COPT Defense Reports Strong Full Year 2024 Results

Business Wire

Thu, Feb 6, 2025, 2:16 PM 13 min read

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