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Introduction & Market Context
COPT Defense Properties (NYSE:CDP) released its second quarter 2025 results on July 28, 2025, reporting strong performance that exceeded guidance and demonstrating continued momentum in its Defense/IT-focused portfolio. The company’s shares closed at $28.03 on the day of the announcement, down slightly by 0.29% in regular trading.
The real estate investment trust, which specializes in properties serving U.S. defense and intelligence agencies, reported funds from operations per share (FFOPS) of $0.68 for Q2 2025, representing 6.3% growth year-over-year and exceeding the midpoint of guidance by 2 cents. This marks the 30th consecutive quarter the company has met or exceeded its guidance.
Quarterly Performance Highlights
CDP delivered solid operational results across key metrics in the second quarter. The company’s Defense/IT Portfolio, which accounts for 90% of annualized rental revenues, maintained strong occupancy at 95.6% with a leased rate of 96.8%. This continues a streak of occupancy above 94% for ten consecutive quarters, highlighting the stability of the company’s core portfolio.
As shown in the following comprehensive results summary:
Same-property cash NOI growth was positive across the board, with the total portfolio increasing by 2.2% in Q2 and 4.6% in the first half of 2025. The Defense/IT Portfolio specifically saw cash NOI growth of 2.0% in Q2 and 3.0% in the first half.
Leasing activity was particularly strong, with total leasing of 724,000 square feet in Q2 and 1.4 million square feet in the first half of 2025. This robust performance led the company to increase its annual vacancy leasing target to 450,000 square feet from the previous 400,000 square feet. Tenant retention remained exceptional at 90% for Q2 and 82% for the first half of the year.
Updated Guidance
Based on the strong first-half performance, COPT Defense Properties has updated its full-year 2025 guidance. The company now expects FFOPS in the range of $2.65-$2.69, with a midpoint of $2.67, representing a 3.9% increase over 2024 results.
The following table details the updated guidance compared to initial expectations:
Same-property cash NOI growth guidance was revised upward to 3.0%-3.5% (midpoint 3.25%) from the previous 2.0%-3.5% (midpoint 2.75%). The company also increased its tenant retention guidance to 80%-85% (midpoint 82.5%) from the previous 75%-85% (midpoint 80%).
Capital investment guidance for development and acquisitions was adjusted to $200-$250 million (midpoint $225 million) from the previous $250-$300 million (midpoint $275 million), reflecting a more focused approach to capital deployment.
Strategic Positioning
COPT Defense Properties’ strategic focus on defense and intelligence tenants continues to yield benefits, particularly as Department of Defense (DOD) spending increases. The company’s presentation highlighted the historic increase in DOD spending expected in FY 2026:
The FY 2026 Budget Request plus approximately $113 billion from the One Big Beautiful Bill Act (OBBBA) represents a 13% increase over FY 2025 enacted levels, a 36% increase over FY 2021, and a 58% increase over FY 2017. This substantial growth in defense spending provides a strong tailwind for CDP’s tenant base and future demand.
The company’s portfolio is strategically aligned with priority DOD missions, with 90% of annualized rental revenues coming from its Defense/IT Portfolio. The breakdown of this portfolio demonstrates the company’s focus on key defense locations:
Leasing Activity & Portfolio Performance
Vacancy leasing has been particularly strong, with the company executing 353,000 square feet in the first half of 2025, representing 88% of its initial full-year target. This performance led to the increased annual target of 450,000 square feet.
The following chart illustrates the company’s strong vacancy leasing performance:
A notable trend is the growth in cyber leasing as a percentage of vacancy leasing, reflecting the increasing importance of cybersecurity in defense operations. Cyber leasing has been steadily growing over the past decade, with the 5-year average (2020-2024) at 33% of vacancy leasing.
COPT Defense Properties continues to maintain sector-leading tenant retention rates, significantly outperforming office REIT averages:
Looking ahead, the company expects to renew approximately 95% of large leases expiring between Q2 2024 and Q4 2026, and 100% of U.S. Government large leases expiring between Q3 2025 and Q4 2026, citing the mission-critical nature of these facilities and the government’s investment in them.
Financial Position & Growth Outlook
The company maintains a strong balance sheet with Debt/EBITDA at 5.9x as of Q2 2025, down from 6.2x in 2019. Additionally, 97% of consolidated debt is fixed rate (including the effect of interest rate swaps), providing stability in the current interest rate environment.
COPT Defense Properties has demonstrated consistent growth in profitability, with FFOPS compounding at 4.7% per year from 2019 to 2025E:
The 2025 FFOPS midpoint guidance of $2.67 implies 3.9% growth over 2024 results, continuing the company’s track record of steady growth. Since 2019, CDP has increased FFOPS by 27% (4.8% CAGR) and adjusted funds from operations (AFFO) by 26% (4.7% CAGR).
The company positions itself as an attractive investment opportunity, highlighting its growth profile (4.7% compound annual FFOPS growth from 2019-2025E), dividend growth (10.9% increase since 2022), and value proposition (trading at 10.5x FFO).
Looking forward, COPT Defense Properties expects continued growth driven by strong leasing demand at existing properties and increased defense budgets, which are expected to drive demand for both existing and new development space. The company’s strategic focus on defense and intelligence tenants, combined with its strong operational execution and financial discipline, positions it well for sustained growth in the coming years.
Full presentation:
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