laid out your 4% earnings CAGR as an intermediate or maybe even longer-term growth rate. Do you think that still stands? Is there a chance that could bump higher given all the conditions surrounding the business? Or how to think about that?

This year is a transition year because of the impact of the refinancing costs. I think later in the year, we'll probably try to give you a little more of a view of what our future looks like, but we're very confident we're going to continue to produce solid growth as we have, and that's my message.

And our next question comes from the line of Manus Ebbecke from Evercore ISI.

Out of demand that you're seeing in your markets, how much is driven by existing tenants versus new tenants? Have you witnessed any meaningful uptake and in-migration from maybe tech defense tenants into your markets from other regions in the U.S.?

Yes, I would say it's about 50-50 existing and new business. We are seeing groups come in from other locations, including Colorado and California. We're encouraged by seeing some influx from people into our markets that have not had footprints there previously.

I appreciate the commentary about maybe getting another outlook later this year. So we're definitely looking forward to that one. But in your view, with the demand picture looking really good and you're certainly able to capitalize on that, how do you expect your tenant mix to change if we compare today's portfolio to one potentially in 5 years from now? Where do you think the mix is shifting in your portfolio?

The mix of tenants... are you talking about concentration? Specifically, tenants, like government versus tech defense versus traditional contractors? I think it will be roughly comparable to what it is: 2 parts defense contractors for every one part government, and we'll see that growth in a variety of markets.

And our next question comes from the line of Rich Anderson from Cantor Fitzgerald.

Steve, first, well said on Roger, one of the best that I can recall ever working with. Just now getting under the questions. In terms of Huntsville and kind of where it is in terms of the size of the portfolio, 2.5 million square feet or thereabouts, NBP is 4.3 million square feet and growing from there. When I think about all the forces at work moving to Huntsville, whether it's Missile Command, Space Command, Golden Dome, do you feel you could reach a point where you'd run out of opportunity to meet some of these demand forces coming at the area? Or do you see opportunities to expand to build more in the area? I'm curious what your 5-year outlook is on Huntsville in terms of how big it can become within the portfolio.

I can't wait to be on a call to tell you how we're going to manage that growth. It's going to happen; it will just take a year or 2, Rich. Recall, we're built to 2.4 million square feet right now. We have a little under development. Our overall capacity on the land we control, without structured parking, is 5.5 million square feet. We've got 3 million square feet of development runway on the enhanced use land that we currently control. We believe there is a significant opportunity at the point where we have consumed that development that we can continue to expand our enhanced use lease presence on the base as there's ample land available. The existence of our contractor and government campus is a well-appreciated catalyst for the missions on the base. I don't think we're ever going to run out of runway there. There might be some processes we have to go through, but we've got a long runway in Huntsville.

Okay. In terms of the organic growth of the company, you guys have been successful at improving upon your guidance. I think in the last 2 years, you've seen it steadily sort of improve from one quarter to the next. Maybe the calculus is a little different this year. Would you say that you've left some opportunities on the table from a pure organic point of view? What has to happen for same-store to get a little boost up as the year progresses, and maybe you've left some conservatism on the table as well?

Well, same-store is a battle of inches. It's square feet renewed weeks of earlier or later commencements, pennies of rents. It's hard to say we're leaving anything on the table. Last year, our team executed extraordinarily well at getting the best outcome of probably 150 different transactions. Our operating teams have to keep the expenses in line and contest taxes. It's hand-to-hand combat in same-store growth. I think we've put out a good solid forecast, and we'd like to beat it, but I don't think we've sugar-coated it.

Okay. Last for me, the $950 billion defense budget with the OBBB. I'm curious if you could sort of frame when that will start to matter for the bottom line in terms of leasing and actual opportunities for the company. I mean, it's great as a setup for the long term, but is that a 2- or 3-year type process before you actually see it, make its way to your FFO line?

Yes. We've traditionally conveyed that from an appropriation, our demand impact is 12 to 18 months down the road. Particularly with some of the big funding things that are occurring right now, the funding is going to new programs. New programs have to be conceptualized, then put into contract competitions, defense contractors have to compete for the contract, get an award, survive a protest, and finally get an adjudicated result, and then they can lease space. So 12 to 18 months; it's a strong signal that our demand is going to remain very healthy if not improve over the next 2 years.

Rich, I would just add that there are a couple of initiatives to look at. Regarding Golden Dome and even Golden Fleet, which is less applicable to us, those 2 initiatives are working on ways to fast track those dollars in the program. Golden Dome has the potential to see benefit from that sooner than that.

Our next question comes from Dylan Burzinski from Green Street.

I know the Iowa data center development plans have sort of been pushed back a little bit, but just sort of wondering if there are any other markets that you're looking to sort of go out and gobble up some land parcels for future development opportunities on the data center side?

Not currently. We're constantly evaluating opportunities, but there's nothing that we're seriously considering.

And then I guess just one last one on the office disposition plans. The theme we’ve heard over the last several months is that debt capital markets are improving, bidding tends are getting more full. I’m curious about sort of bringing 2100 L to market since I know that's largely stabilized now.

Well, the D.C. market has not yet indicated pricing for assets that excites us. I don’t expect that to happen for 12 months, but we have that building extremely well positioned. It’s a fantastic development with great tenants. When we see capitalization rates approach the level that makes sense for our shareholders, we can move on it.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Mr. Budorick for any further remarks.

Thank you all for joining our call today. We are in our offices, so please feel free to coordinate through Venkat if you'd like to talk to us further. Have a great day.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.