COPT Defense Announces Q1 2025 Financial Results

COPT Defense Announces Q1 2025 Financial Results

COPT Defense Properties, a real estate investment trust focused on strategically located properties supporting the U.S. defense and information technology sectors, today announced its financial and operating results for the first quarter ended March 31, 2025. The results underscore the resilience and growth potential of the Company’s specialized portfolio, demonstrating strong leasing activity, solid occupancy rates, and positive financial performance.

Stephen E. Budorick, COPT Defense’s President & Chief Executive Officer, expressed confidence in the Company’s strategic direction, stating, “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 at the midpoint of our guidance range, despite incurring higher than expected net weather-related expenses. Our performance year-to-date is tracking according to plan and we are reiterating the midpoint of our 2025 FFO per share guidance range at $2.66, which implies 3.5% year-over-year growth.”

Budorick further highlighted the Company’s leasing success: “In terms of our leasing achievements, we are off to a great start, as we have executed 179,000 square feet of vacancy leasing and over 100,000 square feet of investment leasing year-to-date, while maintaining a strong tenant retention rate of 75%. Our Defense/IT Portfolio was 95.3% occupied and 96.6% leased at quarter-end, and marked nine consecutive quarters in which our occupancy rate exceeded 94%, highlighting the strength and durability of our portfolio.”

The Company is also actively pursuing external growth opportunities. “In terms of external growth, we commenced construction on a 150,000 square foot development at Redstone Gateway in order to capture near-term demand, as we only have 37,000 square feet of inventory across our entire 2.5 million square foot Huntsville portfolio,” Budorick noted.

COPT Defense’s consistent performance has translated into tangible benefits for its shareholders. “Our actual and expected performance led our Board of Trustees to approve a 3.4% increase in our quarterly dividend in February, which marks our third consecutive annual increase, amounting to a 10.9% cumulative increase since 2022. Looking forward, we continue to anticipate compound annual FFO per share growth of roughly 4% between 2023 to 2026,” Budorick concluded.

Financial Highlights for the First Quarter of 2025:

COPT Defense reported positive financial results for the first quarter of 2025, demonstrating growth in key metrics:

• Diluted Earnings per Share (EPS): Increased to $0.31 for the quarter ended March 31, 2025, compared to $0.29 for the same period in 2024. This growth reflects the Company’s operational efficiency and favorable market conditions within its specialized sector.
• Diluted Funds from Operations per Share (FFOPS): As calculated in accordance with Nareit’s definition and adjusted for comparability, FFOPS reached $0.65 for the first quarter of 2025, up from $0.62 in the first quarter of 2024. FFOPS is a key metric for REITs as it provides a clearer picture of a company’s cash flow generated from its core operations. The increase signifies the underlying strength of COPT Defense’s property portfolio and its ability to generate consistent cash flow.

Operating Performance Highlights:

The Company’s operating portfolio maintained strong occupancy and leasing rates, highlighting the demand for its strategically located properties:

• Operating Portfolio Summary: As of March 31, 2025, COPT Defense’s total portfolio, spanning 24.5 million square feet, was 93.6% occupied and 95.1% leased. The core Defense/IT Portfolio, comprising 22.6 million square feet, exhibited even stronger performance with an occupancy rate of 95.3% and a leased rate of 96.6%. This marks the ninth consecutive quarter where the Defense/IT Portfolio’s occupancy rate has exceeded 94%, underscoring the stability and attractiveness of these assets to high-quality tenants.
• Development Placed into Service: During the first quarter, the Company successfully placed 10,000 square feet of newly developed space into service, which was immediately 100% leased. This demonstrates the Company’s ability to execute development projects and capitalize on existing demand within its target markets.
• Same Property Performance: The Same Property portfolio, encompassing 23.9 million square feet, reported a robust occupancy rate of 94.1% and a leased rate of 95.2% as of March 31, 2025. Notably, the Same Property cash Net Operating Income (NOI) experienced a significant increase of 7.1% compared to the same quarter in the previous year. This growth reflects strong organic performance driven by factors such as rental rate increases and efficient expense management.

Leasing Activity:

COPT Defense demonstrated significant leasing momentum during the first quarter of 2025:

• Total Square Feet Leased: The Company executed leases for a total of 647,000 square feet during the quarter. This included 438,000 square feet of renewal leases, 120,000 square feet of vacancy leasing (leasing of previously unoccupied space), and 89,000 square feet of investment leasing (leasing of space in properties acquired or under development for long-term investment).
• Tenant Retention Rates: The Company achieved a strong tenant retention rate of 74.9% of expiring square feet within its total portfolio, with all renewals occurring within the high-performing Defense/IT Portfolio. This high retention rate speaks to the strong relationships COPT Defense maintains with its tenants and the strategic importance of its properties.
• Rent Spreads and Average Escalations on Renewing Leases: Straight-line rents on renewal leases increased by a healthy 8.2% during the quarter. However, cash rents on renewed space experienced a slight decrease of 0.9%. This divergence can be attributed to various factors, including lease concessions or the timing of rent escalations within the lease terms. Importantly, annual escalations on renewing leases averaged a solid 2.6%, providing a predictable stream of future revenue growth.
• Lease Terms: The average lease terms signed during the quarter varied depending on the lease type, reflecting the strategic objectives for each category. Renewing leases had an average term of 3.4 years, vacancy leasing averaged 7.1 years, and investment leasing had the longest average term of 10.5 years. These varying terms align with the nature of the tenants and the long-term investment horizon for the respective properties.

Investment Activity Highlights:

COPT Defense continues to invest in its development pipeline to capitalize on future growth opportunities:

• Development Pipeline: As of April 14, 2025, the Company’s development pipeline comprised five properties totaling 756,000 square feet, which were 62% leased. These projects represent a total estimated investment of $308 million, with $91 million already invested as of March 31, 2025. The significant pre-leasing activity in the development pipeline indicates strong demand for the Company’s new properties and positions it for future revenue growth.

Balance Sheet and Capital Transaction Highlights:

COPT Defense maintains a strong and flexible balance sheet:

• Adjusted EBITDA Fixed Charge Coverage Ratio: For the first quarter of 2025, the Company’s adjusted EBITDA fixed charge coverage ratio was a healthy 4.7x, indicating a strong ability to meet its debt obligations.
• Net Debt to Adjusted EBITDA Ratios: As of March 31, 2025, the Company’s net debt to in-place adjusted EBITDA ratio was 6.1x, and its net debt adjusted for fully-leased investment properties to in-place adjusted EBITDA ratio was 6.0x. These ratios are within a manageable range and reflect the Company’s prudent approach to leverage.
• Debt Profile: At the end of the first quarter, including the effect of interest rate swaps, COPT Defense’s weighted average effective interest rate on its consolidated debt portfolio was a favorable 3.4%, with a weighted average maturity of 4.5 years. Notably, 98% of the Company’s debt was subject to fixed interest rates, providing significant protection against potential interest rate increases.

2025 Guidance:

Based on its strong first-quarter performance and positive outlook, COPT Defense has narrowed its full-year guidance for key financial metrics:

• Diluted EPS: The full-year guidance range for diluted EPS has been narrowed to $1.28-$1.34, from the previous range of $1.27-$1.35.
• Diluted FFOPS: The full-year guidance range for diluted FFOPS, per Nareit and as adjusted for comparability, has been narrowed to $2.63-$2.69, from the previous range of $2.62-$2.70.

Management also provided guidance for the second quarter of 2025:

• Diluted EPS: Expected to be in the range of $0.31-$0.33.
• Diluted FFOPS: Expected to be in the range of $0.65-$0.67.

The Company provided a reconciliation of projected diluted EPS to projected diluted FFOPS for both the second quarter and the full year of 2025, as detailed in the original press release. This reconciliation highlights the impact of real estate-related depreciation and amortization, which is added back to EPS to arrive at FFOPS, a more relevant measure of a REIT’s operating performance.

In conclusion, COPT Defense Properties delivered a strong first quarter in 2025, driven by the fundamental strength of its Defense/IT-focused portfolio. The Company’s robust leasing activity, high occupancy rates, and disciplined financial management position it well to continue generating value for its shareholders. The narrowing of its full-year guidance reflects management’s confidence in achieving its financial objectives for the remainder of the year.

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