COPT Defense Reports Second Quarter 2025 Results

EPS of $0.34

FFO per Share, as Adjusted for Comparability, of $0.68

6.3% FFO per Share Growth Year-over-Year

2-cents above the Midpoint of Guidance

Increased Midpoint of 2025 FFO per Share Guidance by 1-cent to $2.67

Implies 3.9% FFO per Share Growth for the Year

Same Property Cash NOI Increased 2.2% in 2Q25 and 4.6% Year-to-Date

Increased Midpoint of 2025 Guidance for the Year by 50 basis points to 3.25%

Continued Strong Occupancy and Leased Levels

Total Portfolio 94.0% Occupied and 95.6% Leased

Defense/IT Portfolio 95.6% Occupied and 96.8% Leased

Strong Leasing in 1H25; On Track to Exceed Initial 2025 Goals

Total Leasing in 2Q25 and 1H25 of 724,000 SF and 1.4 million SF, respectively

Vacancy Leasing in 2Q25 and 1H25 of 233,000 SF and 353,000 SF, respectively

Increased Annual Target to 450,000 SF from 400,000 SF

Tenant Retention in 2Q25 and 1H25 of 90% and 82%, respectively

Increased Midpoint of 2025 Guidance by 250 basis points to 82.5%

Investment Leasing in 2Q25 and 1H25 of 14,000 SF and 103,000 SF, respectively

COPT Defense Properties ("COPT Defense" or the "Company") (NYSE:CDP) announced results for the second quarter ended June 30, 2025.

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, continued to generate strong results during the second quarter. FFO per share exceeded the midpoint of our guidance range by $0.02. Based on this outperformance, and our forecast for the remainder of the year, we increased the midpoint of 2025 FFO per share guidance by $0.01 to $2.67, which implies nearly 4% year-over-year growth.

We are exceeding our plan in several areas and raised 2025 guidance on multiple key metrics. We increased the midpoint of 2025 guidance for same property cash NOI growth by 50 basis points to 3.25%, and tenant retention by 250 basis points to 82.5%. Based on our excellent leasing activity, we raised our target for vacancy leasing by 12.5% from 400,000 square feet to 450,000 square feet, with 353,000 square feet signed in the first half of the year, and a strong pipeline of deals in advanced negotiations.

Our favorable business outlook is further supported by continued growth in defense spending as the One Big Beautiful Bill Act, which was signed into law on July 4, 2025, adds $150 billion to defense spending over the next few years, with $113 billion allocated to FY 2026. Combining this allocation with the President's FY 2026 budget request, this amounts to nearly $950 billion and represents a 13% year-over-year increase, with additional funding directed towards the priority missions we support including cybersecurity, intelligence, surveillance and reconnaissance, missile defense, unmanned autonomous vehicles, and naval fleet and aviation activity, among others. We expect this increase in defense spending will continue to support our strong vacancy leasing volumes and external growth through development and drive earnings growth and shareholder value. Looking forward, we continue to anticipate compound annual FFO per share growth of roughly 4% between 2023 to 2026."

Financial Highlights

2nd Quarter Financial Results:

> Diluted earnings per share ("EPS") was $0.34 for the quarter ended June 30, 2025, compared to $0.31 for the quarter ended June 30, 2024.

> Diluted funds from operations per share ("FFOPS"), as calculated in accordance with Nareit's definition and as adjusted for comparability, was $0.68 for the quarter ended June 30, 2025, compared to $0.64 for the quarter ended June 30, 2024.

Operating Performance Highlights

Operating Portfolio Summary:

> At June 30, 2025, the Company's 24.6 million square foot total portfolio was 94.0% occupied and 95.6% leased, which includes the 22.6 million square foot Defense/IT Portfolio that was 95.6% occupied and 96.8% leased.

> During the quarter ended June 30, 2025, the Company placed into service 26,000 square feet of development that was 100% leased.

Same Property Performance:

> At June 30, 2025, the Company's 23.9 million square foot Same Property portfolio was 94.5% occupied and 95.7% leased.

> The Company's Same Property cash NOI increased 2.2% in the quarter ended June 30, 2025, compared to the same period in 2024.

Leasing:

> Total Square Feet Leased: For the quarter ended June 30, 2025, the Company leased 724,000 square feet, including 477,000 square feet of renewals, 233,000 square feet of vacancy leasing, and 14,000 square feet of investment leasing. For the six months ended June 30, 2025, the Company executed 1.4 million square feet of total leasing, including 915,000 square feet of renewals, 353,000 square feet of vacancy leasing, and 103,000 square feet of investment leasing.

> Tenant Retention Rates: During the quarter ended June 30, 2025, the Company renewed 89.7% of expiring square feet in its total portfolio. During the six months ended June 30, 2025, the Company renewed 81.9% of expiring square feet in its total portfolio.

> Rent Spreads and Average Escalations on Renewing Leases: For the quarter and six months ended June 30, 2025, straight-line rents on renewals increased 9.5% and 8.8%, respectively, and cash rents on renewed space decreased 3.1% and 2.0%, respectively, while annual escalations on renewing leases averaged 2.4% and 2.5%, respectively.

> Lease Terms: In the quarter ended June 30, 2025, lease terms averaged 6.2 years on renewing leases, 7.9 years on vacancy leasing, and 5.4 years on investment leasing. For the six months ended June 30, 2025, lease terms averaged 4.9 years on renewing leases, 7.6 years on vacancy leasing, and 9.8 years on investment leasing.

Investment Activity Highlights

> Development Pipeline: The Company's development pipeline consists of five properties totaling 756,000 square feet that were 62% leased as of June 30, 2025. These projects represent a total estimated investment of $309 million, of which $134 million was spent as of June 30, 2025.

Balance Sheet and Capital Transaction Highlights

> For the quarter ended June 30, 2025, the Company's adjusted EBITDA fixed charge coverage ratio was 4.9x.

> At June 30, 2025, the Company's net debt to in-place adjusted EBITDA ratio was 5.9x and its net debt adjusted for fully-leased investment properties to in-place adjusted EBITDA ratio was 5.8x.

> At June 30, 2025, and including the effect of interest rate swaps, the Company's weighted average effective interest rate on its consolidated debt portfolio was 3.4% with a weighted average maturity of 4.2 years, and 97% 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 second quarter 2025 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

2025 Guidance

Management is revising and increasing the midpoint of its full-year guidance for diluted EPS and diluted FFOPS, per Nareit and as adjusted for comparability of $1.28-$1.34 and $2.63-$2.69, respectively, to new ranges of $1.30-$1.34 and $2.65-$2.69, respectively. Management is establishing third quarter guidance for diluted EPS and diluted FFOPS per Nareit and as adjusted for comparability at $0.32-$0.34 and $0.66-$0.68, respectively. Reconciliations of projected diluted EPS to projected diluted FFOPS, in accordance with Nareit and as adjusted for comparability, are as follows:

The Company detailed its initial full year guidance, with supporting assumptions, in a separate press release issued February 6, 2025; that release can be found in the ‘News & Events – Press Releases' section of COPT Defense's Investors website: https://investors.copt.com/news-events/press-releases

Conference Call Information

Management will discuss second quarter 2025 results on its conference call tomorrow, 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-conf.media-server.com/register/BI89e5bfa081c749b38c8796f648dd9c1c

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 June 30, 2025, the Company's Defense/IT Portfolio of 198 properties, including 24 owned through unconsolidated joint ventures, encompassed 22.6 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, 2024.

Source: COPT Defense Properties

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IR Contacts:

Venkat Kommineni, CFA

443.285.5587

[email protected]