Is the company considering more speculative development given the positive backdrop? What are the focal points for driving occupancy higher through vacancy leasing?

The company is not ready to accumulate more speculative inventory but is preparing to move quickly by pre-designing projects. Vacancy leasing prospects are strong in Northern Virginia and the BW Corridor, especially for cyber-related activity, and in Columbia Gateway. “So we're not yet ready to start accumulating more inventory than we traditionally have. But we are certainly for the last year and increasingly so putting ourselves in a past year to move extremely quickly by predesigning and in some cases, addressing land conditions in advance of the opportunity to cut our delivery time frame.”

Will the substantial 2027 defense budget increase lead to earlier leasing, or will the 12-18 month lag still hold? Why did potential future development opportunities decrease by 400,000 square feet?

The 12-18 month lag is expected to hold, as the budget needs to be passed and appropriated before funds flow to contractors. The reduction in potential opportunities was due to harvesting some deals and deciding to reduce future demand possibilities for one particular mission. “I think the 12 to 18 months is still going to hold that.”

With Redstone Gateway at 99.6% leased, and potential for significant expansion, is there a risk of not having enough space? Also, is the $400,000 square feet vacancy leasing target conservative given past overperformance?

The Redstone Gateway campus has significant capacity (2.5-3 million sq ft) and the ability to expand further with the U.S. government partner, so space constraint is not a concern. The $400,000 sq ft vacancy leasing target is fair, as higher occupancy makes it harder to find inventory, but the company aims to exceed it. “So that's the least of my concerns when I go to bed at night.”

CDP

COPT Defense Properties (CDP) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Real Estate· Apr 28, 2026

Source: earnings call transcript

Executive summary

COPT Defense Properties Q1 FY26 — Strong Start with FFO Beat and Raised Guidance

COPT Defense Properties reported a solid start to the year, exceeding FFO per share guidance and demonstrating robust operational performance, particularly in renewal leasing and same-property NOI growth. The company raised its full-year guidance for several key metrics, reflecting confidence in its specialized defense IT strategy and recent strategic investments. Despite increased financing costs, the firm maintains a strong balance sheet, evidenced by a Moody's credit rating upgrade, and is well-positioned to capitalize on increased defense spending.

Highlights

FFO per share was $0.69, $0.01 above the midpoint of guidance, representing a 6.2% year-over-year increase.
Same-property cash NOI increased 5.4% year-over-year, driven by a 70 basis point increase in average occupancy.
Executed 1.2 million square feet of renewal leasing with a 91% retention rate, including a nearly 1 million square foot campus renewal.
Committed nearly $250 million of capital to new investments year-to-date, including a $55 million development at Redstone Gateway and a $43 million land acquisition in Westfield.
Moody's upgraded investment grade rating to Baa2 with a stable outlook, acknowledging strong operating performance.

Concerns

Higher financing costs of $0.09 per share in 2026 due to prefunding a $400 million bond maturity at a higher interest rate.
Potential future opportunities in the development pipeline decreased by 400,000 square feet from last quarter due to harvested deals and a decision to reduce future demand for one mission.
Unbudgeted real estate tax refunds were $2 million less than in 2025, muting same-property cash NOI growth by approximately 200 basis points.

Guidance & targets

Category	Target	Timeline	Confidence
FFO per share	$2.76 high materiality	FY26	High
Same-property cash NOI growth	3% high materiality	FY26	High
Tenant retention	82.5% medium materiality	FY26	High
Capital committed to new investment	$290 million high materiality	FY26	High
FFO per share	$0.68 to $0.70 medium materiality	Q2 · FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Total Portfolio Overall portfolio occupancy showed strong year-over-year growth. Occupancy rate: 94.4% (Q1 FY26)Occupancy rate YoY increase: 80 bps	—	—	—	—
Defense IT Portfolio Defense IT portfolio maintained very high occupancy with slight year-over-year improvement. Occupancy rate: 95.6% (Q1 FY26)Occupancy rate YoY increase: 30 bps	—	—	—	—
Same-Property Same-property cash NOI growth was driven by increased occupancy and burn-off of free rent. Occupancy increase was primarily from the 'other' segment. Average occupancy increase: 70 bpsOccupancy rate: 94.2% (Q1 FY26)Occupancy rate YoY increase: 60 bps	—	5.4%	—	—
Other Segment Significant occupancy increase in the 'other' segment contributed to overall same-property occupancy growth. Occupancy rate increase: 500 bps	—	—	—	—

CDP operating KPIs by quarter

CDP operating KPIs stated on its earnings calls, by fiscal quarter
KPI	This call Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	Change vs prior quarter
Retention rate	91% We executed 1.2 million square feet of renewal leasing and achieved a 91% retention rate. Source: earnings call transcript	68% We executed nearly 350,000 square feet in the quarter with tenant retention of 68%, cash rent spreads down 20 basis points and GAAP rent spreads up 4.4%. Source: earnings call transcript	-23 pt
Occupancy rate	94.4% We finished the quarter with strong occupancy at 94.4% in the total portfolio and 95.6% in the Defense IT portfolio. Source: earnings call transcript	94.1% Our total portfolio was 95.6% leased and 94.1% occupied while our Defense/IT portfolio was 96.4% leased and 95.1% occupied. Source: earnings call transcript	-0.3 pt
Occupancy rate Defense IT	95.6% We finished the quarter with strong occupancy at 94.4% in the total portfolio and 95.6% in the Defense IT portfolio. Source: earnings call transcript	95.1% Our total portfolio was 95.6% leased and 94.1% occupied while our Defense/IT portfolio was 96.4% leased and 95.1% occupied. Source: earnings call transcript	-0.5 pt
Occupancy rate Same-property	94.2% Same-property occupancy ended the quarter at 94.2%, which is a 60 basis point increase over the year and was driven by a 500 basis point increase in the other segment. Source: earnings call transcript	94.5% Same-property occupancy ended the quarter at 94.5%, which is up 30 basis points from last quarter due to the temporary occupancy bump at 100 Light Street that Britt mentioned. Source: earnings call transcript	+0.3 pt

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Development pipeline under construction Over $0.5 billion Q1 FY26

73% pre-leased; 5 of 7 projects 100% pre-leased

Deals & partnerships

U.S. government Full renewal of nearly 1 million square foot campus lease

Renewal of campus lease near Lakeland Air Force Base in San Antonio, totaling 953,000 square feet. Cash rent spreads increased 4.2% with annual rent bumps of 3%.

FBI's Technology division (including cyber group) and 2 leading defense contractors Acquisition of 17 acres of land and a ground lease for 2 office buildings (Mission Ridge) $43 million Essentially perpetual

Acquisition of land and ground lease in Westfield, Virginia. Buildings are 100% leased to FBI and defense contractors. Provides senior position in capital structure for future leasehold acquisition.

Top 20 U.S. defense contractor Lease of remaining floor at 8100 Rideout Road, Huntsville

Signed in April, bringing 23 of 24 operating buildings in Redstone Gateway Park to 100% leased.

Capital programs

Redstone Gateway Development (150,000 sq ft) underway $55 million

Start: Q1 FY26

Benefit:150,000 sq ft ATFP inventory

Development project at Redstone Gateway, inside the fence, creating ATFP inventory for the U.S. government.

Westfield Land Acquisition (17 acres) closed $43 million

Start: Q1 FY26

Benefit:17 acres of strategic land and ground lease

Acquisition of land and ground lease in Westfield, Virginia, providing perpetual control of a strategic parcel and senior position in capital structure for future leasehold acquisition.

620 Guardian Way completed

Benefit:Fully leased full-suite project

One of the new investments committed to year-to-date.

410 Goss Road Development underway

Start: Q1 FY26

Benefit:Designed for government inside defense

Commenced construction in Q1, tracking demand that exceeds availability from multiple missions requiring secure and ATFP compliant facilities.

8500 Advanced Gateway Development nearing completion

Benefit:Outside defense, currently 20% leased to a defense contractor

Achieved substantial completion earlier this month. Expecting to increase lease rate to 40% imminently and over 80% with another deal.

Risks & headwinds

Higher financing costs FY26

$0.09 per share

Mitigation:Pre-funded $400 million bond maturity 7 months ago, issuing 5-year unsecured notes at 4.5% (vs 2.25% old rate), eliminating near-term refinancing risk until fall 2028.

Reduced potential future development opportunities Q1 FY26

Down by 400,000 sq ft

Mitigation:Harvested some deals and made a decision to reduce future demand possibilities for one mission that committed to a different solution. Company continues to track 1 million sq ft in development leasing pipeline and 600,000 sq ft in additional opportunities.

Lower nonrecurring real estate tax refunds Q1 FY26

$2 million less

Mitigation:Muted same-property cash NOI growth by approximately 200 basis points, but overall same-property cash NOI still increased 5.4%.

Lag time between defense appropriations and lease executions Near to medium term

12- to 18-month lag

Mitigation:Anticipated and factored into demand outlook; the substantial increase in the proposed defense budget provides a long runway of tenant demand despite the lag.

What to watch in Q2 FY26

Vacancy leasing progress

Next quarter

Current 152,000 sq ft YTD (38% of target)

Target Above 200,000 sq ft (50% of target) or higher

Why it matters

Indicates continued demand and ability to meet the full-year target of 400,000 sq ft, especially in key submarkets like Northern Virginia and BW Corridor.

Year-to-date, we have signed 152,000 square feet of vacancy leasing, which equates to 38% of our full year target of 400,000 square feet.

Find out whether CDP delivers this. Inve re-checks your case every morning.

Q&A highlights

Given the increased defense spending, does the company expect its long-term FFO per share CAGR to accelerate beyond the historical 4.5%? Also, is there increased competition in the defense real estate space?

Management expects to return to the historical growth path, with potential upside from increased defense spending, though the budget is still aspirational. No meaningful new competition has been observed, only existing smaller investment groups with high interest.

“Looking forward, we generally expect that we can return to the growth path that we've experienced recently. And hypothetically, there could be upside to that from the increase in defense spending.”

asked by Seth Bergey · answered by Stephen E. Budorick

3 min read 6 chapters

Detailed narrative

Strong Operational Performance and FFO Growth

COPT Defense Properties delivered FFO per share of $0.69 in Q1 FY26, surpassing the midpoint of guidance by $0.01 and marking a 6.2% year-over-year increase. This represents the 23rd consecutive quarter of year-over-year FFO growth. Same-property cash NOI grew by 5.4% year-over-year, driven by the burn-off of free rent on development and acquisition leases and a 70 basis point increase in same-property average occupancy.

The company also achieved a 91% retention rate on 1.2 million square feet of renewal leasing, including a significant 953,000 square foot renewal at Lakeland Air Force Base.

Strategic Investments and Development Pipeline

The company committed nearly $250 million of capital to new investments year-to-date, including a $55 million development at Redstone Gateway for ATFP-compliant inventory and a $43 million acquisition of 17 acres of land and a ground lease in Westfield, Virginia.

The active development pipeline now totals over 1 million square feet, with over $0.5 billion in capital commitments, 73% pre-leased, and 5 of 7 projects 100% pre-leased. The company commenced construction of 410 Goss Road, an inside-defense project at Redstone Gateway, and expects to commence RG 6300 once 80% pre-leased.

Balance Sheet Strength and Credit Rating Upgrade

Moody's upgraded COPT Defense Properties' investment grade rating by one level to Baa2 with a stable outlook in March. This upgrade recognizes the strong operating performance of the specialized office portfolio, solid EBITDA to interest expense ratio, and income growth from assets under development.

The company prefunded a $400 million bond maturity with 5-year unsecured notes at 4.5%, resulting in $0.09 of higher financing costs in 2026, but has no significant near-term refinancing risk until fall 2028.

Defense Budget Tailwinds and Demand Outlook

The President's FY 2027 budget request includes a record $1.5 trillion for defense, with a base budget of $1.1 trillion, representing a nearly 30% increase over last year. This includes significant increases for Intelligence ($16 billion, +14%) and DoD cyber funding ($4 billion, +25%), as well as an additional $18 billion for the Golden Dome initiative.

Management anticipates a 12- to 18-month lag between appropriations and lease executions, suggesting a long runway of tenant demand for their specialized portfolio.

Leasing Activity and Occupancy Trends

Total portfolio occupancy ended the quarter at 94.4%, with the Defense IT portfolio at 95.6%, representing year-over-year increases of 80 basis points and 30 basis points, respectively. The company executed 92,000 square feet of vacancy leasing in Q1, with 70% tied to cyber activity, and has 152,000 square feet year-to-date, 38% of its full-year target.

Prospects in advanced negotiations total 115,000 square feet, bringing executed or highly likely leases to 265,000 square feet, or two-thirds of the full-year target.

Concessions and Net Effective Rent

The company is focused on improving net effective rents (NER), particularly in Northern Virginia, where they have been able to pull back on concessions. While not quantified precisely, the growth rate on a net effective basis is estimated to be in the mid-single digits.

Management is actively trying to reduce free rent periods and tenant improvement allowances, especially for mission-critical space where tenants are willing to pay more for specialized build-outs.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.