COPT Defense Reports First Quarter 2024 Results

EPS of $0.29

FFO per Share, as Adjusted for Comparability, of $0.62

Exceeded High-End of Guidance

Increased Midpoint of 2024 FFO per Share Guidance by 3-cents to $2.54

Implies 5% FFO per Share Growth at the Midpoint for the Year

Defense/IT Portfolio 95.6% Occupied and 96.8% Leased

Same Property Cash NOI Increased 6.1%

Raised Same Property Cash NOI Guidance for the Year by 50 Basis Points, to 6.0%-7.0%

Committed $91 Million of Capital to New Investments

Placed 73,000 SF of Developments into Service that are 100% Leased

$381 Million of Active Developments (959,000 SF) are 74% Leased

Excellent Leasing to Start the Year

Total Leasing of 721,000 SF

160,000 SF of Vacancy Leasing

On Track to Achieve Annual Target of 400,000 SF

Tenant Retention of 78%

On Track to Achieve Annual Goal of 75%-85%

COPT Defense Properties ("COPT Defense" or the "Company") (NYSE:CDP) announced results for the first quarter ended March 31, 2024.

Management Comments

Stephen E. Budorick, COPT Defense's President & Chief Executive Officer, commented, "Our Defense/IT investment strategy, which concentrates our portfolio near priority U.S. defense installations, generated strong results in the first quarter with FFO per share exceeding the midpoint of our guidance range by $0.02. Based on this outperformance and our forecast over the remainder of the year, we increased the midpoint of 2024 FFO per share guidance by $0.03 to $2.54, which implies 5% year-over-year growth.

In terms of internal growth, the strength of demand for our portfolio is evidenced by our same property cash NOI growth of 6.1% for our Total Portfolio and 7.6% for our Defense/IT Portfolio on a year-over-year basis, which led us to increase our 2024 guidance by 50 basis points at the midpoint. Our Defense/IT Portfolio was 95.6% occupied and 96.8% leased at quarter-end, while our tenant retention rate was 78%, all of which we believe compare favorably to other leading REIT sectors.

In terms of external growth, we committed $91 million of capital to new investments which includes two development projects totaling $76 million at The National Business Park and Redstone Gateway, two of our highest occupancy markets. We also acquired Franklin Center in Columbia Gateway for $15 million, which marks our first acquisition since 2015. This transaction is an excellent opportunity to acquire high quality inventory at a deeply discounted basis, and leverage our Defense/IT franchise and strong demand from defense contractors, to create significant shareholder value.

Our actual and expected performance led our Board of Trustees to approve a 3.5% increase in our quarterly dividend in February, which marks our second consecutive annual increase, following the 3.6% raise in 2023. Looking forward, we continue to anticipate compound annual FFO per share growth of roughly 4% between 2023 to 2026."

Financial Highlights

1st Quarter Financial Results:

• Diluted earnings per share ("EPS") was $0.29 for the quarter ended March 31, 2024 as compared to $0.70 for the quarter ended March 31, 2023.
• Diluted funds from operations per share ("FFOPS"), as calculated in accordance with Nareit's definition and as adjusted for comparability, was $0.62 for the quarter ended March 31, 2024 compared to $0.59 for the quarter ended March 31, 2023.

Operating Performance Highlights

Operating Portfolio Summary:

• At March 31, 2024, the Company's 24.1 million square foot Total Portfolio was 93.6% occupied and 94.9% leased, which includes the 22.0 million square foot Defense/IT Portfolio that was 95.6% occupied and 96.8% leased.
• During the quarter ended March 31, 2024, the Company placed into service $32.3 million of developments totaling 73,000 square feet that were 100% leased.

Same Property Performance:

• At March 31, 2024, the Company's 22.2 million square foot same property portfolio was 93.5% occupied and 95.0% leased.
• The Company's same property cash NOI increased 6.1% for the three months ended March 31, 2024 compared to the same period in 2023.

Leasing:

• Total Square Feet Leased: For the quarter ended March 31, 2024, the Company leased 721,000 square feet, including 551,000 square feet of renewals, 160,000 square feet of vacancy leasing, and 10,000 square feet in development projects.
• Tenant Retention Rates: During the quarter ended March 31, 2024, the Company renewed 78% of expiring square feet in its Total Portfolio and 82.9% in its Defense/IT Portfolio.
• Rent Spreads & Average Escalations on Renewing Leases: For the quarter ended March 31, 2024, straight-line rents on renewals increased 3.7% and cash rents on renewed space decreased 2.5%. For the same time period, annual escalations on renewing leases averaged 2.4%.
• Lease Terms: In the quarter ended March 31, 2024, lease terms averaged 4.1 years on renewing leases, 8.2 years on vacancy leasing, and 5.3 years on development projects.

Investment Activity Highlights

• Development Pipeline: The Company's development pipeline consists of six properties totaling 959,000 square feet that were 74% leased as of March 31, 2024. These projects represent a total estimated investment of $381.4 million, of which $89.1 million has been spent.
• Acquisition: During the quarter, the Company acquired 6841 Benjamin Franklin Center Drive, a 7-story LEED-Gold office building containing 202,000 square feet in Columbia, Maryland for $15 million.
  • Please see the Company's Franklin Center acquisition press release dated April 25, 2024 for further details and pages 8-14 of the Company's 1Q24 Results Presentation (refer to the ‘Associated Supplemental Presentation' section below).

Balance Sheet and Capital Transaction Highlights

• For the quarter ended March 31, 2024, the Company's adjusted EBITDA fixed charge coverage ratio was 4.5x.
• At March 31, 2024, the Company's net debt to in-place adjusted EBITDA ratio was 6.1x and its net debt adjusted for fully-leased development to in-place adjusted EBITDA ratio was 6.0x.
• At March 31, 2024, and including the effect of interest rate swaps, the Company's weighted average effective interest rate on its consolidated debt portfolio was 3.3% with a weighted average maturity of 5.4 years, and 100% of the Company's debt was subject to fixed interest rates.

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management's prepared remarks for its first quarter 2024 conference call; the presentation can be viewed and downloaded from the ‘Financial Info – Financial Results' section of COPT Defense's Investors website: https://investors.copt.com/financial-information/financial-results

2024 Guidance

Management is revising its full-year guidance for diluted EPS and diluted FFOPS, per Nareit and as adjusted for comparability, from the prior range of $1.15-$1.23, and $2.47-$2.55, respectively, to new ranges of $1.19-$1.25, and $2.51-$2.57, respectively. Management is establishing second quarter guidance for diluted EPS and diluted FFOPS per Nareit and as adjusted for comparability at $0.29-$0.31 and $0.62-$0.64, respectively. Reconciliations of projected diluted EPS to projected diluted FFOPS, in accordance with Nareit and as adjusted for comparability are as follows:

Conference Call Information

Management will discuss first quarter 2024 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Participants must register for the conference call at the link below to receive the dial-in number and personal pin. Registering only takes a few moments and provides direct access to the conference call without waiting for an operator. You may register at any time, including up to and after the call start time: https://register.vevent.com/register/BI45e0b73633dc499fa57ffc62af57efd2

The conference call will also be available via live webcast in the ‘News & Events – IR Calendar' section of COPT Defense's Investors website: https://investors.copt.com/news-events/ir-calendar

Replay Information

A replay of the conference call will be immediately available via webcast only on COPT Defense's Investors website and will be maintained on the website for approximately 90 days after the conference call.

Definitions

For definitions of certain terms used in this press release, please refer to the information furnished in the Company's Supplemental Information Package furnished on a Form 8-K which can be found on its website (www.copt.com). Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the attached tables.

About COPT Defense

COPT Defense, an S&P MidCap 400 Company, is a self-managed REIT focused on owning, operating and developing properties in locations proximate to, or sometimes containing, key U.S. Government ("USG") defense installations and missions (referred to as its Defense/IT Portfolio). The Company's tenants include the USG and their defense contractors, who are primarily engaged in priority national security activities, and who generally require mission-critical and high security property enhancements. As of March 31, 2024, the Company's Defense/IT Portfolio of 193 properties, including 24 owned through unconsolidated joint ventures, encompassed 22.0 million square feet and was 96.8% leased.

Forward-Looking Information

This press release may contain "forward-looking" statements, as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that are based on the Company's current expectations, estimates and projections about future events and financial trends affecting the Company. Forward-looking statements can be identified by the use of words such as "may," "will," "should," "could," "believe," "anticipate," "expect," "estimate," "plan" or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which the Company cannot predict with accuracy and some of which the Company might not even anticipate. Although the Company believes that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, the Company can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements and the Company undertakes no obligation to update or supplement any forward-looking statements.

The areas of risk that may affect these expectations, estimates and projections include, but are not limited to, those risks described in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Source: COPT Defense Properties

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