Corporate Office Properties Trust (NYSE:OFC) Q2 2019 Earnings Conference Call Transcript

Jul 30, 2019 • 12:00 pm ET

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Corporate Office Properties Trust (NYSE:OFC) Q2 2019 Earnings Conference Call Transcript

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Q & A
Operator
Operator

[Operator Instructions] Our first question comes from Craig Mailman from KeyBanc Capital Markets. Your line is open.

Analyst
Craig Mailman

Hey, thank you. Anthony, I think you touched on it with the R&M cost being diverted a little bit. But could you just break down the 75 basis point increase in guidance here into the components?

Executive
Anthony Mifsud

Well, the components are made up of some faster lease occupancy for leasing that was -- tenants into occupancy from leasing that was done last year. And there were some operating expenses that were lower than expected in the first and second quarter that are permanent, most of them relating to the net impact of weather-related expenses, both snow as well as energy.

Analyst
Craig Mailman

Okay. And then I know the rent spreads are coming down because of some early renewals. If we were to think about just kind of rent spreads and commencements for this year versus 2020, kind of how would those two buckets look?

Executive
Anthony Mifsud

Not sure they'd look any different. I mean there is -- some of the early renewals that we're experiencing won't impact our cash NOI until next year, but there's -- I'd say there's two-thirds of our renewals that relate to expiring leases within the current year and roughly a third that are early renewals. So some of -- it's probably roughly a two-thirds, one-third.

Executive
Steve Budorick

Hey Craig, to put a little finer point on that, where we stand year-to-date, 91% of our leases in aggregate rolled within the guidance we set forth for -- with cash rent roll-down less than 2%. Only four leases that we -- that included one early renewal renewed outside of our guidance. In total, they renewed at about 9.1% combined.

The important point of those four deals, they were larger, they were coming off very long terms and had escalated higher. We retained $10.5 million of rent by renewing them and we gave up $1 million. But if you look at the big picture, we saved $10 million to $20 million from potential downtime. We avoided at least $8 million to $10 million of CapEx risk. So next year, the proponents of our leases will likely roll in that 0 to minus 2%, but there may be an occasion where a bigger or longer-term lease comes to maturity or maybe early that could deviate from that.

Analyst
Craig Mailman

Okay, that's helpful. Thanks for the color. And then just lastly, I know you guys have another $300 million to $400 million of dev leasing in the full year. And how much of that is related to like a potential JEDI award versus just the increased defense spend you guys are talking about on just the office side?

Executive
Steve Budorick

So to the best of our knowledge, none of the planned developments we're doing in cloud computing anticipate of the JEDI contract. That contract is expected to be awarded in August. There are only two competitors that are qualified to service it, and we'll understand I think in August how that turns out and what