Britt Snider: Yeah. I mean, it’s a good question. I mean, [Technical Difficulty] we are seeing a steady increased demand here from cyber tenants. And yes, they are generally smaller in size, but we’re also seeing tenants that come in at 5,000 feet and have turned into 70,000 feet because of the cyber hub and the ecosystem that we’ve created here. So we see that as something that has a very nice trajectory for Columbia Gateway. And, yeah, it’s becoming a much more of a cyber/IT hub.
Tom Catherwood: Got it. And then also following up on something else you mentioned in your prepared remarks, Britt, you talked about the defense budget approval benefiting the Navy support portfolio. Can you provide more detail on that comment and maybe what you’re seeing in terms of tenant activity in that grouping?
Britt Snider: Yeah. I mean, we are seeing — I mean, the Navy support demand driver is something that ebbs and flows a little bit, but it is something that we are seeing of late where more contract dollars are coming out. And whether it’s the Navy directly or through their contractors, I certainly can’t speak to exactly what’s driving it except for what we see in the defense budget. But we’re definitely seeing an increased activity level there and a lot of phone calls coming in and asking [Technical Difficulty] achieve additional space and, in particular, secure space. So we’re very pleased to see that that demand increasing.
Tom Catherwood: Got it. And then final one from me, maybe Steve. Again, great to see the acquisition of Franklin Center. And I know acquisitions can be opportunistic. It can be kind of one-offs, but what are you seeing as far as product potentially coming to market? I know there had been some talk of maybe in the, like, Route 28 South corridor in Northern Virginia with some buildings potentially coming up that might fit into your portfolio. Do you have a sense of — could there be other opportunities out for COPT this year in the market?
Stephen Budorick: There have been a couple, three opportunities in Northern Virginia. Some of them have been deferred and a couple resolved where another investor was willing to pay more than we would. Like I said, we painfully went through our criteria and we’re extremely disciplined if we can’t beat our development yield on an acquisition that we’re not going to buy.
Tom Catherwood: Got it. That’s it for me. Thanks, everyone.
Operator: Thank you. Our next question comes from the line of Ray Zhong of JPMorgan. Please go ahead, Ray.
Ray Zhong: Hi. Thanks for taking my question. My first question is on Franklin Center. You guys sounds like there’s no more dollar to be put into the asset itself. It’s just a matter of leasing up. Is that the right way to think about that?
Stephen Budorick: Yeah. We — well, generally, yes. The building was very well cared for and it’s one of the, like we said, second newest building in the park. It’s really quite prominent. We budget a couple million dollars for some, public combination enhancement, punching up [Technical Difficulty] and kind of the initial arrival experience [Technical Difficulty]
Ray Zhong: Got you. And then the second part of Franklin Center is you guys provided going in cash yield and stabilized cash yield. And also mentioned, most likely it’s a renewal for the existing tenant, but there’s still some vacancy. Just curious to know within that stabilized yield that you provided, is that under the assumption of just current tenant renewing or assuming it’s going to lease up to more like a 90% or so? So just trying to think about upside and downside on that yield?
Stephen Budorick: Yeah. There’s much more upside than downside. That 12% stabilized cash yield was established to cover absolutely every bad thing that could ever possibly happen concurrently. I think we’re going to blow that away.
Ray Zhong: Got it. And then any mark to market you can give on that? Because I noticed on GAAP basis, I think the rent is a little lower than cash basis. Just curious on the mark to market there?
Anthony Mifsud: The value of the mark to market over the remaining lease term was just under $1.5 million. It was, I think, $4 per foot.
Ray Zhong: Higher than market?
Anthony Mifsud: Correct.
Ray Zhong: Got you. And then I have a quick — yeah, and then my second question is on data center. I noticed there’s another expiration later this year. Any color you can provide on mark to market, notice that the rent is a little bit on a higher side versus the one that just got renewed. Just want to get a sense on market there?
Anthony Mifsud: The negotiations with the tenant are being finalized now. We expect us — we expect a strong mark to market on that lease despite the fact that its current rent is a bit higher than where our renewal last year ended. So wouldn’t want to put a percentage out there right now since we’re still in discussions with our tenant.
Ray Zhong: Got you. That’s it for me. Thank you.
Operator: Thank you. Our next question comes from the line of Peter Abramowitz of Jefferies. Your line is open, Peter.
Peter Abramowitz: Hi. Yes. Thank you. So just another one on the yield at Franklin Center. So I think, Steve, you just mentioned you would expect some upside to that. Just looking — assuming you get to say kind of 90% stabilized occupancy if you’re at 11%, which is 56% occupancy today, just trying to quantify that upside. Is it fair to say it could get kind of into the mid to high teens if you’re getting to 90% stabilized occupancy?
Stephen Budorick: Yes.
Peter Abramowitz: Got you. That’s helpful. And then just another one on the development side. Could you just kind of touch on — you talked about the two new projects that you have and are looking to lease up in Redstone. Could you just talk about the depth of pipeline for demand on the build to suit side and just kind of what you’re seeing there, what you expect for the rest of the year?
Stephen Budorick: Yes. Our overall development leasing pipeline is at a little over 0.5 million square feet right now. And that includes several possibilities for build suits and then leasing up what we’ve started and were under construction on.
Peter Abramowitz: Got you. I guess, is that something…
Stephen Budorick: I won’t tell you, who we work (ph).
Peter Abramowitz: That’s all right. We’ll wait to hear. Is that something you think could pick up just on the back of some of the strong growth in the defense budget? I would imagine that ’23 demand is kind of coming through right now.
Stephen Budorick: Well, it’s my belief that or feeling that all companies are feeling the pressure of the cost of capital right now. And I think even our customers with good business opportunity and growth are being very prudent, about major investment decisions. So I think we get the must — the must have developments. And I think there’s a wait and see on the want to haves. So I actually believe over the next few years, if the rates are improved, that our development opportunities will increase from where they are today, but we still see good opportunity to meet our financial objectives in this environment.
Peter Abramowitz: Got it. Thank you.
Operator: Thank you. Our next question comes from the line of Richard Anderson of Wedbush Securities. Please go ahead, Richard.
Richard Anderson: I think you said me. Rich Anderson here. Yeah. It’s been a little in and out interference, so if I missed anything, I apologize. Might want to check your Wi-Fi account, make sure it’s up to speed. Just kidding. Franklin Center, did you — does the yield projection assume, and again I think I might have missed this, a roll down on the existing tenant in ’26?
Stephen Budorick: So, Rich, we put out a very conservative future cash yield, which kind of embody [Technical Difficulty] could go wrong, going wrong concurrently. So, [Technical Difficulty] would absorb a rent roll down. It would absorb more investment in the common area and the structure of the building than we plan to spend. And it would absorb higher TIs than we typically give. It’s just a very conservative number in a forward-looking, publicly disclosed environment where we never want to be overstating our opportunity. As I said to an earlier caller, you might have missed, I expect to beat that target and potentially very handily.
Richard Anderson: Okay. You described the building as very well cared for, but yet still unable to compete with the engine of CDP in the vicinity. What would have stopped a tenant to move over to a very well cared for building in the proximity of everything else? It just seems odd to me that if it’s a nice building, it looks nice, the pictures look nice, why wouldn’t it have been more competitive versus your 97% occupancy vicinity?
Stephen Budorick: It’s a hard thing for me to answer that with specificity, but to kind of get you comfortable with it, 80% of the defense contractor business in Columbia Gateway is with us. And we’ve been a defense/IT landlord in this market for over 25 years that we’ve been public. We’ve got great relationships and we have relationships with most of the tenants that are in the market somewhere else. So we just tend to dominate in this business part.
Britt Snider: And I would just add to that, I mean, we have an additional 200,000 square feet of demand that we’re seeing since we took over. So again that just shows what Steve is saying, which is the relationships that we have do draw tenants to our assets here.
Stephen Budorick: And one last comment. The prior owner from another part of the country, different structure, a triple net lease investor, no particular operating presence on the east coast, and they have to rely on the fee management crowd. And hypothetically that service component of the business doesn’t bring the relationships that we have where we do that primarily directly.
Richard Anderson: Okay. Made progress on L Street, I think you said fully stabilized now. I know there was some leasing in Baltimore. How are you closing in on some of these “other asset sales?” Could it be this year event or is that not a likely outcome at this point?
Stephen Budorick: I don’t see it this year, Rich. What transactions that have happened in DC are very opportunistic from the buyer’s standpoint. They don’t represent cap rates that we would accept with an asset that valuable for the sense of timing. And then outside of that, in Tysons Corner in Baltimore, I just don’t think you have the depth of capital to make a market on those assets. It’s going to take some time.
