COPT Defense Reports Strong Full Year 2024 Results

COLUMBIA, Md.--(BUSINESS WIRE)--COPT Defense Properties (“COPT Defense” or the “Company”) (NYSE: CDP) announced results for the fourth quarter and full year ended December 31, 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 excellent results in 2024. The success of our differentiated strategy is evident in our occupancy rate of 93.6%, which is roughly 700 basis points higher than the Office sector, while occupancy in our Defense/IT Portfolio is even higher at 95.6%. We generated FFO per share growth of 6.2%, our second highest annual growth rate since 2015, which was driven by record performance in our Same Property portfolio, placing highly leased developments into service, and achieving our highest tenant retention rate in over 20 years of 86%. We achieved a milestone in 2024 as we executed on our first acquisitions since 2015. We leveraged our investment-grade rated balance sheet to execute on several strategic and opportunistic investments, which serve to strengthen our relationship with the U.S. Government and top defense contractors, and will be accretive to shareholder value. The operating assets were acquired at significant discounts to replacement cost and provide strong going-in cash yields, while the development land provides an opportunity to expand our data center shell portfolio over the medium to long term. We have generated FFO per share growth in each of the past six years, which amounts to a compound annual growth rate of 4.8% between 2019 to 2024. Looking forward, our guidance implies continued growth in 2025, with FFO per share growth of 3.5% at the midpoint, generated by continued strong performance of our portfolio.” Financial Highlights 4th Quarter Financial Results: > Diluted earnings per share (“EPS”) was $0.31 for the quarter ended December 31, 2024, compared to $0.30 for the quarter ended December 31, 2023. > Diluted funds from operations per share (“FFOPS”), as calculated in accordance with Nareit’s definition was $0.64 for the quarter ended December 31, 2024, compared to $0.62 for the quarter ended December 31, 2023. > FFOPS, as adjusted for comparability, was $0.65 for the quarter ended December 31, 2024, compared to $0.62 for the quarter ended December 31, 2023. Full Year 2024 Financial Results: > EPS for the year ended December 31, 2024 was $1.23 as compared to $(0.67) for 2023. > Per Nareit’s definition, FFOPS for 2024 was $2.57 as compared to $2.41 for 2023. > FFOPS, as adjusted for comparability, for 2024 was $2.57 as compared to $2.42 for 2023. Operating Performance Highlights Operating Portfolio Summary: > At December 31, 2024, the Company’s 24.5 million square foot total portfolio was 93.6% occupied and 95.1% leased, which includes the 22.4 million square foot Defense/IT Portfolio that was 95.6% occupied and 96.8% leased. > During the quarter and year ended December 31, 2024, the Company placed into service 225,000 and 399,000 square feet, respectively, of developments that were 100% and 83% leased, respectively, as of year end. Same Property Performance: > At December 31, 2024, the Company’s 22.2 million square foot Same Property portfolio was 94.1% occupied and 95.4% leased. > The Company’s Same Property cash NOI increased 10.0% and 9.1% for the three months and year ended December 31, 2024, respectively, compared to the same periods in 2023. Leasing: > Total Square Feet Leased: For the quarter ended December 31, 2024, the Company leased 709,000 square feet, including 561,000 square feet of renewals, 114,000 square feet of vacancy leasing, and 34,000 square feet of investment leasing. For the year ended December 31, 2024, the Company executed 3.2 million square feet of total leasing, including 2.6 million square feet of renewals, 500,000 square feet of vacancy leasing, and 124,000 square feet of investment leasing. > Tenant Retention Rates: During the quarter and year ended December 31, 2024, the Company renewed 93.0% and 86.0%, respectively, of expiring square feet in its total portfolio and renewed 95.9% and 88.6%, respectively, of expiring square feet in its Defense/IT Portfolio. > Rent Spreads and Average Escalations on Renewing Leases: For the quarter and year ended December 31, 2024, straight-line rents on renewals increased 5.5% and 8.6%, respectively, and cash rents on renewed space decreased 0.2% and increased 0.6%, respectively, while annual escalations on renewing leases averaged 2.7% and 2.4%, respectively. > Lease Terms: In the quarter ended December 31, 2024, lease terms averaged 3.5 years on renewing leases, 7.4 years on vacancy leasing, and 5.9 years on investment leasing. For the year ended December 31, 2024, lease terms averaged 3.9 years on renewing leases, 7.7 years on vacancy leasing, and 8.2 years on investment leasing. Investment Activity Highlights > Development Pipeline: The Company’s development pipeline consists of four properties totaling 606,000 square feet that were 75% leased as of December 31, 2024. These projects represent a total estimated investment of $252.9 million, of which $67.4 million was spent. Balance Sheet and Capital Transaction Highlights > For the quarter ended December 31, 2024, the Company’s adjusted EBITDA fixed charge coverage ratio was 4.7x. > At December 31, 2024, the Company’s net debt to in-place adjusted EBITDA ratio was 6.0x and its net debt adjusted for fully-leased investment properties to in-place adjusted EBITDA ratio was 5.9x. > At December 31, 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 4.7 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 fourth quarter and full year 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 2025 Guidance The Company details its initial full year and first quarter guidance, with supporting assumptions, in a separate press release issued concurrently with this press release; that release can be found in the ‘News & Events – Press Releases’ section of COPT Defense’s Investors website: https://investors.copt.com/news-events/press-releases Conference Call Information Management will discuss fourth quarter and full year 2024 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below: Conference Call Date: Friday, February 7, 2025 Time: 12:00 p.m. Eastern Time 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/BI959f6e09b0064c679a6d9d437eec49c7 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 December 31, 2024, the Company’s Defense/IT Portfolio of 195 properties, including 24 owned through unconsolidated joint ventures, encompassed 22.4 million square feet and was 96.8% 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 COPT Defense Properties Summary Financial Data (unaudited) (dollars and shares in thousands, except per share data) For the Three Months Ended December 31, For the Years Ended December 31, 2024 2023 2024 2023 Revenues Lease revenue $ 169,765 $ 160,337 $ 671,366 $ 619,847 Other property revenue 1,641 1,225 6,351 4,956 Construction contract and other service revenues 12,027 18,167 75,550 60,179 Total revenues 183,433 179,729 753,267 684,982 Operating expenses Property operating expenses 66,964 64,577 266,001 247,385 Depreciation and amortization associated with real estate operations 38,821 36,735 153,640 148,950 Construction contract and other service expenses 11,519 17,167 73,265 57,416 Impairment losses — — — 252,797 General and administrative expenses 8,429 8,240 33,555 31,105 Leasing expenses 2,243 2,308 9,233 8,932 Business development expenses and land carry costs 1,171 797 4,250 2,732 Total operating expenses 129,147 129,824 539,944 749,317 Interest expense (20,391 ) (20,383 ) (82,151 ) (71,142 ) Interest and other income, net 2,331 5,659 12,661 12,587 Gain on sales of real estate — — — 49,392 Income (loss) before equity in income (loss) of unconsolidated entities and income taxes 36,226 35,181 143,833 (73,498 ) Equity in income (loss) of unconsolidated entities 217 (240 ) 397 (261 ) Income tax benefit (expense) 24 (121 ) (288 ) (588 ) Net income (loss) 36,467 34,820 143,942 (74,347 ) Net (income) loss attributable to noncontrolling interests: Common units in the Operating Partnership (“OP”) (681 ) (576 ) (2,694 ) 1,306 Other consolidated entities (665 ) (592 ) (2,319 ) (428 ) Net income (loss) attributable to common shareholders $ 35,121 $ 33,652 $ 138,929 $ (73,469 ) Earnings per share (“EPS”) computation: Numerator for diluted EPS: Net income (loss) attributable to common shareholders $ 35,121 $ 33,652 $ 138,929 $ (73,469 ) Amount allocable to share-based compensation awards (103 ) (100 ) (421 ) (1,199 ) Numerator for diluted EPS $ 35,018 $ 33,552 $ 138,508 $ (74,668 ) Denominator: Weighted average common shares - basic 112,347 112,199 112,296 112,178 Dilutive effect of share-based compensation awards 711 432 603 — Dilutive exchangeable debt 664 — — — Weighted average common shares - diluted 113,722 112,631 112,899 112,178 Diluted EPS $ 0.31 $ 0.30 $ 1.23 $ (0.67 ) COPT Defense Properties Summary Financial Data (unaudited) (in thousands, except per share data) For the Three Months Ended December 31, For the Years Ended December 31, 2024 2023 2024 2023 Net income (loss) $ 36,467 $ 34,820 $ 143,942 $ (74,347 ) Real estate-related depreciation and amortization 38,821 36,735 153,640 148,950 Impairment losses on real estate — — — 252,797 Gain on sales of real estate — — — (49,392 ) Depreciation and amortization on unconsolidated real estate JVs 745 805 3,056 3,217 Funds from operations (“FFO”) 76,033 72,360 300,638 281,225 FFO allocable to other noncontrolling interests (1,050 ) (972 ) (3,855 ) (3,978 ) Basic FFO allocable to share-based compensation awards (614 ) (513 ) (2,417 ) (1,940 ) Basic FFO available to common share and common unit holders (“Basic FFO”) 74,369 70,875 294,366 275,307 Redeemable noncontrolling interests — — 1,963 (58 ) Diluted FFO adjustments allocable to share-based compensation awards 47 38 188 150 Diluted FFO available to common share and common unit holders (“Diluted FFO”) 74,416 70,913 296,517 275,399 Executive transition costs 58 188 285 518 Diluted FFO comparability adjustments allocable to share-based compensation awards (1 ) (1 ) (2 ) (4 ) Diluted FFO available to common share and common unit holders, as adjusted for comparability 74,473 71,100 296,800 275,913 Straight line rent adjustments and lease incentive amortization 2,950 313 10,824 6,518 Amortization of intangibles and other assets included in net operating income (“NOI”) 211 26 755 50 Share-based compensation, net of amounts capitalized 2,617 2,318 10,443 8,544 Amortization of deferred financing costs 671 681 2,708 2,580 Amortization of net debt discounts, net of amounts capitalized 1,041 1,004 4,110 2,994 Replacement capital expenditures (34,134 ) (21,498 ) (103,984 ) (93,494 ) Other 73 336 566 (84 ) Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”) $ 47,902 $ 54,280 $ 222,222 $ 203,021 Diluted FFO per share $ 0.64 $ 0.62 $ 2.57 $ 2.41 Diluted FFO per share, as adjusted for comparability $ 0.65 $ 0.62 $ 2.57 $ 2.42 Dividends/distributions per common share/unit $ 0.295 $ 0.285 $ 1.18 $ 1.14 COPT Defense Properties Summary Financial Data (unaudited) (Dollars and shares in thousands, except per share data) December 31, 2024 December 31, 2023 Balance Sheet Data Properties, net of accumulated depreciation $ 3,630,526 $ 3,503,678 Total assets $ 4,254,191 $ 4,246,966 Debt per balance sheet $ 2,391,755 $ 2,416,287 Total liabilities $ 2,693,624 $ 2,699,631 Redeemable noncontrolling interests $ 23,974 $ 23,580 Total equity $ 1,536,593 $ 1,523,755 Debt to assets 56.2 % 56.9 % Net debt to adjusted book 40.4 % 40.6 % Defense/IT Portfolio Data (as of period end) Number of operating properties 195 190 Total operational square feet (in thousands) 22,391 21,719 % Occupied 95.6 % 96.2 % % Leased 96.8 % 97.2 % For the Three Months Ended December 31, For the Years Ended December 31, 2024 2023 2024 2023 GAAP Payout ratio: Net income 93.0 % 93.7 % 94.2 % N/A Debt ratios: Net income to interest expense ratio 1.8x 1.7x 1.8x N/A Debt to net income ratio 16.4x 17.3x N/A N/A Non-GAAP Payout ratios: Diluted FFO 45.2 % 45.7 % 45.4 % 47.1 % Diluted FFO, as adjusted for comparability 45.2 % 45.6 % 45.4 % 47.0 % Diluted AFFO 70.3 % 59.7 % 60.6 % 63.9 % Debt ratios: Adjusted EBITDA fixed charge coverage ratio 4.7x 4.4x 4.7x 4.7x Net debt to in-place adjusted EBITDA ratio 6.0x 6.1x N/A N/A Net debt adj. for fully-leased investment properties to in-place adj. EBITDA ratio 5.9x 6.0x N/A N/A Reconciliation of denominators for per share measures Denominator for diluted EPS 113,722 112,631 112,899 112,178 Weighted average common units 1,664 1,514 1,672 1,509 Dilutive effect of additional share-based compensation awards — — — 424 Redeemable noncontrolling interests — — 842 38 Denominator for diluted FFO per share and as adjusted for comparability 115,386 114,145 115,413 114,149 COPT Defense Properties Summary Financial Data (unaudited) (in thousands) For the Three Months Ended December 31, For the Years Ended December 31, 2024 2023 2024 2023 Numerators for Payout Ratios Dividends on unrestricted common and deferred shares $ 33,167 $ 31,998 $ 132,628 $ 127,978 Distributions on unrestricted common units 491 430 1,987 1,725 Dividends and distributions on restricted shares and units 248 209 1,000 828 Total dividends and distributions for GAAP payout ratio 33,906 32,637 135,615 130,531 Dividends and distributions on antidilutive shares and units (250 ) (212 ) (1,006 ) (835 ) Dividends and distributions for non-GAAP payout ratios $ 33,656 $ 32,425 $ 134,609 $ 129,696 Reconciliation of net income (loss) to earnings before interest, income taxes, depreciation and amortization for real estate (“EBITDAre”), adjusted EBITDA and in-place adjusted EBITDA Net income (loss) $ 36,467 $ 34,820 $ 143,942 $ (74,347 ) Interest expense 20,391 20,383 82,151 71,142 Income tax (benefit) expense (24 ) 121 288 588 Real estate-related depreciation and amortization 38,821 36,735 153,640 148,950 Other depreciation and amortization 589 619 2,375 2,445 Impairment losses on real estate — — — 252,797 Gain on sales of real estate — — — (49,392 ) Adjustments from unconsolidated real estate JVs 1,681 1,911 6,820 6,917 EBITDAre 97,925 94,589 389,216 359,100 Credit loss (recoveries) expense (113 ) (1,288 ) 383 (611 ) Business development expenses 758 445 2,548 1,393 Executive transition costs 58 188 638 824 Net gain on other investments — — (488 ) (25 ) Adjusted EBITDA 98,628 93,934 $ 392,297 $ 360,681 Pro forma NOI adjustment for property changes within period 528 1,341 Change in collectability of deferred rental revenue 1,646 (198 ) In-place adjusted EBITDA $ 100,802 $ 95,077 Reconciliations of tenant improvements and incentives, building improvements and leasing costs for operating properties to replacement capital expenditures Tenant improvements and incentives $ 22,912 $ 7,850 $ 69,505 $ 74,912 Building improvements 10,942 14,762 28,294 25,976 Leasing costs 2,629 2,440 12,342 9,634 Net exclusions from tenant improvements and incentives (7 ) (189 ) (3 ) (12,170 ) Excluded building improvements and leasing costs (2,342 ) (3,365 ) (6,154 ) (4,858 ) Replacement capital expenditures $ 34,134 $ 21,498 $ 103,984 $ 93,494 COPT Defense Properties Summary Financial Data (unaudited) (in thousands) For the Three Months Ended December 31, For the Years Ended December 31, 2024 2023 2024 2023 Reconciliation of interest expense to the denominator for fixed charge coverage-Adjusted EBITDA Interest expense $ 20,391 $ 20,383 $ 82,151 $ 71,142 Less: Amortization of deferred financing costs (671 ) (681 ) (2,708 ) (2,580 ) Less: Amortization of net debt discounts, net of amounts capitalized (1,041 ) (1,004 ) (4,110 ) (2,994 ) COPT Defense’s share of interest expense of unconsolidated real estate JVs, excluding amortization of deferred financing costs and net debt premium and gain or loss on interest rate derivatives 872 819 3,305 3,188 Scheduled principal amortization 455 763 2,334 3,052 Capitalized interest 928 1,028 2,872 4,479 Denominator for fixed charge coverage-Adjusted EBITDA $ 20,934 $ 21,308 $ 83,844 $ 76,287 Reconciliation of net income (loss) to NOI from real estate operations, same property NOI from real estate operations and same property cash NOI from real estate operations Net income (loss) $ 36,467 $ 34,820 $ 143,942 $ (74,347 ) Construction contract and other service revenues (12,027 ) (18,167 ) (75,550 ) (60,179 ) Depreciation and other amortization associated with real estate operations 38,821 36,735 153,640 148,950 Construction contract and other service expenses 11,519 17,167 73,265 57,416 Impairment losses — — — 252,797 General and administrative expenses 8,429 8,240 33,555 31,105 Leasing expenses 2,243 2,308 9,233 8,932 Business development expenses and land carry costs 1,171 797 4,250 2,732 Interest expense 20,391 20,383 82,151 71,142 Interest and other income, net (2,331 ) (5,659 ) (12,661 ) (12,587 ) Gain on sales of real estate — — — (49,392 ) Equity in (income) loss of unconsolidated entities (217 ) 240 (397 ) 261 Unconsolidated real estate JVs NOI allocable to COPT Defense included in equity in income (loss) of unconsolidated entities 1,898 1,671 7,217 6,659 Income tax (benefit) expense (24 ) 121 288 588 NOI from real estate operations 106,340 98,656 418,933 384,077 Non-Same Property NOI from real estate operations (7,997 ) (3,802 ) (27,864 ) (7,238 ) Same Property NOI from real estate operations 98,343 94,854 391,069 376,839 Straight line rent adjustments and lease incentive amortization 7,093 3,142 16,492 7,030 Amortization of acquired above- and below-market rents (69 ) (121 ) (276 ) (536 ) Lease termination fees, net (864 ) (717 ) (3,451 ) (3,745 ) Tenant funded landlord assets and lease incentives (5,871 ) (7,541 ) (18,501 ) (26,378 ) Cash NOI adjustments in unconsolidated real estate JVs (147 ) (124 ) (511 ) (544 ) Same Property Cash NOI from real estate operations $ 98,485 $ 89,493 $ 384,822 $ 352,666 COPT Defense Properties Summary Financial Data (unaudited) (in thousands) December 31, 2024 December 31, 2023 Reconciliation of total assets to adjusted book Total assets $ 4,254,191 $ 4,246,966 Accumulated depreciation 1,537,293 1,400,162 Accumulated amortization of intangibles on property acquisitions and deferred leasing costs 228,154 228,484 COPT Defense’s share of liabilities of unconsolidated real estate JVs 61,294 60,583 COPT Defense’s share of accumulated depreciation and amortization of unconsolidated real estate JVs 12,817 9,528 Less: Property - operating lease liabilities (49,240 ) (33,931 ) Less: Property - finance lease liabilities (391 ) (415 ) Less: Cash and cash equivalents (38,284 ) (167,820 ) Less: COPT Defense’s share of cash of unconsolidated real estate JVs (2,053 ) (852 ) Adjusted book $ 6,003,781 $ 5,742,705 December 31, 2024 December 31, 2023 Reconciliation of debt to net debt and net debt adjusted for fully-leased investment properties Debt per balance sheet $ 2,391,755 $ 2,416,287 Net discounts and deferred financing costs 23,262 28,713 COPT Defense’s share of unconsolidated JV gross debt 53,750 52,613 Gross debt 2,468,767 2,497,613 Less: Cash and cash equivalents (38,284 ) (167,820 ) Less: COPT Defense’s share of cash of unconsolidated real estate JVs (2,053 ) (852 ) Net debt 2,428,430 2,328,941 Costs incurred on fully-leased development properties (18,774 ) (53,914 ) Costs incurred on fully-leased operating property acquisitions (17,034 ) — Net debt adjusted for fully-leased investment properties $ 2,392,622 $ 2,275,027

COPT Defense Reports Strong Full Year 2024 Results

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