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CD

COPT DEFENSE PROPERTIES (CDP)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered solid growth and an estimate beat: revenue $189.9M vs consensus $184.4M, Adjusted EBITDA $104.7M vs consensus $97.4M, and diluted EPS $0.34 vs $0.336; management raised FY 2025 EPS and FFOPS guidance midpoints and set Q3 guidance (*S&P Global estimates).
  • Same-property cash NOI rose 2.2% YoY in Q2 and 4.6% YTD; occupancies improved with the total portfolio 94.0% occupied/95.6% leased and Defense/IT 95.6% occupied/96.8% leased .
  • Leasing momentum remained strong: 724k SF in Q2 (477k renewals, 233k vacancy, 14k investment) with 89.7% retention; vacancy-leasing target increased to 450k SF for 2025 (raised) .
  • Call catalysts: earlier-than-forecast rent commencements, lower net operating expenses, and a large defense budget tailwind (One Big Beautiful Bill) with potential incremental demand tied to intelligence, cybersecurity, and missile defense priorities .

What Went Well and What Went Wrong

What Went Well

  • Strong leasing and retention: 724k SF executed in Q2 with 90% retention; YTD tenant retention 82% and vacancy leasing 353k SF, prompting an increase in annual targets .
  • Estimate and guidance beats: Q2 FFOPS (as adjusted) $0.68 and EPS $0.34 came in above guidance midpoints; FY 2025 EPS/FFOPS midpoints raised; Q3 guidance set .
  • Defense budget tailwinds: management highlighted the enacted “One Big Beautiful Bill” adding $150B over several years (incl. $113B to FY26), supporting missions in intelligence, cybersecurity, and missile defense likely to drive demand; quote: “We expect this increase in defense spending will continue to support our strong vacancy leasing volumes… and drive earnings growth” .

What Went Wrong

  • Cash rent spreads dipped: renewal cash rents down 3.1% in Q2, driven by two leases (Leidos roll-down and Pandora early renewal); excluding these, spreads were down only 0.4% .
  • Delay in pre-leased data center shell commencement (MP3) by one quarter due to permitting timing, modestly impacting Q3 outlook .
  • Non-recurring tax refunds and small known non-renewals will moderate same-property NOI growth in H2, and year-end same-property occupancy expected to tick down slightly from Q2 levels .

Financial Results

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Total Revenues ($USD)$187.3M $183.4M $187.9M $189.9M
Diluted EPS ($)$0.31 $0.31 $0.31 $0.34
Diluted FFOPS – as adjusted ($)$0.64 $0.65 $0.65 $0.68
Adjusted EBITDA ($USD)$98.6M $98.6M $99.1M $104.7M
Net Income ($USD)$36.4M $36.5M $36.2M $40.2M
Net Income Margin (%)19.4% 19.9% 19.3% 21.2%
Adjusted EBITDA Margin (%)52.7% 53.8% 52.8% 55.1%

Segment real estate revenues (consolidated)

SegmentQ2 2024Q1 2025Q2 2025
Fort Meade/BW Corridor$78.4M $84.6M $81.3M
NoVA Defense/IT$20.6M $23.2M $22.0M
Lackland AFB$16.4M $16.4M $17.5M
Navy Support$8.2M $8.0M $8.3M
Redstone Arsenal$17.0M $16.4M $19.0M
Data Center Shells (Consol.)$9.6M $10.9M $10.6M
Other$16.8M $18.2M $18.7M
Total$167.1M $177.6M $177.5M

KPIs and Operating Metrics

KPIQ2 2024Q1 2025Q2 2025
Total Portfolio Occupied / Leased93.6% / 94.9% 93.6% / 95.1% 94.0% / 95.6%
Defense/IT Occupied / Leased95.4% / 96.5% 95.3% / 96.6% 95.6% / 96.8%
Same-Property Cash NOI Growth (YoY)+? (base period)+?+2.2% Q2; +4.6% YTD
Total SF Leased (Q2)--724k (477k renewals; 233k vacancy; 14k investment)
Retention Rate (Q2)--89.7% total portfolio
Net Debt / In-place Adj. EBITDA (Q2)6.0x (Q4 ref) 6.1x (Q4 ref) 5.9x
Fixed-rate Debt Mix / Wtd. Avg Rate97% / 3.4% (Q2) -97% / 3.4% (Q2)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Diluted EPSFY 2025$1.28–$1.34 $1.30–$1.34 Raised midpoint (+$0.01)
Diluted FFOPS (Nareit & as adjusted)FY 2025$2.63–$2.69 $2.65–$2.69 Raised midpoint (+$0.01)
Diluted EPSQ3 2025N/A$0.32–$0.34 Set
Diluted FFOPS (Nareit & as adjusted)Q3 2025N/A$0.66–$0.68 Set
Same-Property Cash NOI GrowthFY 20252.75% midpoint (Q1 guide) 3.25% midpoint Raised (+50 bps)
Tenant RetentionFY 202575–85% (80% midpoint) 82.5% midpoint Raised (+250 bps)
Vacancy Leasing TargetFY 2025400k SF 450k SF Raised (+12.5%)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Defense budget tailwinds (One Big Beautiful Bill)Q1 discussed defense priorities, resilience of core missions; early Space Command and Golden Dome commentary Detailed appropriation: +$150B over years, $113B FY26; highlights intelligence (+14%), cybersecurity (+14%), missile defense (“Golden Dome”) Strengthening tailwind
Vacancy leasing & retentionQ1: 179k vacancy YTD; 75% retention; strong pipeline Q2: 233k vacancy; 90% retention; YTD vacancy 353k; targets raised Improving execution
Other segment progress & potential dispositionsQ1: focused on leasing to position assets; disposals contingent on rates Q2: other segment vacancy leased 94k SF; bulk remaining at 100 Light; waiting for rate environment to sell Progress; sales timing constrained
Data center shells / MP3 & power availability (Des Moines)Q1: Des Moines power timeline elongated to 3–4 years ; MP3 in pipeline Q2: MP3 commencement delayed one quarter due to permitting; Des Moines power still ~4 years Timing delays manageable
Development pipeline & build-to-suit returnsQ1: $200–$250M capital, returns ≥ dev yields; new starts at RG 8500 Q2: multiple BTS in advanced talks; target ~8.5% cash yield; strong prospects in BW Corridor and Huntsville Active pipeline
Debt & capital marketsQ1: plan to pre-fund $400M Mar-26 bond; tight spreads vs peers Q2: still planning Q4 issuance; 10yr ~+140bps, 5yr +115–120bps; proceeds to pay down revolver Prepared balance sheet

Management Commentary

  • “FFO per share exceeded the midpoint of our guidance range by $0.02… we increased the midpoint of 2025 FFO per share guidance by $0.01 to $2.67” (Stephen Budorick, CEO) .
  • “We increased the midpoint of 2025 guidance for same property cash NOI growth by 50 basis points to 3.25%, and tenant retention by 250 basis points to 82.5%” .
  • “The One Big Beautiful Bill… adds $150 billion to defense spending… with funding directed towards priority missions we support including cybersecurity, ISR, missile defense… We expect this increase… to drive earnings growth and shareholder value” .
  • CFO on drivers: “Outperformance versus midpoint… driven by commencement of rent earlier than forecasted on several leases and… lower than anticipated net operating expenses” .

Q&A Highlights

  • Build-to-suit yields and markets: pursuing multiple BTS across Alabama and BWI Corridor targeting ~8.5% initial cash yields; announcements expected in H2 .
  • Defense bill translation to demand: strongest expected impact in Huntsville/Redstone (missile defense “Golden Dome”), and intelligence/cyber across NoVA and Fort Meade; pattern historically supportive (e.g., post-2024 appropriation) .
  • Capital markets plan: prefund $400M 2.25% Mar-26 bond with Q4 issuance; current spreads ~+140bps (10yr) and +115–120bps (5yr) over Treasuries .
  • Project timing: MP3 commencement pushed one quarter due to permitting; Des Moines data center land power timeline about ±4 years; near-term activity limited .
  • Expense detail: ~50% savings from utilities; remainder timing shifts in R&M into Q3 .

Estimates Context

MetricConsensusActualSurprise
Revenue ($USD)$184.4M*$189.9M +$5.5M (beat)*
Adjusted EBITDA ($USD)$97.4M*$104.7M +$7.3M (beat)*
Diluted EPS ($)$0.336*$0.34 +$0.004 (beat)*
FY 2025 EPS ($)$1.346*Guidance $1.30–$1.34 Guidance midpoint slightly below consensus*
FY 2025 Revenue ($USD)$748.7M*N/AN/A*

Note: Values retrieved from S&P Global. (*)

Where estimates may adjust:

  • Street models likely revise higher on Q2 beat and raised FFOPS/EPS midpoints; however, the one-quarter delay on MP3 commencement and H2 moderation in same-property NOI growth temper near-term lift .

Key Takeaways for Investors

  • Execution remains strong with sustained occupancy/leased levels and robust leasing volumes; segment strength in Redstone Arsenal and Fort Meade/BW Corridor underpins revenue growth .
  • Guidance raised across EPS, FFOPS, vacancy leasing, retention, and same-property cash NOI—supporting a constructive near-term narrative; watch for Q3 delivery cadence .
  • Structural tailwinds from the enacted defense budget should support medium-term demand in intelligence, cyber, and missile defense; Huntsville/Redstone positioned for incremental activity .
  • Balance sheet positioning (97% fixed, 3.4% effective rate, 5.9x net debt/in-place EBITDA) and planned prefunding of the 2026 bond mitigate refinancing risk .
  • Near-term watch items: renewal cash rent spreads normalization (ex-ID items), small Q4 non-renewals, and permitting/power timing on data center assets .
  • Tactical: consider catalysts around H2/H1-26 BTS signings and government lease renewals; strategic: overweight exposure tied to intelligence/cyber/missile defense nodes (BW Corridor, NoVA, Huntsville) .