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Welcome to the Corporate Office Properties Trust, Fourth Quarter and Year-End 2021 Results Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Stephanie Krewson-Kelly COPT's, Vice President of Investor Relations, Ms. Krewson-Kelly. Please go ahead.
Thank you, Jonathan. And good afternoon and welcome to COPT's conference call to discuss fourth quarter and year-end '21 results and guidance for 2022. With me today are Stephen 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 that management discusses are available on our website, in the press -- 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 of uncertainties, which are discussed at length 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. We finished 2021 with strength and outperformed at all aspects of our business, including leasing. The full-year FFO per share as adjusted for comparability of $2.29 through 8% over 2020's, strong results and is centered than our original guidance. Favorable leasing and operating activity in the portfolio drove solid gains in NOI and contributed about $0.03 of upside to 2021 results.
The gains are widespread with favorable results in renewal activity R&M project costs, utility savings, and NOI from DC6. Despite challenges in the supply chain environment, we completed and delivered 766,000 square feet of developments with three projects completed earlier than planned. The 562,000 square feet of early commencements contributed roughly $0.02 to 2021 performance. We executed about $1.2 million square feet of development leasing during the year, outperforming our objective by 18%.
Our 2021 activity included three major defense contractor developments, one day to [Indiscernible]. And our second fully leased office property for the U.S. government in the secured campus of Redstone Gateway. We had expected this government lease opportunity to occur in 2022, and we're favorably surprised by the early lease action last year.
We outperformed in the debt capital markets as well. We see the opportunity to lock in low interest rates and extend our debt maturity ladder by issuing $1.4 billion of new senior unsecured notes to retire higher rate churn term debt. This highly successful for bed finance activity contributed about $0.04 of our performance, and more importantly, protects the company from the risk of rising interest rates for years to come.
We raise equity capital by completing the sale of DC6 last month, generating $222.5 million to further balance our leverage and support our development activity. Recycling DC6 has been a high priority for the company for several years. And we recognize that the capital market demand for data centers during 2021 created a long awaited opportunity to sell the asset with a full and fair valuation. We were successful in identifying several bidders that possess data center operating capabilities and the capital to purchase a multi-tenant facility.
This sale simplifies our capital allocation and increases the lease stability in our operating portfolio. We had expected the transaction to close during 2021, and the delay in closing added about a $0.05 to 2021 out-performance. Turning our outlook to defense spending, which is summarized on Slide 5, Congress authorized the DoD's fiscal 2022 base budget at $665 billion, representing a 5.8% increase over the fiscal 2021 budget.
The expected increase is 5% higher than last year's 0.8% increase. And we expect continued strength into defense leasing demand. Fiscal year 2022 began under a continuing resolution that we expect will be in effect until mid-March. Recall that these head become a normal occurrence as the DoD has started its fiscal year operating under a continuing resolution for 13 of the past 15 years.
We do not expect this continuing resolution to have a material impact on our business. Turning to 2022 guidance, we said our FFO range midpoint at $2.34, implying 2.2% growth over 2021 strongly elevated results. The guidance absorbs two percentage points of dilution from the sale of DC6, as well as the dilution from the Boeing and Transamerica and renewals.
Adjusted only for the dilution from the seller of DC6, 2022 proforma growth would be 4.2% at the midpoint of guidance. As Slide 4 illustrates, our FFO per share as adjusted for comparability has compounded at 4.4% annually since 2018 when we finished our programmatic asset sales under our strategic reallocation plan. Our 2022 FFO guidance midpoint suggests that the compound growth will remain at roughly 4%, notwithstanding the dilution from the sale of DC6.
We have 1.7 million square feet of active developments that are 96% leased today. As we place them into service, we expect these projects to fuel strong growth in 2023, further extending our compound growth achievement. Our guidance for development leasing in 2022 is 700,000 square feet. Recall that our 2021 success pulled forward 205,000 square feet of expected 2022 development leasing, and several data showed development lease as a way to access critical power at those sites.
As Slide 11 of our presentation shows, we've averaged about a million square feet of development leasing annually since 2012. During the past three years, we've achieved $4.4 million square feet of development leases, averaging just under 1.5 million square feet a year. Our current development leasing pipeline contains 1.8 million square feet of opportunities supporting our optimism that 2023 development leasing activity will return close to our long-term average. With that, I'll hand the call over to Todd.
Thank you, Steve. We achieved strong leasing results in all categories last year and expect 2022 to be another strong year. Total leasing volume in 2021 were 3.9 million square feet included 2.1 million square feet of renewals. Lease economics were in line with guidance and included a low teens roll down in rent for CareFirst and Canton Crossing in our regional office portfolio. CareFirst is a high credit healthcare tenant that leases nearly half the space in our Canton Crossing asset.
And in December renewed 214,000 square feet for a new 15-year term. Their renewal represented 30% of the quarter's renewal volume and 10% of the year's volume, and consequently heavily influenced our metrics. To illustrate the impact of the CareFirst renewal, we completed 93 renewal transactions in 2021 and cash rents on renewals rolled down 5.8% in the quarter and 2.2% for the year. If we exclude the effect of the CareFirst transaction, cash rents rolled down 1.5% in the quarter, and only 6/10th of a percent for the year.
Vacancy leasing during the year was also strong, and 196,000 square feet we completed in the quarter brought our full-year volume to 616,000 square feet, exceeding our 5-year average volume by 14% and 2020's volume by nearly 50%. In the second half of 2021, we completed 412,000 square feet of vacancy leasing, and our leasing activity ratio currently is a healthy 94%. We've entered 2022 with good momentum and prospects to retenant the largest vacancies in our operating portfolio.
In Huntsville we are tracking over 300 thousand square feet of demand tobacco, the 121 thousand square foot vacancy at 1200 Redstone Gateway, which given back at the end of 2021. With demand far exceeding the available space, we expect to kick off another spec building this year to capture the excess demand. In Baltimore we are working with over 80 thousand square feet of prospects to backfill the Transamerica space and a 100 Light Street. Development leasing exceeded our 2021 objective.
We executed 1.2 million square feet during the year, including in 183 thousand square foot build-to-suit at the National Business Park for a Fortune 100 companies supporting operational activities on Fortune, a new campus for KBR and Redstone Gateway comprised of a 172,000 square foot office property and half of the 46,000 square foot R&D facility. A new campus for Northrop Grumman at Redstone Gateway, comprises of two build-to-suit office properties with advanced infrastructure totaling 263,000 square feet.
A 265,000 square foot data center shell build-to-suit in Loudoun County, Virginia, for our cloud competing customer, and our second development for the U.S. government in the secured campus of Redstone Gateway, a 205,000 square foot office property, then when completed, we will increase the secured campus operational square footage to roughly 450,000 square feet. These development projects will fuel future FFO growth as we complete construction and placed them in the service.
Our 1.8 million square feet development leasing pipeline supports our goal of executing 700,000 square feet in 2022. Within this goal, we expect about 2/3 of the volume to be office and R&D space for defense contractors, primarily at Redstone Gateway in the National Business for and the remaining 1/3 to be a data center shell build-to-suit with our cloud computing customer.
In terms of placing developments into service, our 2022 guidance assumes we placed over 800,000 square feet of fully leased developments into servers. These new completions combined with the 766,000 square feet placed into servers during 2021 should contribute between $15 million and $17 million of cash NOI to 2022 results. At the $16 million on midpoint, 100% of this development cash NOI is contractually. 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 $0.58. and $2.29 million exceeded the high-end of guidance driven by the DC6 sale closing later than planned and another strong operating quarter. Same property results were in line with previously elevated guidance. Same property occupancy ended the year at 91.3% and reflects the Boeing non-renewal at 1,200 Redstone Gateway.
Cash NOI grew 1.2% during the year, driven by favorable renewing leasing outcomes and further advancement of operating efficiencies. We were very active in the senior debt markets last year, refinancing existing debt with new issuances in March, August, and November. During 2021, we issued $1.4 billion of new senior notes with an average interest rate of 2.6% and used those proceeds to redeem $900 million of senior notes that at an average interest rate of 4.5%, as well as other debt.
The debt we refinanced in 2021 had an average maturity of 2.5 years, and the new notes we issued have an average maturity of 9.9 years. Moreover, since September of 22, we have issued $1.8 billion of senior notes with an average term of 8.9 years and used the proceeds to retire debt, carrying an average term of just 2.1 years.
With respect to 2022 guidance, we are establishing a range for FFO per share of $2.30 billion to $2.38 billion., which at the $2.34 midpoint implies 2.2% growth over 2021 is extremely strong results. Our guidance detail is available in the press release and on Slides 14 and 15 in the deck we issued last night. And I'll touch on a few highlights now. We expect same property occupancy to increase -- to change during the year and for same-property cash NOI to be flat to down 2%.
Our same property guidance reflects the Boeing non-renewal at Redstone Gateway that occurred on the last day of last year. The Transamerica non-renewal at 100 Light Street in Baltimore that occurred on the first day of this year. The 45,000 square foot contraction from CareFirst on October first of 2022, and their new cash rent that went into effect on December first of 2021. The 2022 same property pool started the year at 92.6% occupied.
The impact of the 1.7% occupancy decline related to the three vacancies just discussed, will be offset by occupancy gains elsewhere in the portfolio and we project to end the year between 91% and 93%. We expect to invest $275 million to $300 million into our existing 1.7 million square feet of active development projects and new starts. Development investment will be funded with free cash flow from operations, the proceeds from the sale of DC6, and by executing another asset sale or joint venture to manage our leverage later in the year.
Lastly, for the first quarter, the $0.56 midpoint of our guidance range is $0.02 lower than our fourth quarter 2021 results. The decrease reflects $0.01 of higher weather-related expenses that we typically see in the first quarter and $0.01 of dilution related to the sale of DC6. And now, I'll turn the call back to Steve.
Thanks, The 2021 in the books. We delivered our third consecutive year of growth that is compounding around 4% a year. We're projecting 2.2% growth for 2022, even while recycling DC6 and absorbing the dilution from the recent volume and Transamerica vacancies. Finally, our strategy of investing in a priority defense mission locations and creating value through new low-risk development, adds and will continue to generate FFO growth regardless of the broader economic trends.
A 1.7 million square foot pipeline of active developments that are 96% leased will have significant influence on 2023 growth, which we expect to be in the 4% to 6% range. The outlook for DoD funding is stable and strengthening, and we look forward to another strong leasing year that will further our growth. With that, Operator, please open up the call for questions.
Thank you, Mr. Budorick. Ladies and gentlemen, [Operator Instructions] Our first question comes from the line of Manny Korchman (ph.) from Citi. Your question, please.
Hey, everyone. Thanks. Steve or maybe Anthony, in terms of what's left to sell in the portfolio you mentioned JVs, your sales. I've seen the JVs are the data center shelves, and what would the sales at this point or what could the sales at this point include?
Well, that being conveyed for about six months that sometime between now and 2425, we'd start to -- we look for the right opportunity to start selling up the regional office assets in Baltimore in Northern Virginia. And if we were to hit an opportunity where those are favorable move for the shareholder, we consider doing that.
And you're correct. Maybe alternative would be to venture the two data center shelves that we had planned to venture and initially planned to venture in the third or fourth quarter of last year, but we had -- we replaced that transaction with the sale of DC6.
And Steve on the regional office portfolio as you've been exploring that for some time, how has buyer interest and valuation there changed?
of buyer interest in office property right now in this region, where I would say a couple of years ago, there's pretty strong interest in both warrants to impressive cap rates. Coming out of the pandemic, we think it's going to take another at least 12 months to kind of normalize that capital market segment.
Got it. And then on development value creation, are you seeing any pressure on yields from increasing costs?
We'll certainly we've had increasing costs as much as 10% to 15% over a year. And that puts pressure on us to achieve rents that will support the development which we have done. So we've been able to hit our yield targets equally well this year. And what we expect to do in 2022, but we have to achieve IRM to get it.
Great, thanks all.
Thank you. Our next question comes from the line of Rich Anderson from Corporate Office Properties. Your question, please.
When did you join the company?
So, [Indiscernible] so, SMBC, yes. So Steve, I don't know if this was ever mentioned along the lines, but what was the reasoning for the Boeing vacancy in that perspective?
They did not win a recomplete of a major segment, with an enormously important contract that's issued out of Redstone Arsenal, and they contracted to adjust their footprint for that.
Okay. So when you think generally about when things like that happen. Is it mostly what you just described or are there other or is it often times they need more space that you can't provide them. What's the general cadence of why you lose people? Is it mostly the former or the latter?
It's rarely the latter. Often the former. In less extreme ways over time, M&A has a pretty significant impact in the defense industry as large contractors, but smaller contractors. Usually they want to keep the Skift in the secured mission part of the suite, but they might be able to shed some of the more administrative space.
But really people are leaving our locations because of space themes were in the development business after all. And those locations are really the primary place to be. An interesting sidebar with regard to the growing contraction is another contractor won that contract and they signed the lease in Redstone Gateway.
Okay. When you think about what happened with Boeing, do you have a longer watch list that maybe extends a few years out that are on your radar? I assume you're doing that, but is there anything you can add color to at this point?
There's nothing that we've seen that we'd be concerned about. All the new development we've achieved over the last three years, in each case, enormous new contracts were achieved, which really were the compelling reason for those contractors to get new efficient, very well-located facilities to complete the contracts, and they tend to be very long term. So, no we don't really see any more of that.
Okay. Last question for me, you mentioned regional office between now and 2024. Obviously it depends on a bunch of things but what is the timeline right now to getting regional office to the point where it's fully leased and you've checked off that box. Is that this year event or is that a next year event?
Well, there's four large assets and regional office each has its own set of opportunities or challenges depending on how you look at it. But for instance, 100 light, we just got a 140 or 150,000 square feet back from Transamerica. It's fantastic space. It's that really been available to smaller tenants in market. We definitely want to re-stabilize that asset before we even consider selling it. Like we did with DC6, we will be disciplined and patient to create the value our shareholders deserve before we move to a sale.
Is it more likely the region also be sold all at once or in pieces?
I think it's got to be in pieces, particularly the Bob to our segment begun by, for an investor in Baltimore.
Okay. You got thanks.
Thank you, Rich.
Thank you. Our next question comes from the line of Steve Sakwa from Evercore ISI. Your question, please.
Yes. Thanks. Good afternoon. Steve or Todd, I was just wondering if you could spend a little more time speaking about the leasing trends kind of in particular on some of the larger vacancies, if you guys had good success last year. And I'm just curious what the discussions are like and if that's an area that possibly could surprise to the upside again, in '22?
I'll let Todd handle that one.
Sure. As I mentioned, we have good activity on the large vacancy down in Huntsville. It's hard to put a timeline exactly on when that activity would close, and whether or not it would be an upside for this year. But we do have very good activity and I would expect the lease to get signed before the first half of the year is done and potentially provide some, but it's hard to quantify.
In terms of 100 light, 80,000 square foot of prospects down there. That's just going to take some time as Steve was alluding to the Baltimore market, was the fact that most major CBDs in the downturn and velocity leasing, velocity has not returned to its historical average. So we will continue to work it. But I wouldn't anticipate any upside from a 100 like this year.
And I guess, Steve, maybe on the development plan, you talked about some of the things shifting out of '22 and the '21 and then a couple of things shifting back, but it sounds like you've got a large pipeline today at 1.8 million feet. So I'm just trying to gauge the 700,000 feet of a likelihood that some more of that could come in. I realize that might not have as much of an earnings impact that all this year, but just what are the prospects for that 700 to drift higher?
Well, for it to get bigger, we have three projects that are planned on land we own, and we await the critical power delivery from the utilities in Northern Virginia. The current information we have is that power will not be available this year and it's a threshold to make you build-to-suit commitment with our tenant. If that power were to come earlier hypothetically, we could beat 700 were early planning to get one of the four leases this year because of that timing.
And just one other thing to point out. But for the Boeing non-renewal, we would be building two buildings there, Redstone Gateway this year. But we're seeing very disciplined we want to back fill 1,200, and the Redstone Gateway before we start our next development. And that costs us 120,000 that would otherwise would've been development and we knock out the major non-renewal.
Got it. And just last question, 2100 [Indiscernible] Street and that was another of non-core assets, just kind of remind us on the leasing status there. And is there a chance to that DC market cash picking up a little bit more steam and could that be on the sale block this year or is that more likely at 23 events?
Well, I'll take the last part of it. As soon as we get leases to stabilize, it will be on our sale blacker. And we'll start to investigate the best way to monetize it. With regard to timing, I'll let Todd answer that hard question.
I would not characterize the DC market as emerging or returning to normal. It's still affected by the pandemic and the negative absorption that's occurred over the past few years. With that said, we're still tracking more prospects than we have space in the building and we continue to work those prospects. Everybody is taking your time making decisions target place a timeline on lease resolution there.
Just a bit of color, Steve. We're 30 miles outside of DC. And when I talk to business colleagues at office in the district, it's like we're in two different worlds. They can't go to a restaurant without vaccine documentation and they still wear masks. The economies in and around Baltimore, we've been back to normal for quite a long time.
Yeah, and look, I can appreciate that. I guess what we've seen in other markets is the flight to quality and new buildings, whether it's in New York or parts of California or other cities. Definitely seem to be leasing up an older stock is struggling and given your new building, I guess I would have thought even if the market's not great, that you might capture market share of what's going on, just given the new product.
Yeah, I think when share comes back, we expect to do well, this just -- transaction velocity is really dropped off the table during the pandemic.
Okay. Thanks very much.
Thank you. Our next question comes from the line of Craig Mailman from KeyBanc Capital Markets. Your question, please.
Hey, guys. Steve, I just want a clarify, did I hear you correctly that DC6 is just $0.02 pollutive this year versus the talk previously about being $0.04 pollutive?
Well, the $0.02 is net of an alternative recycle. It's 2%.
Craig to comment in the script was that the impact to growth was 2%, not $0.02 right?
Which is how we can quite sense. Great.
That, that's helpful. Thanks for the clarification there. And then just can you go through I know in the supplemental kind of regional offices is 2 million square feet, eight assets. You mentioned a 100 Light Street and for Canton Crossing is on there. Or the 2100 L-3 just what are the other big chunks of that regional office. And when anything like Columbia Gateway ever beyond the block or is that -- I know it's in the defense IT location but it's mainly suburban. Would anything like that ever be up for sale?
Not in the near-term. The other components of regional office, there are two sets, two buildings in Northern Virginia. One of those sets we have considered and probably will likely just pull into defense. Because it's become increasingly more occupied by defense contractors and cyber contractors, and that one is way up by dollars.
And then we have Wells Fargo in clinical towers in Tysons and that would be an asset we'd like to recycle. With regard to Columbia Gateway, yes, you could say it's suburban, but it's within the competitive in the operating radius of Fort Meade, and it's -- our business in this park is defense business.
All right, great. That's all for me. Thanks, guys.
Thank you. Our next question comes from the line of Jamie Feldman from Bank of America. Your question, please.
Great. Thank you. I guess just thinking about the development pipeline, it sounds like you could be more aggressive, but you want to get Redstone leased up. So you think at this time next year, do you think your development pipeline is larger or smaller than it stands today?
I would guess it to be about the same. We've been in that 1.5 million to sometimes as much 2.5 million square feet range for years now. What our guidance suggests is we're pulling 700,000 this year based on what is currently classified in the pipeline, that leaves over a million, but I can tell you we have almost 1.4 million square feet of development discussions that we have not yet classified as 50% likely to win within two years or less. So, I'm very confident we'll be in the same range a year from now.
Okay. Great. And then going back to Manny's question on development costs. You had said costs are up 10% to 15%, are you saying you can push rents to keep your yields?
We have.
I don't if I came across that clearly?
Yes, we have. We have all through 2021 with the activities that we're working on now, that should be signed before our next call, we will be able to demonstrate we did.
So what are you targeting for yield?
Target yield and defense contractor building is 8% cash yield at typical 7 to 10-year lease.
Okay, great. And then you had given kind of an outlook for 46% FFO growth in '23. What does that assume for any of these asset sales or what are the maybe a better way to ask this is just what are the key Building blocks to get to that four to six
Key building blocks are to the same office cash NOI growth that we expect. It's the continued benefit of the developments placed in service that if you -- and at partially get placed in service this year, it will be fully placed in service next year, as well as those projects that will place into service next year.
On the capital market side. I don't think we want to get into what transactions or what equity capital we're raising to finance that we're -- there's enough equity capital costs in that math to maintain or slightly improve our leverage ratios. And we think that the cost of that capital will pay as we flow, but within that range.
Okay. And then I don't think you guys talked about the demand for the CareFirst space that they're giving back, I know it's not the later this year. Is there any interest in that or do you think that fits for a while?
We think that will lease up if we quickly, frankly. The building only has like 111,000 square feet space.
That's -- it's effectively a 100% leased today.
We got that lease. So it just as a really strong demand profile. We don't get the space till September, the end of September. So I'd give it six months, but we'll be chipping away at their right-of-way.
Okay. And then last from me, just any thoughts on the latest from the GSA in terms of plans to reduce space and how you think that might impact your portfolio, your markets overall? So just the latest buzz from them.
So we don't really file with GSA that much because we don't do any GSA leasing. The bulk of their contraction activities would affect the B class or maybe older A in downtown DC, a market we're not really exposed to our -- besides [Indiscernible] our only DC asset is adjacent to the Navy Yard, it's a defense contractor allocation, it's not really a GSA area. But to remind people, we have less than a 100,000 square feet of GSA leases throughout the company, and 45,000 of that is court system in downtown Baltimore, where our building is located immediately next to the courthouse.
All right, great. Thank you.
Thank you. Jamie.
Thank you. And once again, as a reminder, if you have a question, [Operator Instructions]. Our next question comes from the line of Tom Catherwood from BTIG. Your question, please.
Excellent. Thanks, everyone. Todd, the renewal guidance implies roughly 400 thousand, maybe just under 500 thousand square feet of expected move-outs this year. Kind of what you talked about with CareFirst, 100 Light Street. I think a few others and the regional office portfolio, it seems like roughly half of that is regional office. So that would by our math imply that this is a pretty light year on the move-outs in the defense IT portfolio. To say another way, it seems like you're going to be well above average on the renewals there. Is that a fair statement?
Yes, I would consider that a fair statement. We're tracking any activity the rentals outside of the ones that you've already identified in Transamerica and CareFirst.
Got it. And that kind of ties into the next part, which is to get up to your, let's call the midpoint of same-store occupancy, the 92%. It looks like by our math, you'd be slightly below with a vacancy leasing that you did this year, you see something in the 550 to 600,000 square feet of vacancy leasing where your pipeline is sitting right now, is it kind of on par with where you were to start last year or is it kind of moderated somewhat, which is kind of leading you to be a little more conservative on that guidance?
I would say our vacancy leasing is on par with last year at this point.
Yeah. But in terms of how that impacts are, our year-end same office occupancy guidance, it's not linear. If you -- the 2021 same-office pool at the end the year was 93.4% leased and 91.3% occupied. So it's really the ebb and the -- and it's really part of the 2021 transactions that will be released in 21 that will occupy during 2022 offset by the non-renewals that you mentioned earlier, plus the benefit of any leases that get executed in 2022 and commenced in 2022. So it's not as linear as that.
It makes total sense. So said another way, it would be more a timing of getting the lease done and then commenced less than as opposed to running slower than last year.
That's correct.
Got it. And then last one for me, kind of something jumped out the presentation, it might've been in other ones. And if I missed that, I apologize. But on page 10, you guys touched on expected cap rates for your assets if they were sold. And a lot of lined up with what we would expect. But the one that was kind of eye-opening for us was the sub 4% on U.S. government leased secure facilities. Can you provide a little bit more color on that? Is that -- would that just be assets considered behind the fence in most of your locations? And has that -- it seems like that has compressed over this past year. Any thoughts you have on that would be helpful?
Well, we have compressed that estimate, but we've compressed it based on market comps for high-value assets and other segments. So for instance, the datacenter shell. Sales market last year had comps below four. If you're willing to buy data center shell below four you'd be very willing to buy the U.S. government assets that we have below four. But there are also some comps around the country with great credit tenants, like Microsoft, on full building leases that are being marketed or expect to close below 4%. So we think it's pretty fair statement.
Appreciate that color, Steve. That's it for me. Thanks, everyone.
Thank you. Our next question comes from the line of Dave Rodgers from Baird. Your question, please.
Hey, Steve. Just wanted to follow up on that last point, page 10, sub 4 cap rates for datacenter shells. Obviously, you're going to sell some more of those this year it sounds like. How do you think about just selling more, getting leverage down in line with your high-quality secondary office peers, if that's the peer group we want to use versus the tripling it out and then waiting for some of these bigger, chunkier transactions like 2100 L and the regional office sales? Maybe the question is, why not maybe rip some of the Band-Aids off and get the range-bound issues around the stock and move those away?
Well, Dave, we've been talking for years, route establishing the company can grow in replenish and recycled capital to fuel our development. And if we rip our Band-Aid off, we're going to rip our earnings off as well. And that's not the way we want to run the company. Moreover, those assets, I don't consider my problem, I consider them a long-term tremendous investment for our shareholders. And to the extent opportunities in the future would allow me to keep those and sell all of those things. I'd prefer to keep them. So we'll face the decision to recycle when we need to. But it's not in our base plan.
And Dave, with respect to the balance sheet and with respect to leverage, each one of the four debt transactions that we've executed over the past 18 months have priced either equal to or better than tripled be flat or be able 82 pricing. And the fixed income investors recognize the strength of the company's cash flows and their stability regardless of where the agencies have us pay, again, I think where they are focused on -- our fixed income investors are focused on that portion of the portfolio.
And you see our continued increase of interest and fixed charge coverage as up because of the stability combined with the stability of the cash flows are the huge positive for us. So if we were to do that and reduce leverage, we don't think there'd be an incremental interest reduction for our shareholders
Yeah, I agree with that, I guess, just from the equity side, I think there could be a meaningful change but we can always take that offline, but I appreciate the answers and the added color. Thank you.
Thank you. Our next question comes from the line of Chris Lucas from Capital One Securities. Your question, please?
Hey. Good afternoon, everybody. Anthony, just a quick one. Just wanted to understand the sale of DC6, does that -- do the proceeds from that provide all of the equity you need to meet your development spend for 2022?
It doesn't meet all of it. So if we -- in order to -- based on what we're expecting to spend, our plan includes the assumption that we either sell an asset or venture a datacenter shell to generate the incremental capital, which is in the fourth quarter. The combination of free cash flow at throughout the year plus the proceeds from DC6 fund, a portion of it. You have to remember that the fact that it's sold after the end of the year, part of that is really funding a portion of what we invested last year to reduce our leverage that we had reported as of 1231.
So what's the delta in terms of the equity gap that you have for the fourth-quarter sales?
$75 million.
Okay. Great. Thank you.
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 the call today. It was really a great call. We're in our offices, so please coordinate through Stephanie, if you'd like follow-ups.
Thank you for your participation today for the Corporate Office Properties Trust fourth quarter and year-end 2021 results conference cal. This concludes the program. You may now disconnect. Good day.