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    CDP
    Earnings call· Jun 2026(Q2 FY26)

    COPT DEFENSE PROPERTIES Q2 FY26 earnings call CDP

    Jul 28, 2026 Source

    Executive summary

    COPT Defense Properties Q2 FY26 — Strong FFO Growth and Elevated Defense Spending Drive Development Pipeline

    COPT Defense Properties delivered a strong second quarter, exceeding FFO per share guidance and marking its 24th consecutive quarter of year-over-year FFO growth, driven by robust defense spending and successful leasing. The company raised its full-year guidance across multiple metrics, including FFO per share and same-property cash NOI, despite increased financing costs and dilution from exchangeable notes. Strategic investments in development, particularly at Redstone Gateway, are accelerating to meet growing demand from priority defense missions.

    Highlights

    5

    • FFO per share was $0.71, $0.02 above the midpoint of guidance, representing a 4.4% increase year-over-year and the 24th consecutive quarter of YoY FFO per share growth.

    • Same-property cash NOI increased 7.4% year-over-year in Q2 and 6.4% in the first half of the year.

    • Executed 139,000 square feet of vacancy leasing in Q2 and 231,000 square feet in H1, amounting to nearly 60% of the full-year target.

    • Increased the midpoint of 2026 FFO per share guidance by $0.02 to $2.78, implying 2.2% growth over 2025.

    • Increased 2026 same-property cash NOI growth guidance by 100 basis points to 4%, and the vacancy leasing target by nearly 20% to 475,000 square feet.

    Concerns

    2

    • Full-year 2026 FFO per share guidance accounts for $0.12 of higher financing costs year-over-year, including $0.08 of incremental net interest expense and $0.04 of dilution from exchangeable notes.

    • Same-property cash NOI growth is expected to moderate slightly in the back half of the year due to known move-outs, contractions, and nonrecurring real estate tax refunds received in H2 2025.

    Guidance & targets

    9
    CategoryTargetConfidence
    FFO per share
    $2.78
    high materiality
    High
    Same-property cash NOI growth
    4%
    high materiality
    High
    Cash rent spreads on renewals
    3%
    medium materiality
    High
    Capital commitment to new investments
    $335 million
    high materiality
    High
    Vacancy leasing target
    475,000 square feet
    medium materiality
    High
    FFO per share
    $0.68 to $0.70
    medium materiality
    High
    FFO per share
    $0.68 to $0.70
    medium materiality
    High
    Tenant retention
    80% to 85%
    medium materiality
    High
    Same-property occupancy
    roughly 94%
    medium materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Total Portfolio
    Total portfolio leased and occupied rates at quarter-end.
    Leased: 95.6%Occupied: 94.1%
    		————
    Defense/IT Portfolio
    Defense/IT portfolio leased and occupied rates at quarter-end, demonstrating strong demand.
    Leased: 96.4%Occupied: 95.1%
    		————
    Northern Virginia Portfolio
    Highest lease rate in the subsegment in over a decade, comparing favorably to the overall Northern Virginia market occupancy rate of ~78%.
    Leased: 95.2%
    		————
    Columbia Gateway Portfolio
    Significant momentum in vacancy leasing over the past few years, with 2026 expected to be the strongest year in over 5 years.
    Vacancy leasing 2023: 50,000 sq ftVacancy leasing 2024: ~100,000 sq ftVacancy leasing 2025: >160,000 sq ftVacancy leasing YTD 2026: 110,000 sq ft
    		————
    Redstone Gateway Operating Portfolio
    Operating portfolio is nearly fully leased, with only remaining availability spoken for, driving new development starts.
    Leased: 99.6%Size: 2.4 million sq ft
    		————
    Other Portfolio
    Temporary increase in occupancy rate due to a tenant relocation and downsizing, which will reverse next quarter.
    Occupancy rate increase: almost 400 bps
    		————

    Operational metrics

    43
    FFO per share YoY growth
    4.4%YoY
    Q2 FY26

    Represents the 24th consecutive quarter of year-over-year FFO per share growth.

    Vacancy leasing
    231,000
    H1 FY26

    Amounts to nearly 60% of the full-year target.

    Acquisition GAAP yield
    7.5%
    Q2 FY26

    For the acquisition of 17 acres of land and a ground lease in the Westfield submarket.

    Financing costs impact on FFO per share guidance
    $0.12YoY
    FY26

    Higher financing costs year-over-year included in the FFO per share guidance.

    Defense base budget request YoY increase
    30%YoY
    FY27

    White House submitted a request for $1.1 trillion, a 30% increase year-over-year.

    Defense base budget request 5-year increase
    nearly 50%
    Last 5 years

    Increase in defense spending over the last five years.

    Intelligence funding increase
    $16 billion14% increase
    FY27

    NDAA calls for meaningful increases in funding for priority missions.

    DoD Cyber funding increase
    $4 billion25% increase
    FY27

    NDAA calls for meaningful increases in funding for priority missions.

    Golden Dome funding increase
    $18 billion
    FY27

    NDAA calls for meaningful increases in funding for priority missions.

    Redstone Gateway operating portfolio leased
    99.6%
    Q2 FY26

    The 2.4 million square-foot operating portfolio is nearly fully leased.

    Redstone Gateway 8500 Advanced Gateway pre-leased
    41%
    Q2 FY26

    Current inventory development, with negotiations for remaining space underway.

    Redstone Gateway demand from contractors
    415,000
    Q2 FY26

    Demand for mission space related to Golden Dome and missile defense activities.

    Redstone Gateway park size upon active development completion
    2.8 million
    Future

    Will become the second largest market concentration.

    Redstone Gateway park size upon planned starts completion
    >3 million
    Future

    Will achieve this milestone in 16 years, 5 years earlier than National Business Park.

    Tenant retention
    84%
    H1 FY26

    Sector-leading tenant retention.

    Tenant retention decade average
    79%
    Last decade

    Provides a material capital advantage.

    Total occupancy decline
    30
    Q2 FY26

    Temporary decline due to NBP 400 being placed into service as vacant and 100 Light Street temporary bump; expected to reverse in Q3.

    NBP 400 size
    nearly 150,000
    Q2 FY26

    Building placed into service as vacant, but fully leased with lease commencing in Q3.

    Vacancy leasing YTD
    290,000
    YTD 2026

    Equates to over 70% of the initial full-year target of 400,000 square feet.

    Vacancy leasing prospects in advanced negotiations
    125,000
    Q2 FY26

    Defined as over 90% likely to execute.

    Total executed or in advanced negotiations
    >415,000
    Q2 FY26

    Combined vacancy leasing and prospects.

    Leasing activity ratio
    69%
    Q2 FY26

    Equates to 770,000 square feet of prospects on 1.1 million square feet of availability.

    Renewal leasing executed
    nearly 350,000
    Q2 FY26

    Executed in the quarter.

    Tenant retention
    68%
    Q2 FY26

    Driven by two strategic nonrenewals in the Fort BW corridor; net of these, retention would have been 12 percentage points higher.

    Renewal concessions YTD
    down nearly 30%vs 2025
    YTD 2026

    Compared to 2025, leveraging strong demand for Defense/IT portfolio.

    Large lease renewals (2024-2026 pool) retention rate
    97%
    Since Q2 2024

    On large leases in excess of 50,000 square feet set to expire through year-end 2026.

    Large lease renewals (2024-2026 pool) remaining leases
    8
    Through 2026

    Full building leases to the U.S. government, with lease executions expected in 2027.

    Large lease renewals (through 2028 pool) expected retention
    approximately 90%
    Through 2028

    For large lease expirations over the next 10 quarters.

    Large lease renewals (through 2028 pool) government/data center shell
    approximately 70%
    Through 2028

    Portion of the large lease pool expected to have 100% retention.

    Large lease renewals (through 2028 pool) Other segment
    approximately 5%
    Through 2028

    Portion of the large lease pool in the Other segment.

    Large lease renewals (since disclosure 4 years ago)
    5 million
    Last 4 years

    Total large leases renewed with a high retention rate.

    Active development pipeline pre-leased
    73%
    Q2 FY26

    Four of the six projects are 100% pre-leased.

    Development leasing pipeline
    1.2 million20% increase since last quarter
    Q2 FY26

    Opportunities considered 50% likely to win within two years or less.

    Potential development opportunities
    900,000nearly 60% increase since last quarter
    Q2 FY26

    Additional opportunities beyond the 50% likely pipeline.

    Total pipeline increase
    >500,000over last quarter
    Q2 FY26

    Combined increase in development leasing pipeline and potential opportunities.

    FFO forecast increase since initial guidance
    $8 million
    FY26

    Driven by $5 million of outperformance during H1 and $3 million from net impact of Mission Ridge acquisition, additional interest income, and settlement agreement.

    FFO outperformance
    $5 million
    H1 FY26

    Outperformance during the first half of the year.

    FFO net impact from other factors
    $3 million
    FY26

    From the net impact from the acquisition of Mission Ridge, additional interest income and the expected settlement agreement with a nondefense tenant.

    Same-property occupancy
    94.5%up 30 bps from last quarter
    Q2 FY26

    Benefited from a temporary occupancy bump at 100 Light Street.

    Development yields
    8.5%
    Q2 FY26

    Achieved on new development targets, elevated from 8% a few years back.

    Annual investment funding capacity
    $300 million
    Annual

    Capacity to fund the equity component of investments.

    SKIF tenant contribution multiple
    3-4x
    Q2 FY26

    Tenants pay 3 to 4 times the company's allowance for SKIF build-outs.

    Redstone Gateway land controlled for development
    >3 million
    Q2 FY26

    Company controls sufficient land for future development, making land scarcity not an issue.

    Industry KPIs

    9
    MetricValueDetails
    Occupancy rate94.1%%
    Development starts$91 millionUSD
    Same store noi growth7.4%%
    Investment volume closed$43 millionUSD
    Leasing bookings volume signed139,000sq ft
    Data center power land pipelineland bank under control
    Ffo core ffo normalized ffo per share$0.71USD
    Development pipeline under construction$450 millionUSD
    Lease renewal spread re leasing recapturedown 20 bpsbps

    Orderbook & backlog

    2
    Development leasing pipeline (50% likely)1.2 million sq ftQ2 FY26

    20% increase since last quarter

    Opportunities considered 50% likely to win within 2 years or less.

    Potential development opportunities900,000 sq ftQ2 FY26

    nearly 60% increase since last quarter

    Additional opportunities being tracked beyond the 50% likely pipeline.

    Deals & partnerships

    1
    UndisclosedAcquisition of land and ground lease for future development.$43 million

    Acquired 17 acres of land and a ground lease in the Westfield submarket in Chantilly, Virginia.

    Capital programs

    2
    Redstone Gateway RG 6300 Developmentunderway
    Period spend: $91 million (combined)
    Start: Q3 FY26

    Benefit: 180,000 sq ft

    Commencing development of an inventory building with 30,000 square foot floor plates to meet current demand.

    Redstone Gateway RG 2200 Developmentunderway
    Period spend: $91 million (combined)
    Start: Q3 FY26

    Benefit: 60,000 sq ft

    Commencing development of an inventory building with 20,000 square foot floor plates to meet current demand.

    Risks & headwinds

    3
    Higher financing costsFY26

    $0.12 impact on FY26 FFO per share guidance ($0.08 incremental net interest expense, $0.04 dilution from exchangeable notes).

    Mitigation: Management is managing through the impact, noting it's a result of strong stock price appreciation.

    Moderating same-property cash NOI growthH2 FY26

    Expected moderation in H2 FY26, following 7.4% YoY growth in Q2 and 6.4% in H1.

    Mitigation: Due to known move-outs and contractions, along with nonrecurring real estate tax refunds received in H2 2025.

    Power access for data centers in Iowa12-24 months

    Delaying potential leases for 12 to 24 months.

    Mitigation: Working with customers on potential solutions, but not willing to be the 'pioneer' to break the power situation.

    What to watch in Q3 FY26

    5

    Redstone Gateway Development Starts

    Next 24 months
    Current2 buildings (240,000 sq ft) commenced
    TargetAdditional starts or pre-leases

    Why it matters

    Indicates continued strong demand and future growth at a key market, validating management's confidence in accelerating demand.

    we believe there's pretty strong potential to either add additional inventory or sign pre-leases beyond this initial 2-building commitment we are making in the quarter.

    Q&A highlights

    7

    Does the structural step-up in the defense base budget change the amount of capital COPT would deploy in future developments?

    Management stated that the increased budget does not change their strategy, but they are prepared to deploy more capital on a low-risk basis with their strong balance sheet if more opportunities arise.

    “No, not really. We've positioned the company very well to deploy capital on a low-risk basis where we see incremental opportunities. And to the extent this new elevated trillion level generates more activity, we're prepared and we've got a strong balance sheet to support increasing our investment on the same low-risk basis, we've been running the company for the last 10 years.”

    asked by Seth Bergey · answered by Stephen E. Budorick

    2 min read5 chapters

    Detailed Narrative

    01

    Defense Budget & Market Strength

    The White House submitted an FY 2027 Defense base budget request of $1.1 trillion, a 30% increase year-over-year and nearly 50% over the last five years. The House passed the NDAA matching this request, with reconciliation funding expected to provide additional upside. Management believes $1 trillion base budgets are the new normal, driving significant increases in funding for priority missions like Intelligence ($16B or 14% increase), DoD Cyber ($4B or 25% increase), and Golden Dome ($18B additional funding), which directly benefit the company's portfolio.

    02

    Redstone Gateway Expansion

    Due to the 2.4 million square-foot operating portfolio at Redstone Gateway being 99.6% leased with no contractor space left, the company will commence two new development projects totaling 240,000 square feet in Q3. These inventory buildings, RG 6300 (180,000 sq ft) and RG 2200 (60,000 sq ft), will deliver in early 2028 and late 2027, respectively, to meet accelerating demand. Upon completion of current and planned projects, Redstone Gateway will exceed 3 million square feet, achieving this milestone five years faster than the National Business Park.

    03

    Leasing Performance & Tenant Retention

    COPT Defense executed 139,000 square feet of vacancy leasing in Q2 and 290,000 square feet year-to-date, representing over 70% of its initial full-year target. The Columbia Gateway portfolio has shown significant momentum, with 110,000 square feet leased year-to-date 2026. Tenant retention remains strong at 84% in H1 and 79% over the past decade. The company achieved a 97% retention rate on 3 million square feet of large leases expiring through 2026 and expects 90% retention on 4.1 million square feet expiring through 2028.

    04

    Development Pipeline Growth

    The active development pipeline totals nearly 900,000 square feet, 73% pre-leased, with a capital commitment of approximately $450 million. Four of the six projects are 100% pre-leased. The development leasing pipeline, representing opportunities with a 50% or better chance of winning within two years, increased 20% since last quarter to 1.2 million square feet. An additional 900,000 square feet of potential development opportunities are being tracked, reinforcing confidence in future external growth.

    05

    Financing & Capital Allocation

    The company's FFO per share guidance for 2026 includes a $0.12 impact from higher financing costs, comprising $0.08 from incremental net interest expense due to bond refinancing and $0.04 from dilution related to exchangeable notes. Despite this, COPT Defense maintains the capacity to fund approximately $300 million of annual investment on a leverage-neutral basis using free cash flow, with no intention of funding growth through new equity issuance.

    AI-generated summary of the company’s earnings call. Not investment advice.