COPT Defense Reports Strong Second Quarter 2024 Results

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EPS of $0.31

FFO per Share, as Adjusted for Comparability, of $0.64

1-cent above the Midpoint of Guidance

Increased Midpoint of 2024 FFO per Share Guidance by 2-cents to $2.56

Implies 5.8% FFO per Share Growth for the Year

Defense/IT Portfolio 95.5% Occupied and 96.7% Leased

Same Property Cash NOI Increased 10.9% in 2Q24 and 8.5% Year-to-Date

Raised Midpoint of Same Property Cash NOI Guidance for the Year by 150 Basis Points to 8.0%

Raised Midpoint of Same Property Year-End 2024 Occupancy Guidance by 25 Basis Points to 93.75%

959,000 SF of Active Developments are 74% Leased

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Strong Leasing in 1H24; Well Positioned to Achieve 2024 Goals

Total Leasing of 1.0 million SF in 2Q24 and 1.7 million SF Year-to-Date

104,000 SF in 2Q24 and 264,000 SF Year-to-Date of Vacancy Leasing

On Track to Achieve or Exceed Annual Target of 400,000 SF

Tenant Retention of 86% in 2Q24 and 83% Year-to-Date

Raised Midpoint of Guidance for the Year by 250 Basis Points to 82.5%

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COPT Defense Properties ("COPT Defense" or the "Company") (NYSE:CDP) announced results for the second quarter ended June 30, 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, continued to generate strong results during the second quarter, with FFO per share exceeding the midpoint of our guidance range. Based on this outperformance, and our forecast for the remainder of the year, we increased the midpoint of 2024 FFO per share guidance by $0.02 to $2.56, which implies nearly 6% year-over-year growth. This marks our second increase for the year and a total of $0.05 of outperformance compared to our initial guidance. The growth off the midpoint of our 2024 FFO per share guidance is one of the highest growth rates in the Nareit-defined Office REIT sector, and ranks in the 75th percentile for the entire REIT sector.

We are exceeding our plan in several areas and raised 2024 guidance on a group of key metrics. We increased the midpoint of 2024 guidance for same property cash NOI growth by 150 basis points to 8%, increased same property year-end occupancy by 25 basis points to 93.75%, and increased tenant retention by 250 basis points to 82.5%.

During the quarter, the year-over-year increase in same property cash NOI for our Total Portfolio was the highest level in over a decade, while the increase in our Defense/IT Portfolio was the highest level since we began reporting the segment.

Taken together, our solid performance during the first half of 2024, coupled with our strong full year outlook, illustrates the strength of demand we are seeing in our portfolio for tenants serving priority defense missions. Looking forward, we continue to anticipate compound annual FFO per share growth of at least 4% between 2023 and 2026."

Financial Highlights

2nd Quarter Financial Results:

• Diluted earnings per share ("EPS") was $0.31 for the quarter ended June 30, 2024, compared to $0.27 for the quarter ended June 30, 2023.
• Diluted funds from operations per share ("FFOPS"), as calculated in accordance with Nareit's definition and as adjusted for comparability, was $0.64 for the quarter ended June 30, 2024, compared to $0.60 for the quarter ended June 30, 2023.

Operating Performance Highlights

Operating Portfolio Summary:

• At June 30, 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 95.5% occupied and 96.7% leased.

Same Property Performance:

• At June 30, 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 10.9% for the three months ended June 30, 2024 compared to the same period in 2023.

Leasing:

• Total Square Feet Leased: For the quarter ended June 30, 2024, the Company leased 985,000 square feet, including 881,000 square feet of renewals and 104,000 square feet of vacancy leasing. For the six months ended June 30, 2024, the Company executed 1.7 million square feet of total leasing, including 1.4 million square feet of renewals, 264,000 square feet of vacancy leasing, and 10,000 square feet in development projects.
• Tenant Retention Rates: During the quarter ended June 30, 2024, the Company renewed 86.3% of expiring square feet in its Total Portfolio and 87.4% in its Defense/IT Portfolio. During the six months ended June 30, 2024, the Company renewed 82.9% of expiring square feet in its Total Portfolio and 85.7% in its Defense/IT Portfolio.
• Rent Spreads & Average Escalations on Renewing Leases: For the quarter and six months ended June 30, 2024, straight-line rents on renewals increased 7.7% and 6.4%, respectively, and cash rents on renewed space increased 0.6% and decreased 0.4%, respectively, while annual escalations on renewing leases averaged 2.2% and 2.3%, respectively.
• Lease Terms: In the quarter ended June 30, 2024, lease terms averaged 3.9 years on renewing leases and 8.1 years on vacancy leasing. For the six months ended June 30, 2024, lease terms averaged 4.0 years on renewing leases, 8.2 years on vacancy leasing, and 5.3 years on development leasing.

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 June 30, 2024. These projects represent a total estimated investment of $381.4 million, of which $119.0 million has been spent.

Balance Sheet and Capital Transaction Highlights

• For the quarter ended June 30, 2024, the Company's adjusted EBITDA fixed charge coverage ratio was 4.7x.
• At June 30, 2024, the Company's net debt to in-place adjusted EBITDA ratio was 6.0x and its net debt adjusted for fully-leased development to in-place adjusted EBITDA ratio was 5.9x.
• At June 30, 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 5.2 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 second 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 $1.19-$1.25, and $2.51-$2.57, respectively, to new ranges of $1.22-$1.26, and $2.54-$2.58, respectively. Management is establishing third quarter guidance for diluted EPS and diluted FFOPS per Nareit and as adjusted for comparability at $0.30-$0.32 and $0.63-$0.65, 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 second 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/BI51bd912e5a264e098e9d8c72a60cdb2c

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, 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 96.7% 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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