COPT Defense Properties

08/03/2026 | Press release | Distributed by Public on 08/03/2026 13:09

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
During the six months ended June 30, 2026, we:
•finished the period with our portfolio 94.1% occupied and 95.6% leased;
•achieved a tenant retention rate of 84.4%, which was driven by our Defense/IT Portfolio;
•acquired approximately 17 acres of land on April 23, 2026 for a purchase price of $43.0 million, subject to a ground lease underlying two fully-leased operating properties located at 15020 and 15030 Conference Center Drive in Chantilly, Virginia; and
•repaid at maturity $400.0 million in 2.25% Notes on March 16, 2026 using remaining excess available cash and cash equivalents from our prefunding of this debt maturity with a new bond issuance in 2025 and borrowings under our Revolving Credit Facility.
We discuss significant factors contributing to changes in our net income in the section entitled "Results of Operations." In addition, the section entitled "Liquidity and Capital Resources" includes discussions of, among other things:
•how we expect to generate and obtain cash for short and long-term capital needs; and
•material cash requirements for known contractual and other obligations.
We refer to the measures annualized rental revenue ("ARR"), "tenant retention rate," "investment space leasing," and "vacant space leasing" in this Quarterly Report on Form 10-Q. ARR is a measure that we use to evaluate the sources of our rental revenue as of a point in time. It is computed by multiplying by 12 the sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases as of a point in time (ignoring free rent then in effect and rent associated with tenant funded landlord assets). Our computation of ARR excludes the effect of lease incentives. We consider ARR to be a useful measure for analyzing revenue sources because, since it is point-in-time based, it does not contain increases and decreases in revenue associated with periods in which lease terms were not in effect; historical revenue under GAAP does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment, and industry analysis. In instances in which we report ARR per occupied square foot, the measure excludes revenue from leases not associated with our buildings. Tenant retention rate is a measure we use that represents the percentage of square feet renewed in a period relative to the total square feet scheduled to expire in that period, including the effect of early renewals. Investment space leasing represents vacant space leased within two years of the shell completion date for development properties or the acquisition date for operating property acquisitions. Vacant space leasing represents our vacated second-generation space leased and vacant space leased in development properties and operating property acquisitions after two years from such properties' shell completion or acquisition date.
For operating portfolio square footage, occupancy, and leasing statistics included below and elsewhere in this Quarterly Report on Form 10-Q, amounts disclosed include information pertaining to properties owned through unconsolidated real estate joint ventures except for amounts reported for ARR, which represent the portion attributable to our ownership interest.
You should refer to our consolidated financial statements and the notes thereto as you read this section.
This section contains "forward-looking" statements, as defined in the Private Securities Litigation Reform Act of 1995, that are based on our current expectations, estimates, and projections about future events and financial trends affecting the financial condition and operations of our business. 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 we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations, estimates, and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we 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. We caution readers that forward-looking statements reflect our opinion only as of the date on which they were made. You should not place undue reliance on forward-looking statements. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
•general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability, property operating and construction costs, and property values;
•adverse changes in the real estate markets, including, among other things, increased competition with other companies;
•our ability to borrow on favorable terms or at all;
•risks of property acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent, or that development or operating costs may be greater than anticipated;
•risks of investing through joint venture structures, including risks that our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives;
•changes in our plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of impairment losses;
•potential impact of prolonged government shutdowns or budgetary reductions or impasses, such as a reduction of rental revenues, non-renewal of leases, and/or reduced or delayed demand for additional space by existing or new tenants;
•potential additional costs, such as capital improvements, fees, and penalties, associated with environmental laws or regulations;
•adverse changes resulting from other government actions and initiatives, such as changes in taxation, zoning laws, or other regulations;
•our ability to satisfy and operate effectively under federal income tax rules relating to real estate investment trusts and partnerships;
•the dilutive effects of issuing additional common shares; and
•security breaches relating to cyber attacks, cyber intrusions or other factors, and other significant disruptions of our information technology networks and related systems.
We undertake no obligation to publicly update or supplement forward-looking statements.
Occupancy and Leasing
The tables below present occupancy information:
June 30,
2026 		December 31,
2025
Occupancy rates at period end
Total 94.1 % 94.0 %
Defense/IT Portfolio
Fort Meade/BW Corridor 92.1 % 93.6 %
Redstone Arsenal 97.8 % 96.1 %
NoVA Defense/IT 93.5 % 93.5 %
Lackland Air Force Base 100.0 % 100.0 %
Navy Support 86.2 % 86.9 %
Data Center Shells 100.0 % 100.0 %
Total Defense/IT Portfolio 95.1 % 95.5 %
Other 83.1 % 76.6 %
ARR per occupied square foot at period end $ 36.65 $ 36.14
Rentable
Square Feet 		Occupied
Square Feet
(in thousands)
December 31, 2025 25,147 23,649
Vacated upon lease expiration (1) - (330)
Occupancy for new leases - 489
Development placed in service 148 -
Other changes 8 9
June 30, 2026 25,303 23,817
(1)Includes lease terminations and space reductions occurring in connection with lease renewals.
During the six months ended June 30, 2026, we leased 2.2 million square feet, including: 1.5 million square feet of renewal leasing (representing a tenant retention rate of 84.4%); 231,000 square feet of vacant space leasing; and 416,000 square feet of investment space leasing.
Results of Operations
We evaluate the operating performance of our properties using NOI from real estate operations, our segment performance measure, which includes: real estate revenues and property operating expenses; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate joint ventures ("UJV" or "UJVs") that is allocable to our ownership interest ("UJV NOI allocable to COPT Defense"). The table below reconciles net income, the most directly comparable GAAP measure, to NOI from real estate operations:
For the Three Months Ended June 30, For the Six Months Ended June 30,
2026 2025 2026 2025
(in thousands)
Net income $ 48,559 $ 40,166 $ 88,698 $ 76,394
Construction contract and other service revenues (6,766) (12,458) (12,807) (22,717)
Depreciation and other amortization associated with real estate operations 42,289 39,573 84,974 78,932
Construction contract and other service expenses 6,023 11,873 11,575 21,578
General, administrative, leasing, and other expenses 13,264 11,911 25,913 24,067
Interest expense 24,444 20,938 48,440 41,442
Interest and other income, net (2,973) (1,223) (6,928) (2,791)
Gain on sales of real estate (6,442) - (7,024) (300)
Equity in income of unconsolidated entities (392) (355) (1,798) (726)
UJV NOI allocable to COPT Defense included in equity in income of unconsolidated entities 2,050 1,870 4,106 3,759
Income tax expense 34 117 158 220
NOI from real estate operations $ 120,090 $ 112,412 $ 235,307 $ 219,858
Our changes in NOI from real estate operations included the following primary categories:
•Same Property, which we define as properties stably owned and 100% operational throughout the current and prior year reporting periods being compared;
•developed properties placed into service that were not 100% operational throughout the current and prior year reporting periods being compared; and
•properties acquired during the current or prior year reporting periods being compared.
Our Same Property pool consisted of 203 properties, comprising 97.1% of our portfolio's square footage as of June 30, 2026 and 95.8% of NOI from real estate operations for the six months then ended. This pool of properties changed from the pool used for purposes of comparing 2025 and 2024 in our 2025 Annual Report on Form 10-K due to the addition of three properties placed in service and 100% operational on or before January 1, 2025 and two properties acquired in 2024.
In addition to owning properties, we provide construction management and other services. The primary manner in which we evaluate the operating performance of our construction management and other service activities is through a measure we define as NOI from service operations, which is based on the net of the revenues and expenses from these activities. The revenues and expenses from these activities consist primarily of subcontracted costs that are reimbursed to us by customers along with a management fee. The operating margins from these activities are small relative to the revenue. We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations.
Since both of the measures discussed above exclude certain items includable in net income or loss, reliance on these measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are considered alongside other GAAP and non-GAAP measures. A reconciliation of NOI from real estate operations and NOI from service operations to net income reported on the consolidated statements of operations is provided in Note 12 to our consolidated financial statements.
Comparison of Statements of Operations for the Three Months Ended June 30, 2026 and 2025
For the Three Months Ended June 30,
2026 2025 Variance
(in thousands)
Revenues
Revenues from real estate operations $ 190,626 $ 177,457 $ 13,169
Construction contract and other service revenues 6,766 12,458 (5,692)
Total revenues 197,392 189,915 7,477
Operating expenses
Property operating expenses 72,586 66,915 5,671
Depreciation and amortization associated with real estate operations 42,289 39,573 2,716
Construction contract and other service expenses 6,023 11,873 (5,850)
General, administrative, leasing, and other expenses 13,264 11,911 1,353
Total operating expenses 134,162 130,272 3,890
Interest expense (24,444) (20,938) (3,506)
Interest and other income, net 2,973 1,223 1,750
Gain on sales of real estate 6,442 - 6,442
Equity in income of unconsolidated entities 392 355 37
Income tax expense (34) (117) 83
Net income $ 48,559 $ 40,166 $ 8,393
NOI from Real Estate Operations
For the Three Months Ended June 30,
2026 2025 Variance
(Dollars in thousands,
except per square foot data)
Revenues
Same Property revenues
Lease revenue, excluding lease termination revenue and collectability recovery provisions $ 179,619 $ 172,080 $ 7,539
Lease termination revenue, net 808 728 80
Collectability recovery provisions included in lease revenue 4 260 (256)
Other property revenue 1,796 1,834 (38)
Same Property total revenues 182,227 174,902 7,325
Developed properties placed in service 3,994 98 3,896
Acquired property 1,985 - 1,985
Other 2,420 2,457 (37)
190,626 177,457 13,169
Property operating expenses
Same Property (69,310) (64,865) (4,445)
Developed properties placed in service (882) 10 (892)
Acquired property (364) - (364)
Other (2,030) (2,060) 30
(72,586) (66,915) (5,671)
UJV NOI allocable to COPT Defense
Same Property 2,050 1,870 180
NOI from real estate operations
Same Property 114,967 111,907 3,060
Developed properties placed in service 3,112 108 3,004
Acquired property 1,621 - 1,621
Other 390 397 (7)
$ 120,090 $ 112,412 $ 7,678
Same Property NOI from real estate operations by segment
Defense/IT Portfolio $ 106,661 $ 103,676 $ 2,985
Other 8,306 8,231 75
$ 114,967 $ 111,907 $ 3,060
Same Property rent statistics
Average occupancy rate 94.5 % 93.8 % 0.7 %
Average straight-line rent per occupied square foot (1) $ 7.26 $ 7.13 $ 0.13
(1)Includes minimum base rents, net of abatements and lease incentives and excluding lease termination revenue, on a straight-line basis for the periods set forth above.
Regarding the changes in NOI from real estate operations reported above:
•the increase for our Same Properties was due primarily to additional revenue in the current period resulting from increased rental and occupancy rates;
•developed properties placed in service reflects the effect of four properties placed in service in 2025 and 2026; and
•acquired property includes an operating office property acquired in 2025 and a parcel of land subject to a ground lease that we acquired in 2026 and recorded as an investment in a sales-type lease.
NOI from Service Operations
For the Three Months Ended June 30,
2026 2025 Variance
(in thousands)
Construction contract and other service revenues $ 6,766 $ 12,458 $ (5,692)
Construction contract and other service expenses (6,023) (11,873) 5,850
NOI from service operations $ 743 $ 585 $ 158
Construction contract and other service revenues and expenses decreased in the current period due to a lower volume of construction activity for one of our tenants. Construction contract activity is inherently subject to significant variability depending on the volume and nature of projects undertaken by us primarily on behalf of tenants. Service operations are an ancillary component of our overall operations that typically contribute an insignificant amount of income relative to our real estate operations.
General, Administrative, Leasing, and Other Expenses
General, administrative, leasing, and other expenses increased due in large part to higher compensation-related expenses in the current period.
Interest Expense
Interest expense increased in the current period due primarily to a higher interest rate on $400.0 million of our unsecured senior notes due to the refinancing of our 2.25% Notes that matured on March 16, 2026 with our 4.50% Senior Notes due 2030 (the "4.50% Notes") issued in October 2025.
Gain on Sales of Real Estate
The gain on sales of real estate recognized in the current period was due to our sale of non-operating properties in Aberdeen, Maryland.
Comparison of Statements of Operations for the Six Months Ended June 30, 2026 and 2025
For the Six Months Ended June 30,
2026 2025 Variance
(in thousands)
Revenues
Revenues from real estate operations $ 385,222 $ 355,054 $ 30,168
Construction contract and other service revenues 12,807 22,717 (9,910)
Total revenues 398,029 377,771 20,258
Operating expenses
Property operating expenses 154,021 138,955 15,066
Depreciation and amortization associated with real estate operations 84,974 78,932 6,042
Construction contract and other service expenses 11,575 21,578 (10,003)
General, administrative, leasing, and other expenses 25,913 24,067 1,846
Total operating expenses 276,483 263,532 12,951
Interest expense (48,440) (41,442) (6,998)
Interest and other income, net 6,928 2,791 4,137
Gain on sales of real estate 7,024 300 6,724
Equity in income of unconsolidated entities 1,798 726 1,072
Income tax expense (158) (220) 62
Net income $ 88,698 $ 76,394 $ 12,304
NOI from Real Estate Operations
For the Six Months Ended June 30,
2026 2025 Variance
(Dollars in thousands,
except per square foot data)
Revenues
Same Property revenues
Lease revenue, excluding lease termination revenue and collectability loss provisions $ 364,034 $ 346,197 $ 17,837
Lease termination revenue, net 2,020 1,562 458
Collectability loss provisions included in lease revenue (166) (1,875) 1,709
Other property revenue 3,395 4,098 (703)
Same Property total revenues 369,283 349,982 19,301
Developed properties placed in service 7,777 121 7,656
Acquired properties 3,396 - 3,396
Other 4,766 4,951 (185)
385,222 355,054 30,168
Property operating expenses
Same Property (148,041) (134,788) (13,253)
Developed properties placed in service (1,230) 5 (1,235)
Acquired properties (744) - (744)
Other (4,006) (4,172) 166
(154,021) (138,955) (15,066)
UJV NOI allocable to COPT Defense
Same Property 4,106 3,759 347
NOI from real estate operations
Same Property 225,348 218,953 6,395
Developed properties placed in service 6,547 126 6,421
Acquired properties 2,652 - 2,652
Other 760 779 (19)
$ 235,307 $ 219,858 $ 15,449
Same Property NOI from real estate operations by segment
Defense/IT Portfolio $ 209,265 $ 201,643 $ 7,622
Other 16,083 17,310 (1,227)
$ 225,348 $ 218,953 $ 6,395
Same Property rent statistics
Average occupancy rate 94.3 % 93.6 % 0.7 %
Average straight-line rent per occupied square foot (1) $ 14.51 $ 14.19 $ 0.32
(1)Includes minimum base rents, net of abatements and lease incentives and excluding lease termination revenue, on a straight-line basis for the periods set forth above.
Regarding the changes in NOI from real estate operations reported above:
•the increase for our Same Properties was due primarily to additional revenue in the current period resulting from increased rental and occupancy rates. Our Same Properties also experienced increased property operating expenses, driven primarily by higher utility expenses and real estate taxes, due to in large part to our recognition in 2025 of prior year taxes refunded upon successful appeal, the effect of which was mostly offset by increased tenant expense reimbursements;
•developed properties placed in service reflects the effect of four properties placed in service in 2025 and 2026; and
•acquired properties includes an operating office property acquired in 2025 and a parcel of land subject to a ground lease that we acquired in 2026 and recorded as an investment in a sales-type lease.
NOI from Service Operations
For the Six Months Ended June 30,
2026 2025 Variance
(in thousands)
Construction contract and other service revenues $ 12,807 $ 22,717 $ (9,910)
Construction contract and other service expenses (11,575) (21,578) 10,003
NOI from service operations $ 1,232 $ 1,139 $ 93
Construction contract and other service revenue and expenses decreased in the current period due primarily to a lower volume of construction activity for one of our tenants.
Interest Expense
Interest expense increased in the current period due primarily to our issuance in October 2025 of 4.50% Notes to refinance and prefund the repayment at maturity of our 2.25% Notes on March 16, 2026.
Interest and Other Income, Net
Interest and other income, net increased in the current period due in large part to net credit loss recoveries recognized on our investing receivables in the current period.
Gain on Sales of Real Estate
The gain on sales of real estate recognized in the current period was primarily due to our sale of non-operating properties in Aberdeen, Maryland.
Funds from Operations
Funds from operations ("FFO") is defined as net income or loss computed using GAAP, excluding gains on sales and impairment losses of real estate and investments in UJVs (net of associated income tax), and real estate-related depreciation and amortization. FFO also includes adjustments to net income or loss for the effects of the items noted above pertaining to UJVs that were allocable to our ownership interest in the UJVs. We believe that we use the National Association of Real Estate Investment Trusts ("Nareit") definition of FFO, although others may interpret the definition differently and, accordingly, our presentation of FFO may differ from those of other REITs. We believe that FFO is useful to management and investors as a supplemental measure of operating performance because, by excluding gains on sales and impairment losses of real estate (net of associated income tax) and real estate-related depreciation and amortization, FFO can help one compare our operating performance between periods. In addition, since most equity REITs provide FFO information to the investment community, we believe that FFO is useful to investors as a supplemental measure for comparing our results to those of other equity REITs. We believe that net income or loss is the most directly comparable GAAP measure to FFO.
Since FFO excludes certain items includable in net income or loss, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in balance with other GAAP and non-GAAP measures. FFO is not necessarily an indication of our cash flow available to fund cash needs. Additionally, it should not be used as an alternative to net income or loss when evaluating our financial performance or to cash flow from operating, investing, and financing activities when evaluating our liquidity or ability to make cash distributions or pay debt service.
Basic FFO available to common share and common unit holders ("Basic FFO") is FFO adjusted to subtract (1) preferred share dividends, (2) income attributable to noncontrolling interests through ownership of preferred units in the Operating Partnership or interests in other consolidated entities not owned by us, (3) depreciation and amortization allocable to noncontrolling interests in other consolidated entities, and (4) Basic FFO allocable to share-based compensation awards. With these adjustments, Basic FFO represents FFO available to common shareholders and common unitholders. Common units in the Operating Partnership are substantially similar to our common shares and are exchangeable into common shares, subject to certain conditions. We believe that Basic FFO is useful to investors due to the close correlation of common units to common shares. We believe that net income or loss is the most directly comparable GAAP measure to Basic FFO. Basic FFO has essentially the same limitations as FFO; management compensates for these limitations in essentially the same manner as described above for FFO.
Diluted FFO available to common share and common unit holders ("Diluted FFO") is Basic FFO adjusted to add back any changes in Basic FFO that would result from the assumed conversion of securities that are convertible or exchangeable into common shares. We believe that Diluted FFO is useful to investors because it is the numerator used to compute Diluted FFO per share, discussed below. We believe that net income or loss is the most directly comparable GAAP measure to Diluted FFO. Since Diluted FFO excludes certain items includable in the numerator to diluted EPS, reliance on the measure has limitations; management compensates for these limitations by using the measure simply as a supplemental measure that is weighed in the
balance with other GAAP and non-GAAP measures. Diluted FFO (which includes discontinued operations) is not necessarily an indication of our cash flow available to fund cash needs. Additionally, it should not be used as an alternative to net income or loss when evaluating our financial performance or to cash flow from operating, investing, and financing activities when evaluating our liquidity or ability to make cash distributions or pay debt service.
Diluted FFO available to common share and common unit holders, as adjusted for comparability is defined as Diluted FFO adjusted to exclude: operating property acquisition costs (for acquisitions classified as business combinations); gain or loss on early extinguishment of debt; demolition costs on redevelopment and nonrecurring improvements; FFO associated with properties that secured non-recourse debt on which we defaulted and, subsequently, extinguished, via conveyance of such properties (including property NOI, interest expense, and gains on debt extinguishment); loss on interest rate derivatives; and executive transition costs associated with named executive officers. This measure also includes adjustments for the effects of the items noted above pertaining to UJVs that were allocable to our ownership interest in the UJVs. We believe this to be a useful supplemental measure alongside Diluted FFO as it excludes gains and losses from certain investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that net income or loss is the most directly comparable GAAP measure to this non-GAAP measure. This measure has essentially the same limitations as Diluted FFO, as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.
Diluted FFO per share is (1) Diluted FFO divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period, and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged. We believe that Diluted FFO per share is useful to investors because it provides investors with a further context for evaluating our FFO results in the same manner that investors use earnings per share ("EPS") in evaluating net income or loss available to common shareholders. In addition, since most equity REITs provide Diluted FFO per share information to the investment community, we believe that Diluted FFO per share is a useful supplemental measure for comparing us to other equity REITs. We believe that diluted EPS is the most directly comparable GAAP measure to Diluted FFO per share. Diluted FFO per share has most of the same limitations as Diluted FFO (described above); management compensates for these limitations in essentially the same manner as described above for Diluted FFO.
Diluted FFO per share, as adjusted for comparability is (1) Diluted FFO, as adjusted for comparability divided by (2) the sum of the (a) weighted average common shares outstanding during a period, (b) weighted average common units outstanding during a period, and (c) weighted average number of potential additional common shares that would have been outstanding during a period if other securities that are convertible or exchangeable into common shares were converted or exchanged. We believe that this measure is useful to investors because it provides investors with a further context for evaluating our FFO results. We believe this to be a useful supplemental measure alongside Diluted FFO per share as it excludes gains and losses from investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that diluted EPS is the most directly comparable GAAP measure to this per share measure. This measure has most of the same limitations as Diluted FFO (described above) as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.
The computations for all of the above measures on a diluted basis assume the conversion of common units in CDPLP but do not assume the conversion of other securities that are convertible into common shares if the conversion of those securities would increase per share measures in a given period.
The table below presents the computation of the above stated measures, and provides reconciliations from the GAAP measures associated with such measures:
For the Three Months Ended June 30, For the Six Months Ended June 30,
2026 2025 2026 2025
(Dollars and shares in thousands, except per share data)
Net income $ 48,559 $ 40,166 $ 88,698 $ 76,394
Real estate-related depreciation and amortization 42,289 39,573 84,974 78,932
Gain on sales of real estate (6,442) - (7,024) (300)
Depreciation and amortization on UJVs allocable to COPT Defense 726 732 1,468 1,473
Gain on sale of real estate on unconsolidated real estate JV (130) - (1,276) -
FFO 85,002 80,471 166,840 156,499
FFO allocable to other noncontrolling interests (1,433) (1,382) (2,564) (2,540)
Basic FFO allocable to share-based compensation awards (617) (550) (1,220) (1,080)
Basic FFO available to common share and common unit holders 82,952 78,539 163,056 152,879
Diluted FFO adjustments allocable to share-based compensation awards 63 96 127 201
Diluted FFO available to common share and common unit holders and as adjusted for comparability $ 83,015 $ 78,635 $ 163,183 $ 153,080
Weighted average common shares 112,871 112,459 112,839 112,421
Conversion of weighted average common units 2,231 2,177 2,147 2,113
Weighted average common shares/units - Basic FFO per share 115,102 114,636 114,986 114,534
Dilutive effect of share-based compensation awards 938 765 984 744
Dilutive exchangeable debt 1,087 - 763 -
Weighted average common shares/units - Diluted FFO per share and as adjusted for comparability 117,127 115,401 116,733 115,278
Diluted EPS $ 0.40 $ 0.34 $ 0.74 $ 0.64
Diluted FFO per share and as adjusted for comparability $ 0.71 $ 0.68 $ 1.40 $ 1.33
Denominator for diluted EPS 114,896 113,224 114,586 113,165
Weighted average common units 2,231 2,177 2,147 2,113
Denominator for diluted FFO per share and as adjusted for comparability 117,127 115,401 116,733 115,278
Property Additions
The table below presents the major components of our additions to properties for the six months ended June 30, 2026 (in thousands):
Properties in development or held for future development $ 88,191
Tenant improvements on operating properties (1) 28,594
Capital improvements on operating properties 4,034
$ 120,819
(1)Tenant improvement costs incurred on newly-developed properties are classified in this table as development.
Cash Flows
Net cash flow from operating activities increased $27.5 million when comparing the six months ended June 30, 2026 and 2025 due to increased cash flow from real estate operations attributable in large part to increased rental and occupancy rates and growth in our operating portfolio, partially offset by higher cash paid for interest expense due primarily to our issuance in October 2025 of 4.50% Notes to refinance and prefund the repayment at maturity of our 2.25% Notes.
Net cash flow used in investing activities increased $36.9 million when comparing the six months ended June 30, 2026 and 2025 due primarily to our acquisition of an investment in a sales-type lease in the current period.
Net cash flow used in financing activities in the six months ended June 30, 2026 was $254.3 million, and included primarily the following:
•net repayments of debt borrowings during the period of $178.3 million, which included our repayment at maturity of $400.0 million in 2.25% Notes; and
•dividends to common shareholders of $70.8 million.
Net cash flow used in financing activities in the six months ended June 30, 2025 was $27.7 million, and included primarily the following:
•net proceeds of debt borrowings during the period of $44.1 million; and
•dividends to common shareholders of $67.7 million.
Supplemental Guarantor Information
As of June 30, 2026, CDPLP had several series of unsecured senior notes outstanding that were issued in transactions registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended. These notes are CDPLP's direct, senior unsecured and unsubordinated obligations and rank equally in right of payment with all of CDPLP's existing and future senior unsecured and unsubordinated indebtedness. However, these notes are effectively subordinated in right of payment to CDPLP's existing and future secured indebtedness. The notes are also effectively subordinated in right of payment to all existing and future liabilities and other indebtedness, whether secured or unsecured, of CDPLP's subsidiaries. COPT Defense fully and unconditionally guarantees CDPLP's obligations under these notes. COPT Defense's guarantees of these notes are senior unsecured obligations that rank equally in right of payment with other senior unsecured obligations of, or guarantees by, COPT Defense. COPT Defense itself does not hold any indebtedness, and its only material asset is its investment in CDPLP.
As permitted under Rule 13-01(a)(4)(vi), we do not provide summarized financial information for the Operating Partnership since: the assets, liabilities, and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company; and we believe that inclusion of such summarized financial information would be repetitive and not provide incremental value to investors.
Liquidity and Capital Resources
As of June 30, 2026, we had $24.2 million in cash and cash equivalents.
We have a Revolving Credit Facility with a maximum borrowing capacity of $800.0 million. The facility matures in October 2029 and may be extended by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.0625% of the total availability under the facility for each extension period. Our available borrowing capacity under the facility totaled $528.0 million as of June 30, 2026.
We also have a Revolving Development Facility with a maximum borrowing capacity of $200.0 million. The facility matures in October 2029 and may be extended by a 12-month period at our option, provided that there is no default under the facility and we pay an extension fee of 0.250% of the total amount available under the facility. Our available borrowing capacity under the facility totaled $64.0 million as of June 30, 2026.
We expect to use our Revolving Development Facility to fund most of our property development cash requirements and subsequently pay it down as development properties are placed into service using cash available from operations, any excess available cash and cash equivalents, and borrowings from our Revolving Credit Facility. We expect to use our Revolving Credit Facility to initially fund most of the cash requirements from our other investing activities, including development cash requirements in excess of Revolving Development Facility available borrowings, as well as pay downs of the Revolving Development Facility discussed above and certain debt balloon payments due upon maturity; we expect to pay down this facility using cash available from operations and proceeds from financing and/or investing activities, such as long-term borrowings, equity issuances, and sales of interests in properties.
Our senior unsecured debt is rated investment grade, with stable outlooks, by the three major rating agencies. We aim to maintain an investment grade rating to enable us to use debt comprised of unsecured, primarily fixed-rate debt (including the effect of interest rate swaps) from public markets and banks. We also use secured nonrecourse debt from institutional lenders and banks primarily for joint venture financings. In addition, we periodically raise equity when we access the public equity markets by issuing common shares.
We have a program in place under which we may offer and sell common shares in at-the-market stock offerings having an aggregate gross sales price of up to $300 million. Under this program, we may also, at our discretion, sell common shares under forward equity sales agreements. The use of a forward equity sales agreement would enable us to lock in a price on a sale of common shares when the agreement is executed but defer issuing the shares and receiving the sale proceeds until a later date.
We believe that our liquidity and capital resources are adequate for our near-term and longer-term requirements without necessitating property sales. However, we may dispose of interests in properties opportunistically or when market conditions otherwise warrant.
Our material cash requirements, including contractual and other obligations, include:
•property operating expenses, including future lease obligations from us as a lessee;
•construction contract expenses;
•general, administrative, leasing, and other expenses;
•debt service, including interest expense;
•property development costs;
•tenant and capital improvements and leasing costs for operating properties (expected to total approximately $55 million during the remainder of 2026);
•debt balloon payments due upon maturity; and
•dividends to our shareholders.
We expect to use cash flow from operations during the remainder of 2026 and annually thereafter for the foreseeable future to fund all of these cash requirements except for debt balloon payments due upon maturity and a portion of property development costs, the fundings for which are discussed below.
During the remainder of 2026, we expect to spend $85 million to $105 million on costs for properties actively under development, most of which was contractually obligated as of June 30, 2026, and have $10.0 million in debt balloon payments maturing in 2026. During the remainder of 2026 and beyond, we expect to continue to actively develop additional properties and also could opportunistically acquire operating properties. We expect to fund these activities using, in part, available cash flow from operations, with the balance funded using any excess available cash and cash equivalents and borrowings under our Revolving Development Facility and Revolving Credit Facility.
We provide disclosure in our consolidated financial statements on our future lessee obligations (expected to be funded primarily by cash flow from operations) in Note 5 and future debt obligations (expected to be funded by any remaining excess available cash and cash equivalents, refinanced by new debt borrowings, or funded by future equity issuances and/or sales of interests in properties) in Note 8.
Certain of our debt instruments require that we comply with a number of restrictive financial covenants, including maximum leverage ratio, unencumbered leverage ratio, minimum net worth, minimum fixed charge coverage, minimum unencumbered interest coverage ratio, minimum debt service, and maximum secured indebtedness ratio. As of June 30, 2026, we were compliant with these covenants.
COPT Defense Properties published this content on August 03, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on August 03, 2026 at 19:09 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]