COPT Defense Properties NYSE: CDP reported second-quarter funds from operations of $0.71 per share, exceeding the midpoint of its guidance by $0.02 and rising 4.4% from a year earlier, as the defense-focused office landlord cited leasing momentum, strong tenant retention and expanding demand tied to federal defense priorities.
President and CEO Steve Budorick said the result marked the company’s 24th consecutive quarter of year-over-year FFO-per-share growth. Same-property cash net operating income rose 7.4% from the prior-year quarter, supported by lease commencements, contractual rent increases and leasing completed in prior periods.
“The defense economy we serve continues to be strong and benefits from increasing investment,” Budorick said.
Guidance Raised Following First-Half Outperformance
The company increased the midpoint of its 2026 FFO guidance by $0.02 to $2.78 per share, representing projected growth of 2.2% over 2025. The revised outlook is $0.03 above COPT Defense’s initial guidance, despite higher financing costs and dilution from exchangeable notes, according to management.
Executive Vice President and CFO Anthony Mifsud said the company’s FFO forecast has increased by $8 million since its initial 2026 guidance. That improvement includes $5 million of first-half outperformance and $3 million related to the Mission Ridge acquisition, additional interest income and an expected settlement with a non-defense tenant that would return inventory space in Columbia Gateway to the company.
COPT Defense also raised several operating targets:
- Same-property cash NOI growth guidance increased by 100 basis points to a 4% midpoint.
- Cash rent growth on renewals increased by 100 basis points to a 3% midpoint.
- Its full-year vacancy leasing target rose to 475,000 square feet from 400,000 square feet.
- Capital commitments to new investments increased to $335 million.
Mifsud said same-property NOI growth is expected to moderate in the second half, reflecting known tenant move-outs and contractions as well as the absence of certain real estate tax refunds received during the second half of 2025. The company established third- and fourth-quarter FFO-per-share guidance of $0.68 to $0.70.
Leasing Activity and Retention Remain Central Themes
COPT Defense executed 139,000 square feet of vacancy leasing in the second quarter and 290,000 square feet year to date. Nearly 70% of the second-quarter vacancy leasing was completed with existing tenants, Executive Vice President and COO Britt Snider said.
The company had approximately 125,000 square feet of prospects in advanced negotiations, which it defines as more than 90% likely to execute. Combined with signed leases, that represented more than 415,000 square feet of activity either completed or in advanced negotiations.
The overall portfolio was 95.6% leased and 94.1% occupied at quarter-end, while the defense IT portfolio was 96.4% leased and 95.1% occupied. Northern Virginia ended the period 95.2% leased, its highest rate in more than a decade, according to Snider.
Columbia Gateway has been a particular source of vacancy-leasing momentum. The company executed 110,000 square feet there so far in 2026 and expects the year to be its strongest for vacancy leasing in the submarket in more than five years.
Renewal leasing totaled nearly 350,000 square feet in the quarter. Tenant retention was 68%, while cash rent spreads declined 20 basis points and GAAP rent spreads increased 4.4%. Snider attributed the lower retention rate partly to two strategic non-renewals in the Fort Meade/BW Corridor, following tenant expansions into other properties. Excluding those transactions, retention would have been 12 percentage points higher, he said.
The company maintained its full-year tenant retention outlook of 80% to 85%. It also said it expects roughly 90% retention on 39 large leases totaling 4.1 million square feet that are scheduled to expire through year-end 2028.
Redstone Gateway Development Accelerates
COPT Defense is expanding development activity at Redstone Gateway in Huntsville, Alabama, where Budorick said its 2.4 million-square-foot operating portfolio is 99.6% leased and remaining availability is spoken for.
The company plans to begin two inventory developments during the third quarter: RG-6300, a 180,000-square-foot building expected to be delivered in early 2028, and RG-2200, a 60,000-square-foot building expected in late 2027. The projects represent $91 million of capital commitments.
Management said it has not signed preleases for the two projects but selected their building sizes and floor plates to meet specific tenant requirements under discussion. The company cited 415,000 square feet of contractor demand for mission space tied to Golden Dome and missile-defense activities.
COPT Defense’s active development pipeline totaled nearly 900,000 square feet and was 73% pre-leased, with approximately $450 million of capital commitments. Its development leasing pipeline stood at nearly 1.2 million square feet, up 20% from the prior quarter, while an additional 900,000 square feet of potential development opportunities were being tracked.
Management said it continues to target initial cash development yields of about 8.5% and does not intend to fund development through new equity issuance, instead planning to use free cash flow.
Defense Spending Outlook Supports Demand
Budorick pointed to the White House’s proposed fiscal 2027 defense base budget of $1.1 trillion, a 30% increase from the prior year, as a key backdrop for the company’s markets. The House-passed National Defense Authorization Act matched that base-budget request, he said.
The proposed legislation includes funding increases for intelligence, Department of Defense cyber programs and Golden Dome. While congressional deliberations remain ongoing, Budorick said the company’s business is principally driven by the proposed $1.1 trillion base budget.
During the question-and-answer session, Budorick said management believes support for higher defense spending remains bipartisan and does not expect a potential change in congressional control after midterm elections to alter the broader environment materially. He also said demand for secure compartmented information facility, or SCIF, buildouts has increased as more defense programs require higher security classifications.
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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