COPT Defense Properties Q1 Earnings Call Highlights

Key Points

• FFO per share came in at $0.69 (up 6.2% YoY and $0.01 above guidance), the board raised the annual dividend $0.06 (4.9%) for the fourth straight year, and management nudged the FFO midpoint to $2.76.
• Heavy renewal activity — 1.2 million sq ft signed with a 91% retention rate (including a ~1M sq ft San Antonio campus) — cut 2026 expiring rent exposure from 21% to 11% and lifted portfolio occupancy to 94.4% (95.6% Defense/IT).
• Management has committed nearly $250 million YTD to new investments (notably the $55M Redstone Gateway and ~$43M Mission Ridge deals), the active pipeline tops 1M sq ft (73% pre-leased), and Moody’s upgraded CDP to Baa2 while the company prefunded a $400M bond with five‑year notes at 4.5%, adding about $0.09 of financing cost in 2026.

COPT Defense Properties NYSE: CDP opened 2026 with first-quarter results that management said keep the company on track to meet its objectives for the year, supported by higher occupancy, strong renewal execution, and additional capital commitments to development and land investments.

Quarterly performance and dividend update

President and CEO Stephen E. Budorick said the company is “off to a solid start in 2026,” highlighting a board-approved dividend increase announced in February. Budorick said the annual dividend was raised by $0.06 per share, or 4.9%, marking the fourth consecutive year of dividend increases. Since 2022, he said the dividend has increased 16.4% while FFO per share has risen 15.3%, alongside a “conservative AFFO payout ratio below 65%” and continued capacity to self-fund equity required for external investments.

For the first quarter, the company reported FFO per share of $0.69. Executive Vice President and CFO Anthony Mifsud said the result was $0.01 above the midpoint of guidance and represented a 6.2% year-over-year increase. Management attributed the quarter’s performance to earlier-than-budgeted lease commencements, strong renewal leasing, the timing of certain repair and maintenance projects, and “unbudgeted real estate tax refunds from continued successful assessment appeals,” partially offset by higher net winter weather-related expenses.

Same-Property Cash NOI increased 5.4% year-over-year, which Mifsud said was driven by burn-off of free rent on development and acquisition leases commenced in prior years and a 70-basis-point increase in same-property average occupancy. He noted results were muted by approximately 200 basis points because the company received $2 million less in non-recurring real estate tax refunds than in the prior year period.

Leasing activity reduces 2026 maturity exposure

COPT Defense executed 1.2 million square feet of renewal leasing during the quarter and achieved a 91% retention rate, according to Budorick. A key component was the full renewal of a nearly 1 million-square-foot campus leased to the U.S. government near Lackland Air Force Base in San Antonio. Budorick said these renewals reduced expiring annualized rental revenue for 2026 from 21% at the beginning of the year to 11%.

COO Britt A. Snider provided additional detail, reporting cash rent spreads of 3.8% and GAAP rent spreads of 12% on renewal activity during the quarter. For the San Antonio renewals specifically, Snider said cash rent spreads increased 4.2% with annual rent bumps of 3%.

Snider also emphasized the company’s renewal performance on larger lease expirations. For large leases exceeding 50,000 square feet that expire between mid-2024 and year-end 2026, she said the company has renewed nearly 3 million square feet at a 97% retention rate. She added that eight leases remain, totaling 950,000 square feet, all with the U.S. government, and management expects 100% retention with executions anticipated in 2027.

On the vacancy side, the company executed 92,000 square feet of vacancy leasing in the first quarter, and Snider said nearly 70% of that volume was tied to cyber activity. Year to date, she said the company has signed 152,000 square feet of vacancy leasing, or 38% of its full-year target of 400,000 square feet, with approximately 115,000 square feet of prospects in advanced negotiations. Snider said that puts the company at more than 265,000 square feet either executed or in advanced negotiations, roughly two-thirds of the annual target.

Occupancy ended the quarter at 94.4% for the total portfolio and 95.6% for the Defense/IT portfolio, Snider said, with year-over-year increases of 80 basis points and 30 basis points, respectively. Budorick added that the company has “no vacancy to lease in Huntsville,” noting the company is down to its last suite there.

Development pipeline and new capital commitments

Budorick said the company executed 384,000 square feet of investment leasing during the quarter, consisting of “two previously announced full building leases at the National Business Park.” He also said that year to date, the company has committed nearly $250 million of capital to new investments, including 620 Guardian Way, a fully leased build-to-suit project at National Business Park, and two additional investments totaling nearly $100 million.

Budorick outlined the two newer commitments:

• Redstone Gateway development: A $55 million commitment for a 150,000-square-foot development inside the fence within a secure parcel on Redstone Arsenal, intended to create Anti-Terrorism Force Protected (ATFP) inventory for the U.S. government in advance of expected requirements. Budorick said the company is seeing demand tied to multiple government missions, including growth related to missile defense and space activities.
• Mission Ridge ground-lease investment: Roughly $43 million for the acquisition of 17 acres of land and a ground lease in the Westfield submarket in Chantilly, Virginia. Budorick said the economics are supported by two “highly strategic” 100% leased office buildings occupied by the FBI’s technology division, including its cyber group, and two defense contractors among the company’s top 20 defense IT tenants.

Budorick described the Mission Ridge transaction as providing “essentially perpetual control” of a strategic land parcel and the senior position in the capital structure, which he said could create an opportunity to acquire the leasehold interest at attractive terms in the future. He noted the company previously acquired Stonegate One in the same submarket.

On development, Snider said the company commenced two projects in the first quarter, bringing the active pipeline to more than 1 million square feet that is 73% pre-leased, representing more than $500 million in capital commitments. She said all seven projects are on schedule and on budget, and five of the seven are 100% pre-leased. The two projects with available space are inventory buildings in Huntsville—one inside the fence targeting government tenancy and one outside the fence for defense contractors.

Balance sheet, guidance changes, and budget backdrop

During the quarter, Mifsud said the company repaid a $400 million bond that carried a 2.25% interest rate. He noted the company had pre-funded the maturity about seven months earlier by issuing $400 million of five-year unsecured notes at 4.5%, which he described as being priced at a sector-leading credit spread of 95 basis points. Mifsud said the higher rate results in $0.09 of additional financing costs in 2026, but added the company’s next bond maturity is not until fall 2028.

Budorick and Mifsud also pointed to a credit rating improvement. Budorick said Moody’s upgraded the company’s investment-grade rating to Baa2 with a stable outlook, and Mifsud said Moody’s cited strong operating performance, a solid EBITDA-to-interest expense ratio, and income growth from assets under development.

Management raised several guidance midpoints, including:

• FFO per share: increased by $0.01 to $2.76, which Mifsud said reflects first-quarter outperformance and the Mission Ridge land acquisition, partially offset by accounting treatment tied to exchangeable notes.
• Same-Property Cash NOI growth: increased by 50 basis points to 3% due to stronger renewal leasing and unanticipated tax refunds.
• Tenant retention: increased by 250 basis points to 82.5%.
• Capital committed to new investments: increased by $40 million to $290 million due to the Mission Ridge land acquisition.

The company also established second-quarter FFO per share guidance of $0.68 to $0.70.

Budorick spent part of the call discussing the administration’s proposed FY 2027 defense budget. He said the request totals $1.5 trillion, comprised of a $1.1 trillion base budget and $350 billion in anticipated reconciliation funding, and emphasized that the company’s business is “really driven off the proposed base budget.” Budorick cited proposed increases for intelligence and DoD cyber funding and discussed “Golden Dome” funding, while cautioning that the budget “has not even been passed and appropriated yet.” He added that there is typically a 12- to 18-month lag between appropriations and lease executions and said he expects that lag to hold.

In the Q&A, Budorick said 2026 FFO growth is expected to be “somewhere around” 1.5% given the added interest expense, but that the company generally expects to return to its longer-term growth path, with potential upside if defense spending translates into demand. He also said the company is not currently tracking any acquisitions beyond one-off opportunities that fit its narrow strategy, and he provided an update on Des Moines data center shells, saying the company is “at an impasse on power” and waiting for power economics to improve before moving forward.

About COPT Defense Properties NYSE: CDP

COPT Defense Properties NYSE: CDP is a real estate investment trust organized to own, lease and manage healthcare and life science facilities serving the United States federal government, with a particular focus on Department of Defense and Veterans Affairs tenants. The company was formed in 2016 through a spin-off from Corporate Office Properties Trust, enabling it to concentrate exclusively on medical office buildings and specialized research facilities situated on or near military and federal research campuses.

The company's portfolio comprises purpose-built, Class A medical office and outpatient specialty clinics, as well as life science laboratories.

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