COPT Defense Properties at Nareit REITweek: Strategic Defense Focus

On Tuesday, June 3, 2025, COPT Defense Properties (NYSE:CDP) presented at the Nareit REITweek: 2025 Investor Conference. The company emphasized its strategic focus on mission-critical assets supporting U.S. national defense. The presentation highlighted strong leasing momentum and development prospects, while addressing challenges such as upcoming bond maturities and market conditions affecting asset sales.

Key Takeaways

• COPT Defense Properties specializes in high-security properties near U.S. defense installations.
• The company expects a 3.5% FFO per share growth at the midpoint of 2025 guidance.
• Leasing activity has exceeded targets, with 303,000 square feet already leased this year.
• CDP is planning to pre-fund a $400 million bond maturity in the fall of 2025.
• The potential relocation of Space Command to Huntsville presents significant leasing opportunities.

Financial Results

• COPT Defense Properties forecasts a 3.5% growth in FFO per share for 2025.
• The company has raised its dividend by nearly 11% over the past three years, marking consistent growth.
• CDP is the only office REIT to have increased its dividend in consecutive years, including 2025.

Operational Updates

• CDP has already leased 303,000 square feet in 2025, surpassing internal projections.
• The company has 660,000 square feet under construction, with 62% pre-leased.
• A notable development is the 140,000 square foot project at the National Business Park, aimed at supporting U.S. government needs.

Future Outlook

• The relocation of Space Command to Huntsville could result in substantial leasing opportunities, with plans for 150,000 square feet of new development.
• CDP intends to commit $150 to $200 million to new pre-leased developments in 2025.
• The company is acquiring a 365-acre parcel in Des Moines, Iowa, for future data center developments.

Debt Management

• CDP plans to pre-fund a $400 million bond maturity in mid-March 2026, using the fixed income market in fall 2025.
• The company maintains a leverage ratio of approximately 6x debt to EBITDA, supported by a strong investment-grade balance sheet.

Q&A Highlights

• Steve Doric, President and CEO, expressed confidence in meeting or exceeding leasing targets for the year.
• Anthony Miffsud, CFO, outlined plans to pre-fund bond maturities through the fixed income market.
• Britt Snyder, COO, emphasized the unique, secure nature of CDP’s real estate assets.

In conclusion, COPT Defense Properties remains strategically aligned with national defense priorities, showcasing robust growth prospects and strong leasing performance. For further details, readers are encouraged to refer to the full conference call transcript.

Full transcript - Nareit REITweek: 2025 Investor Conference:

Unidentified speaker, Analyst, CDP: Warehouse and cold storage, read analyst. This morning from CDP, we’re fortunate to have president and CEO, Steve Doric, executive vice president and chief operating officer, Britt Snyder, next to him, and executive vice president and chief financial officer, Anthony Miffsud, to the right. We’ve got a limited time of amount of time here, so I do wanna jump right into it. And I’ll start the q and a, but to the extent the audience has questions, I will pause during the presentation and and see if anyone wants to ask any. We do ask that you just speak into the microphone if you’re gonna come ask a question.

If you don’t wanna do that, I can repeat the question. So just to start out, for those that are unfamiliar with the company, Steve, can you just give a quick summary of your company and portfolio and what makes you different from your peers?

Steve Doric, President and CEO, CDP: Comp defense properties can hear me? Can you hear me? Is specialized REIT deeply concentrated in mission critical assets to support national defense activity of the United States government. The vast majority of our two zero four properties are located adjacent to, or in some cases occupied by priority defense missions, generally involving knowledge based defense missions. Some of the missions we support include intelligence and surveillance, cyber security and network activities, naval sea and air technology development, missile attack and defense systems, cloud computing, and many more.

Our property locations are not typical for an office company. They’re approximate to US defense installations in Maryland, Virginia, Alabama and Texas. Our properties are improved for top secret mission work. 80% of our portfolio contains high security operations, and that includes eight US government secured campuses that exceed 4,000,000 square feet. Those campuses are built to secure compartmentalized information facility or SCIF level, and they’re anti terrorism force protected.

We have another 1,400,000 square feet of high security US government leases that are SCIF and access control but not anti terrorist force protected. We’ve got over 6,000,000 square feet of defense contractor space that contains skip, and we own 15 cloud computing campuses totaling 6,000,000 square feet that are fenced with limited access. An important point is these defense missions that require the secure secure facilities, that mission work cannot be done from home. You take your work home, it’s crime. So they work in the office.

Today, over 90% of our annualized rental revenue is derived from our defense information technology properties. Our pre leased developments will increase that figure in coming years. And our defense IT segment was 96.6% leased at quarter end, which is well above our peer average. The US government is our largest tenant by revenue. We have 101 separate leases, 71 different properties, 5,600,000 square feet, and that produces 36% of our annualized rental revenue.

Our defense contractor tenants lease about 15,000,000 square feet. That includes 3,000,000 square feet of cyber defense contractor tenants, which is kind of our fastest growing tenant segment in the defense area. Defense contractors contribute 51% of our annualized rental revenue, and 15 of our top 20 defense tenants are defense tenants are defense contractors. Our non defense locations provide just under 10% of our annualized rental revenue. They consist of five legacy regional office assets, three in Baltimore, One in Tysons Corner and one in Downtown DC.

We have great tenant credit in those buildings as well, but our plan is to recycle out of those as market conditions support it. Our strategy is very simple. We allocate capital to the durable demand locations that are adjacent to priority defense installations. We do that through either low risk pre lease development, in some cases redevelopment or repositioning of an asset that we would acquire. And we maintain a strong investment grade balance sheet.

Our competitive advantage really sits on four pillars. First, it’s an operating platform. We have an experienced and credentialed workforce that has managed some of the highest security properties in the country for over twenty years. Moreover, we have significant development expertise that includes building buildings to SCIP, anti terrorism force protection standards, data centers, emission critical facilities that are specialized. We also have a thirty year track record of building and operating the highest security facilities for the government and their contractors.

And then our fourth advantage is advantaged land positions. We established our strategy early. We moved out. We acquired land. We have significant development capacity in owned land in in the best locations in our markets.

So in summary, we’re a specialized REIT that is not correlated to the broader economy. We’re more correlated with national defense needs. Our assets have strategic features and locations. We have no risk from work from home. And we have strong demand for new developments and vacancy leasing at this time.

And the four points I guess I’d like investors to lead with is, first, we’re a growth company. In 2025, we expect 3.5% FFO per share growth at the midpoint of our guidance, and that would mark our seventh consecutive year of positive FFO growth. We’ve increased the dividend by almost 11% over the last three years. And we’re the only office REIT to have raised the dividend in both 2023 and 2024. And we raised the dividend again this year in February in 2025.

Second key point is leasing. We are very confident we will meet or exceed our vacancy leasing targets for the year. We set a we’re very highly occupied, so we set a goal of leasing 400,000 vacant square feet. Year to date, we’ve achieved 288,000. We have another 120,000 square feet in advanced negotiations we expect to close shortly.

That will exceed our goal roughly around mid year and we have another half a year to go. And the third is our development starts. We expect to commit this year an additional 150 to 200,000,000 to new developments, and they should primarily be pre leased developments. And then the fourth point, has been A point that we’ve gotten a lot of questions on is Doge. There has been no impact to our company or our tenants from the Doge activities.

Our portfolio supports critical missions that are vital and have permanence. The DoD’s approach to Doge has been to cut headquarters overhead, fast, top line stuff, and reinvest that money in commissions, So the likelihood of submissions we serve will be the beneficiary of Doge activity and not a victim to it. With that, I guess I have a last point. We are a great value at $27.0.6 dollars a share. We’re trading at 10.3 times at $20.25 FFO at the midpoint.

We’ve got a 4.4% dividend yield and we’re trading at a 16% discount to NAV. And now I’ll turn it back to you.

Unidentified speaker, Analyst, CDP: Very impressed with the preparation here. Steve, you mentioned the correlation with national defense needs. So I guess can you just talk a little bit about the defense budget, what you’re expecting to see from an allocation perspective? I think clearly cyber related defense is a big part of your tenant base and strategy. So, you know, what gives you that confidence that you’re unlikely to see disruption and may actually see a boost?

Steve Doric, President and CEO, CDP: Well, so the specifics of the FY twenty twenty five defense budget in the One Big Beautiful Bill are still a little opaque, but we understand that the bill is providing another $150,000,000,000 on top of the baseline of $850,000,000,000 which is where you hear the defense budget will be $8,000,000,000,000 Some of that money might be multi year money, so as it shakes out. But either way, the vector is towards positive growth. There is $34,000,000,000 for shipbuilding and naval expansion, dollars 25,000,000,000 down payment on Golden Dome. And that activity will be primarily orchestrated on emissions at Redstone Arsenal where we have a development. And another $1,000,000,000 to ramp up our cyber offensive capabilities.

So we expect intelligence will always remain well funded in this adversarial world we’re in. So we’re very confident our missions will be funded well and supported.

Unidentified speaker, Analyst, CDP: Great, thanks. So comps did a great job of leasing throughout the pandemic and that momentum has continued since. How do you feel about the leasing pipeline today? You got into a little bit in your first answer, but your ability to maintain that momentum and potentially even grow it?

Steve Doric, President and CEO, CDP: I’ll let Britt answer this one.

Britt Snyder, Executive Vice President and COO, CDP: Thanks. Yes, I mean, it again gets set back to the durable nature of our real estate and the secure facilities that we have. So far we’ve had incredible leasing volume this year. Again, hundred thousand square foot target for the year. And actually we’re doing a little better than what Steve just said February.

We’re actually at 303,000 square feet for vacancy leasing for the year, which is great. We’ve definitely been outpacing even our own projections for the year. Investment leasing, we have executed over 100,000 square feet in three buildings, two in Huntsville and another lease at Franklin Center, which we acquired last year. And if you recall, some of the folks who have been following this acquisition, the vacancy in that building was unleased for seven years and then we bought the asset and we immediately were engaged in a lot of different leasing negotiations and signed a 48,000 square foot lease last year with a or earlier this year with a government contractor. And then renewal leasing, we’ve already executed 700,000 square feet for the year.

Activity ratio is really strong. Again, just speaking to the durable nature of these real estate assets and the unique secure nature, it’s just really hard to find and we’re very fortunate that the portfolio that we have.

Unidentified speaker, Analyst, CDP: Yes, maybe just sticking with the development pipeline for a minute. You guys have seven sixty ish thousand square feet under construction now, total investment of $3.00 $8,000,000 60 2 percent pre leased. Can you just talk about the demand you’re seeing for the vacant space in the current pipeline and maybe even more importantly, you know, the demand you’re seeing from prospective tenants that could be interested in future development?

Steve Doric, President and CEO, CDP: I’ll take Okay. So in Huntsville, at 8100 Rhino Road, we’re 75% leased. It’s 130,000 square foot building. We have one floor left. We’ve actually held that floor off the market now because we anticipate with the relocation of Space Command to Huntsville, they’re going to need immediate mission space.

So we expect when that gets announced, we have very high likelihood of leasing that space to command. We have a 140,000 square foot development at the National Business Park, which we started last year to support known US government needs that will be funded in FY ’26. Our relationship with that government customer requires we have a building built before they can lease it. So we expect to lease that building in the latter half of this year and early into next year with FY ’26 money. We started 8500 Advanced Gateway in Huntsville because we have literally no space left to lease.

We took the one floor off, and we reserved it for space command. And we have about 75% of that building under consideration from various tenants, both government and defense contractor. Our demand is broad based. Beyond that, we’re in several discussions for build to suit opportunities in other locations. I won’t discuss until we get them done.

But our development demand has remained strong over the last four years. But it is certainly ramped up under the new administration.

Unidentified speaker, Analyst, CDP: So you mentioned space demand. I think that’s an important topic here. So maybe you can give just a little background on the evolution of the political backdrop there, and I guess how you’re currently thinking about the prospects of Space Command moving to Huntsville, and potential opportunities that could come for you guys with that.

Steve Doric, President and CEO, CDP: Sure. So Space Force was established by under Donald Trump in his first presidency. And the creation of Space Force required an integrated combatant command, which was created as well under Trump. And the initial selection for the combatant command was to be put in Huntsville. In January of twenty twenty one, the Air Force announced that decision.

It was contested by other states that would like to see the command in their locations. It was adjudicated internally in the DOD twice. In May of twenty twenty two, the US government’s government accountability office reaffirmed Redstone again. In early twenty twenty three, the Secretary of the Air Force announced Redstone Arcelos location yet again. And in July of twenty twenty three, Joe Biden signed an executive order requiring it to stay in Colorado Springs.

It’s pretty widely known that Trump is going to put it where it should be on the merits, which is Redstone Arsenal. And the words that we understand is when the Secretary of the Air Force gets confirmed, it’ll be one of his new decisions. He got confirmed last week. So we expect an announcement could be imminent, you know, this week or in the coming weeks. Great.

Unidentified speaker, Analyst, CDP: And I guess what opportunities would that afford you? Is that just, you know, build to suit opportunities?

Steve Doric, President and CEO, CDP: Is it leasing up space we anticipate a minimum of one building to be built in our secure campus. That’s land that we control inside the arsenal secure gate to handle the first wave of the mission. That could expand to as many as three buildings or more, but we’ve provided a plan for 150,000 square feet, three buildings inside the fence for new development. In addition to the swing space I talked about, leasing up 8,100, then there’ll be long term growth of that mission that could be either government developed and occupied or leased from us. But beyond that, there’s a contractor tail that will follow the command.

And, you know, it’s hard to predict the size of a tail, but I think, you know, two to one, two jobs outside the fence for everyone in is kind of a rule of thumb, a norm. And so you think about somewhere near 450,000 square feet of government occupancy. It could be twice that outside. Great.

Unidentified speaker, Analyst, CDP: Alright. Anthony, we’ll get you involved here too. So one of the most kind of obvious hurdles, I’ll call it, for for the company coming up that that you guys have to overcome is the 2026 bond maturity. Dollars 400,000,000 at 2.25% maturing in March of next year. Just talk about your plans to address that and potentially get in front of

Anthony Miffsud, Executive Vice President and CFO, CDP: it. Sure.

Unidentified speaker, Analyst, CDP: How you’re feeling about the debt market?

Steve Doric, President and CEO, CDP: Our

Anthony Miffsud, Executive Vice President and CFO, CDP: current plan is to pre fund capital for that maturity in mid March of twenty twenty six. Our plan is to go to the fixed income market sometime in the fall to pre fund the capital required for that maturity. We have had incredibly strong support from the fixed income community over the past several years as our bonds have traded at spreads that are close to, if not at points inside of our BBB flat sector peers. So we plan on using that market to pre fund the capital. We’ll use the capital initially to pay down the line of credit and then put the balance in money markets until the maturity in March because the rate on the bond that’s maturing is only 2.25%.

So we can earn a better spread by putting the capital essentially in the bank until we needed to pay off the bond. But we continue to expect strong support from that community.

Unidentified speaker, Analyst, CDP: Okay, great. I’ve got a follow-up, but I’m going to open it up for Q and A after that. So if you do have a question, we just ask that you ask it into the microphone so you can make your way over there. But sticking with the balance sheet, you guys are at relatively low leverage, 6.1 times debt to EBITDA. I guess, can you just talk about your philosophies and targeted leverage range and how you think about sources of capital for additional acquisitions or developments that you might come across in

Anthony Miffsud, Executive Vice President and CFO, CDP: the future? Sure. So our we’re very comfortable with the balance sheet at plus or minus six times debt to EBITDA. I think the support that we have seen in the resiliency that we have seen in the operations of our portfolio over the past five or six years sort of demonstrates the strength of the execution of the strategy, the resiliency of our cash flows and the strength of our cash flows were proved out over several economic cycles over the past six years. So maintaining balance sheet with leverage and that kind of strong cash flows at a six times debt to EBITDA we’re very comfortable with.

You combine that with a development pipeline that is low risk because the majority of it is build to suits for the government or contractors or largely pre leased development projects. We feel very comfortable at that six plus or minus six times. We have achieved back sort of mid-twenty twenty three, the ability to self fund the equity required for about $250,000,000 to $275,000,000 worth of development investment each year from cash flows from operations after our dividend. So we have no reliance on the external equity sources for continuing to invest in our development pipeline, or when we have the acquisitions like we invested in last year. Great.

Unidentified speaker, Analyst, CDP: Thanks, Anthony. Any questions from the audience? All right. We’ll keep going here. So Steve, you’ve also got a data center shelf development program.

Can you just describe that part of your business, how it came about, and I guess how you think it fits in with the rest of the portfolio and strategy overall?

Steve Doric, President and CEO, CDP: Sure. Well, we have single customer in that business segment, if you will. It’s a large international cloud computing company. We earned our opportunity to do build to suits for them back in 2012, and there was a compatibility between the work we do for our defense customers and their needs and their development. And with that first opportunity, we did a two building build to suit for them and did it in such an accomplished way that led to a program where we developed 36 properties, 6,400,000 square feet, 100% pre leased before we started.

Each every development has been done on time or early, and we’ve been under budget on every one of them. So we have the very strong relationship built on development expertise and capabilities.

Unidentified speaker, Analyst, CDP: And maybe you can touch on the latest kind of land acquisition in Des Moines and, you know, the timing and scope of that opportunity for you all.

Steve Doric, President and CEO, CDP: Yeah. So in 2024, we did our last three build to suits on land that we controlled in Northern Virginia. Land in Northern Virginia has gotten crazy expensive, and power is almost unattainable in the short term. So we kind of leaped forward, and we looked to the future, and we identified a three sixty five acre parcel in Des Moines, Iowa, which is actually the fifth biggest hyperscale market in The United States. And we commenced predevelopment activities at what will be 3,300,000 square feet of build to suits ideally for the customer we have, but potentially for other customers.

But it’s a longer term play because of the immense demand on power nationally and in that market. It’ll take as many as three or four years for it to get power to develop. But it’s a forward looking activity kind of working towards creating the opportunity for tomorrow.

Unidentified speaker, Analyst, CDP: Great. Thank you. You also own, as you mentioned a little bit earlier, a handful of regional office assets that have been earmarked for sale. Can you just touch on how you’re thinking about the potential timing of those sales, how the market feels for those sales, and whether you feel like it’s best to kind of rip the band aid off or wait for that market to establish itself?

Steve Doric, President and CEO, CDP: So timing will be driven by the capital markets. We have an intent to sell them. They’ll be sold individually. I don’t see a scenario where a single buyer would want to take off on. Four of them are very well leased in the 90 plus percent range.

One, have a little wooden job to get that leased up. We’ve got really strong demand for that building currently. Interest rates are going to have to come down to create pricing that will be good for our shareholders. They are not a challenge for our company’s reputation or its operations. They’re generating good cash flow.

And so our thinking is we’re in the business to create shareholder value, we’re not going to give it up and rip the band aid off. So be a multiyear activity, and eventually, we’ll we’ll sell it. But currently, it’s five out of two zero four buildings.

Unidentified speaker, Analyst, CDP: Alright. We’ve time for probably one more question. Anyone in the audience? Audience?

Steve Doric, President and CEO, CDP: They’re not for sale. They will be Sunday. They are five office assets that do not fit our defense segment. They were legacy. They were acquired before I became CEO and reestablished a different strategy nine years ago.

And at the appropriate time when we get the appropriate pricing in the sellers. Good question. Would you like one?

Unidentified speaker, Analyst, CDP: All right, and then last one for me. I think media reports suggesting that the administration is focused on privatizing some of the traditional government functions. Can you talk about whether that process can be disruptive to any of your contractors, tenants in the near term, and how you’re about the potential for incremental demand from those contractors over

Steve Doric, President and CEO, CDP: the mid to the long term? So first of all, the primary role of federal government is national defense. So I don’t see any privatization within the DOD activities per se that could affect our government functions or the elements of the defense contractors that serve them. Some of those companies do work for the non defense part of the U. S.

Government as well. Booz Allen would be a great example. And it may create opportunities for them. Certainly, there’s going to be pressure on, you know, the cost of the services they provide to the balance of the government. But I do not see privatization per se, or Doge for that matter, impacting the activities of the missions that we have aligned with.

Unidentified speaker, Analyst, CDP: All right. Great. I want to thank Steve, Britt, and Anthony. Thank you all for being here. Enjoy the rest of your day.

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