COPT Defense Properties Q2 FY2025 earnings call

• Strong leasing: Signed 353,000 square feet of vacancy leasing in the first half of the year, which is 88% of the initial full-year target and 30% of unleased space at the start of the year. Tenant retention was 90% in the quarter and 82% year-to-date. • Defense budget outlook: The One Big Beautiful Bill appropriated $150 billion to defense spending over 4 years, with 2026 budget near $950 billion (13% year-over-year increase). Focus on intelligence, cybersecurity, missile defense, etc. • Renewal leasing: Executed 477,000 square feet in the second quarter with a 90% retention rate. 2.2 million square feet expiring in the Defense/IT Portfolio over the next two quarters, 70% of which are secure full building leases to the US government. • Cash rent spreads: Influenced by two leases, but excluding them, spreads were down 40 basis points in the first half of the year.

The company has two main segments. The Defense/IT Portfolio had FFO per share adjusted for comparability of $0.68, a 6.3% year-over-year increase. Same-property cash NOI for the quarter increased 2.2% year-over-year and 4.6% during the first half of the year. The total portfolio is 95.6% leased, the highest in nearly 20 years. The other segment leased 94,000 square feet during the second quarter and 105,000 square feet during the first half of the year. Occupancy in this segment increased to 76% and lease rate rose nearly 450 basis points to 81%.

• Increased the midpoint of FFO per share by $0.01 to $2.67. • Increased the midpoint of same-property cash NOI growth by 50 basis points to 3.25%. • Q3 FFO per share guidance is in the range of $0.66 to $0.68. • Plan to issue a $400 million bond in the fourth quarter of 2025.

• Delayed renewal of some US government leases, requiring standstill agreements where rent continues at current rate until formal renewal. • Uncertainty in timing of power procurement for the Des Moines land parcel, with an expected 4+ years for new capacity. • Interest rate environment affecting the likelihood of successful asset sales.

Q: Talk about build-to-suits, submarkets, and expected returns.

A: Ongoing build-to-suits in Alabama, BWI Corridor, etc. Targeted returns are in the usual range of 8.5% cash yield on initial development costs.

Q: Immediate impacts of the Big Beautiful Bill.

A: Increased optimism and activity, but no immediate inflection since the bill passed.

Q: Details on the $400 million bond issuance.

A: Spreads on a 10-year deal are at about 140 basis points over the 10-year, and on a 5-year, about 115-120 basis points.

Q: Build-to-suits tied to Golden Dome or Space Command.

A: None of current build-to-suits involve those programs, but Space Command announcement is imminent.

Q: Power procurement for Des Moines land parcel.

A: Working with power company on alternative scenarios, with new capacity likely 4+ years out.

Q: Expense savings.

A: About half from utilities, half from timing of repairs and maintenance projects shifting to third quarter.

Q: Appetite for asset sales.

A: Anxious to sell but waiting for interest rate improvement as current environment lowers likelihood of good shareholder value.