UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 6711 Columbia Gateway Drive, Suite 300, Columbia, MD 21046 For the quarterly period ended September 30, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-14023 COPT DEFENSE PROPERTIES (Exact name of registrant as specified ...

Financial Data and Key Metrics Changes - The company reported FFO per share of $0.69 for Q3 2025, which is $0.02 above the midpoint of guidance and represents a year-over-year increase of 6.2% [22] - Year-to-date FFO per share stands at $2.02, reflecting a 5.2% increase [3] - Same property cash NOI increased by 4.6% year-over-year for both the quarter and the first nine months [3][22] - The company is increasing the midpoint of 2025 guidance for FFO per share by $0.03 to $2.70, equating to a 5.1% growth over 2024 [6][27] Business Line Data and Key Metrics Changes - The leasing portfolio ended the quarter at 95.7% leased, the highest level in 20 years [4] - Tenant retention remained strong at 82% for both the quarter and the first nine months [4][13] - The company signed 78,000 square feet of vacancy leasing in the quarter and 432,000 square feet during the first nine months, representing 36% of the unleased space at the beginning of the year [4][12] Market Data and Key Metrics Changes - The company committed $72 million to two external growth investments, enhancing relationships with existing defense IT tenants [5] - The relocation of Space Command's headquarters to Redstone Arsenal is expected to drive demand for approximately 450,000 square feet of leasing [8] - The government shutdown has created uncertainty around the timing of lease activities, but the company expects to maintain rent collection due to the essential nature of its tenants [9][10] Company Strategy and Development Direction - The company is focused on expanding its relationships with top defense tenants and driving FFO per share growth [20][31] - The acquisition of Stone Gate One is part of a strategy to deepen concentration in key submarkets, with the property fully leased to a top defense contractor [18][19] - The company has a development pipeline of 1.3 million square feet of opportunities, all at defense IT locations, with a 50% likelihood of winning within two years [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for defense-related real estate, particularly in light of the Golden Dome missile defense initiative [46][55] - The company anticipates that the approval of the FY 2026 defense appropriation will support additional demand for its portfolio [10] - Management noted that the current government shutdown does not materially impact business operations, although it may delay lease renewals [9][10] Other Important Information - The company successfully closed on three financings, increasing liquidity by $400 million and achieving a sector-leading credit spread on its bond offering [24][31] - The company has reduced lease expiration exposure through year-end 2026 by 25%, or one million square feet since last quarter [4] Q&A Session Summary Question: Update on leasing activity post-budget approval - Management indicated that demand is expected to build within six months of budget approval, contrasting with the typical 9 to 12 months lag [34][35] Question: Acquisition of Stone Gate One and future opportunities - Management clarified that the acquisition fits well within their existing geographical footprint and expressed interest in expanding market share in that area [36][37] Question: Yield on Stone Gate One acquisition - Management explained that the high yield was due to the seller's timeline pressure and the strength of their bid, along with tenant influence [40][41] Question: Impact of lease expirations on financials - Management stated that holdover agreements would maintain rent at the expiring cash rent level during the renewal process [41][42] Question: Development opportunities related to the Golden Dome initiative - Management noted that new developments would be necessary to accommodate additional leasing demand arising from the initiative [46][47] Question: Process behind Space Command's relocation - Management detailed the protracted process leading to the decision to relocate Space Command to Redstone Arsenal, emphasizing their role in supporting the mission [50][52] Question: Fixed-income investor support versus equity market performance - Management discussed the fixed-income community's appreciation for the company's resilient cash flow and development pipeline, contrasting it with equity investor perceptions [57][58]

Financial Performance - Adjusted Funds From Operations Per Share (FFOPS) for 3Q25 was $069, a 62% year-over-year increase[12] - Same Property Cash Net Operating Income (NOI) increased by 46% for the Total Portfolio[12] - The company increased the 2025 FFOPS guidance by $003 at the midpoint, implying a 51% year-over-year growth[28,30] Leasing and Occupancy - Total leasing activity reached 971000 square feet in 3Q25 and 23 million square feet year-to-date[12] - The Defense/IT Portfolio occupancy rate was 954% occupied and 970% leased[12] - Total Portfolio retention rate was 82%[12] Investment and Capital Allocation - Acquired Stonegate I for $45 million, which is expected to be nearly 1/2-cent accretive to FFOPS in 2025 and nearly 2-cents accretive in 2026[15,20,52] - Capital committed to new investments was increased to a range of $225 million to $275 million[24,48] - The company issued $400 million of 450% Senior Notes due 2030[72] Market Factors and Growth Drivers - The FY 2026E Budget Request includes approximately $113 billion from the One Big Beautiful Bill Act (OBBBA) for DOD activities[33,36] - The Defense/IT Portfolio accounts for 90% of Annualized Rental Revenues (ARR)[39,40]

Core Insights - COPT Defense reported $188.8 million in revenue for Q3 2025, a slight year-over-year decline of 0.2%, with an EPS of $0.69 compared to $0.32 a year ago, indicating improved profitability despite revenue decline [1] - The reported revenue exceeded the Zacks Consensus Estimate of $188.24 million by 0.3%, and the EPS surpassed the consensus estimate of $0.68 by 1.47% [1] Revenue Breakdown - Revenue from real estate operations was $180.31 million, exceeding the two-analyst average estimate of $176.59 million, reflecting a year-over-year increase of 4.5% [4] - Revenue from construction contracts and other services was $8.49 million, significantly below the average estimate of $11.4 million, representing a year-over-year decline of 49.1% [4] Stock Performance - COPT Defense shares have returned -5.9% over the past month, contrasting with the Zacks S&P 500 composite's increase of 3.6% [3] - The stock currently holds a Zacks Rank 2 (Buy), suggesting potential for outperformance in the near term [3]

Core Insights - COPT Defense (CDP) reported quarterly funds from operations (FFO) of $0.69 per share, exceeding the Zacks Consensus Estimate of $0.68 per share and up from $0.65 per share a year ago [1][2] - The company achieved revenues of $188.8 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 0.30% [3] - COPT Defense has underperformed the market with a decline of approximately 11.2% year-to-date, compared to a 17.2% gain in the S&P 500 [4] Financial Performance - The FFO surprise for the quarter was +1.47%, and the company has surpassed consensus FFO estimates two times over the last four quarters [2] - The current consensus FFO estimate for the upcoming quarter is $0.67, with projected revenues of $191.5 million, and for the current fiscal year, the estimate is $2.67 on revenues of $757.51 million [8] Market Outlook - The estimate revisions trend for COPT Defense was favorable ahead of the earnings release, resulting in a Zacks Rank 2 (Buy) for the stock, indicating expected outperformance in the near future [7] - The REIT and Equity Trust - Other industry is currently ranked in the top 34% of over 250 Zacks industries, suggesting a positive outlook for stocks within this sector [9]

Financial Performance - For the three months ended September 30, 2025, net income was $43.744 million, an increase of 17.0% compared to $37.397 million for the same period in 2024 [14]. - The company's same property net operating income (NOI) for the three months ended September 30, 2025, was $107.870 million, up from $104.044 million in the same period last year, reflecting a 3.4% increase [14]. - Adjusted EBITDA for the three months ended September 30, 2025, was $103.771 million, compared to $99.236 million for the same period in 2024, representing a 4.6% increase [14]. - The diluted funds from operations (FFO) per share for the three months ended September 30, 2025, was $0.69, consistent with the previous quarter and up from $0.65 in the same period last year [14]. - Total revenues for Q3 2025 were $188.8 million, a slight decrease from $189.9 million in Q2 2025 and $189.2 million in Q3 2024 [24]. - Net income for Q3 2025 was $43.7 million, an increase from $40.2 million in Q2 2025 and $37.4 million in Q3 2024, representing a year-over-year growth of 16.3% [24]. - The company reported a diluted EPS of $0.37 for Q3 2025, up from $0.34 in Q2 2025 and $0.31 in Q1 2025, with a total of $1.01 for the nine months ended September 30, 2025, compared to $0.92 for the same period last year [30]. Portfolio and Occupancy - As of September 30, 2025, COPT Defense Properties' Defense/IT Portfolio consists of 198 properties, encompassing 22.6 million square feet, and is 97.0% leased [7]. - The total portfolio occupancy rate was 93.9% as of September 30, 2025, slightly down from 94.0% in June 2025 and up from 93.1% in September 2024 [18]. - The consolidated portfolio occupancy rate was 92.6% in Q3 2025, compared to 92.8% in Q2 2025 and 91.6% in Q3 2024 [18]. - The Defense/IT portfolio occupancy rate was 95.4% as of September 30, 2025, slightly down from 96.1% in the previous quarter [51]. - The total number of properties in the Defense/IT Portfolio increased to 198, with 168 consolidated properties and 24 unconsolidated JV properties [51]. - Total leased square feet for Defense/IT portfolio reached 792, with an expiring square feet of 968, indicating a retention rate of 81.8% [68]. Assets and Liabilities - The total assets of COPT Defense Properties as of September 30, 2025, were $4.351 billion, an increase from $4.234 billion a year earlier [16]. - The company's total equity as of September 30, 2025, was $1.555 billion, compared to $1.532 billion as of September 30, 2024 [16]. - Total liabilities stood at $2.77 billion as of September 30, 2025, compared to $2.72 billion in June 2025 and $2.68 billion in September 2024 [21]. - The debt to assets ratio as of September 30, 2025, was 56.2%, slightly improved from 56.5% a year earlier [16]. - Total consolidated debt as of September 30, 2025, is $2,462,641, with an effective rate of 3.26% [100]. Revenue and Leasing Activity - Lease revenue increased to $178.3 million in Q3 2025, compared to $175.6 million in Q2 2025 and $170.5 million in Q3 2024, reflecting a year-over-year growth of 4.9% [24]. - Total Defense/IT Portfolio revenues reached $161.57 million for the three months ended September 30, 2025, compared to $158.71 million in the previous quarter, reflecting a growth of 1.1% [43]. - The annualized rental revenue for the total Defense/IT Portfolio was $633.87 million, with a total NOI of $102.86 million for the three months ended September 30, 2025 [51]. - Total leasing activity for Q3 2025 was 971,000 square feet, with year-to-date leasing at 2.3 million square feet [191]. - The company reported a total of $26,982,000 in replacement capital expenditures for Q3 2025, compared to $23,919,000 in Q2 2025 and $21,464,000 in Q1 2025 [32]. Dividends and Shareholder Returns - COPT Defense Properties declared a dividend of $0.305 per common share for the third quarter of 2025, unchanged from the previous quarter [14]. - Total dividends and distributions for Q3 2025 were $35.20 million, up from $33.91 million in Q2 2025, indicating a growth of 3.81% [128]. - The company increased the midpoint of 2025 FFO per share guidance by $0.03 to $2.70, implying a 5.1% growth for the year [181]. Development and Future Outlook - The company has 812,000 square feet under development in the Defense/IT portfolio, with an anticipated total cost of $311,481,000 [86]. - The company has 1,001 acres of land owned/controlled for future development, estimated to yield 10,745,000 developable square feet [91]. - Management anticipates compound annual FFO per share growth of over 4% from 2023 to 2026 [183].

Core Viewpoint - COPT Defense Properties (NYSE: CDP) has underperformed in the past year, with a loss of approximately 8% in value, primarily due to concerns regarding federal government cutbacks [1] Performance Analysis - The stock has seen a decline of about 10% since mid-September, reflecting ongoing negative sentiment in the market [1]

Core Insights - COPT Defense Properties (NYSE:CDP) is currently one of the worst-performing data center stocks in 2025, with a stock performance decline of 4% over the past year [1] Company Overview - The company specializes in developing and operating secure data centers that cater to national security, intelligence, and cloud computing workloads. Its properties are primarily located near the Pentagon and intelligence hubs, providing stable, long-term leases with low vacancy risk, which results in predictable cash flows. However, growth is limited due to the nature of high-security facilities and is heavily reliant on government budgets [2] Financial Performance - COPT Defense Properties has demonstrated a stable cash flow profile, allowing it to increase its dividend by nearly 11% over the last three years. The current dividend yield stands at over 4% [3] Recent Developments - At the BofA Securities 2025 Global Real Estate Conference, the company reported achieving over 350,000 square feet of vacancy leasing in the first half of 2025, against an initial goal of 400,000 square feet for the year. This led to a modest increase in their guidance, with management expressing confidence in meeting the upgraded targets [4] Analyst Insights - Following the company's presentation, JPMorgan analyst Anthony Paolone noted that current consensus estimates seem conservative and raised his estimates accordingly. He increased the price target for the stock from $30 to $33 while maintaining a Neutral rating [5]

Company Overview - COPT Defense (CDP) is a real estate investment trust (REIT) based in Columbia, specializing in suburban office properties [3] - The company has experienced a price change of -3.91% this year [3] Dividend Information - CDP currently pays a dividend of $0.31 per share, resulting in a dividend yield of 4.1%, which is lower than the industry average of 4.65% and the S&P 500's yield of 1.52% [3] - The annualized dividend of $1.22 represents a 3.4% increase from the previous year [4] - Over the past five years, CDP has increased its dividend three times, averaging an annual increase of 2.33% [4] - The current payout ratio is 46%, indicating that the company pays out 46% of its trailing 12-month earnings per share as dividends [4] Earnings Growth - The Zacks Consensus Estimate for CDP's earnings in 2025 is $2.67 per share, reflecting a year-over-year growth rate of 3.89% [5] - Future dividend growth will depend on earnings growth and the payout ratio [4] Investment Appeal - CDP is considered an attractive dividend play and a compelling investment opportunity, holding a Zacks Rank of 2 (Buy) [6] - Income investors are drawn to dividends for their potential to enhance stock investing profits and reduce overall portfolio risk [5]

Core Insights - CDP has shown resilience and growth, making it a top investment pick with a stock price increase of approximately 3.62% over the past month, despite a recent dip of 2.46% in the last 10 days [1][6] - The stock has a growth potential of 20.93%, with a target price set at $36, indicating it is currently undervalued [2] - CDP's Piotroski Score of 8 reflects strong financial health and solid fundamentals, suggesting efficient operations and prudent management [3][6] Performance Analysis - The recent dip in CDP's stock price may be attributed to market fluctuations or short-term profit-taking rather than fundamental weaknesses, presenting a potential buying opportunity for long-term investors [4][5] - The overall positive performance over the last month should not be overlooked, as it indicates the company's resilience in the market [4] Investment Opportunity - CDP is positioned as a compelling investment opportunity due to its strong growth potential, solid fundamentals, and high Piotroski Score, making it attractive for investors seeking future gains [5][6]