COPT(CDP) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the company's consolidated financial statements and related disclosures for the reporting period Item 1. Financial Statements This section presents the unaudited consolidated financial statements of COPT Defense Properties and its subsidiaries for the periods ended June 30, 2025, and December 31, 2024, including balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed notes explaining accounting policies, fair value measurements, debt, equity, segment information, and other financial disclosures Consolidated Balance Sheets Details the company's assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :----- | :------------ | :---------------- | :----- | | Total Assets | $4,286,950 | $4,254,191 | $32,759 | | Properties, net | $3,682,556 | $3,630,526 | $52,030 | | Debt, net | $2,438,591 | $2,391,755 | $46,836 | | Total Liabilities | $2,717,951 | $2,693,624 | $24,327 | | Total Equity | $1,545,741 | $1,536,593 | $9,148 | Consolidated Statements of Operations Reports the company's revenues, expenses, and net income over specific periods Consolidated Statements of Operations Highlights (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | YoY Change (%) | | :----- | :--- | :--- | :----- | :------------- | | Total Revenues | $189,915 | $187,343 | $2,572 | 1.4% | | Lease revenue | $175,598 | $165,619 | $9,979 | 6.0% | | Construction contract and other service revenues | $12,458 | $20,258 | $(7,800) | -38.5% | | Total Operating Expenses | $130,272 | $133,215 | $(2,943) | -2.2% | | Net income attributable to common shareholders | $38,347 | $35,114 | $3,233 | 9.2% | | Basic EPS | $0.34 | $0.31 | $0.03 | 9.7% | | Diluted EPS | $0.34 | $0.31 | $0.03 | 9.7% | Consolidated Statements of Operations Highlights (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | YoY Change (%) | | :----- | :--- | :--- | :----- | :------------- | | Total Revenues | $377,771 | $380,609 | $(2,838) | -0.7% | | Lease revenue | $350,906 | $331,052 | $19,854 | 6.0% | | Construction contract and other service revenues | $22,717 | $46,861 | $(24,144) | -51.5% | | Total Operating Expenses | $263,532 | $276,066 | $(12,534) | -4.5% | | Net income attributable to common shareholders | $73,087 | $67,723 | $5,364 | 7.9% | | Basic EPS | $0.65 | $0.60 | $0.05 | 8.3% | | Diluted EPS | $0.64 | $0.60 | $0.04 | 6.7% | Consolidated Statements of Comprehensive Income Presents net income and other comprehensive income components, reflecting total changes in equity Consolidated Statements of Comprehensive Income Highlights (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | YoY Change (%) | | :----- | :--- | :--- | :----- | :------------- | | Net income | $40,166 | $36,407 | $3,759 | 10.3% | | Total other comprehensive (loss) income | $(92) | $(262) | $170 | -64.9% | | Comprehensive income attributable to common shareholders | $38,286 | $34,879 | $3,407 | 9.8% | Consolidated Statements of Comprehensive Income Highlights (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | YoY Change (%) | | :----- | :--- | :--- | :----- | :------------- | | Net income | $76,394 | $70,078 | $6,316 | 9.0% | | Total other comprehensive (loss) income | $(734) | $1,539 | $(2,273) | -147.7% | | Comprehensive income attributable to common shareholders | $72,441 | $69,222 | $3,219 | 4.6% | Consolidated Statements of Equity Outlines changes in the company's equity accounts over the reporting period Consolidated Statements of Equity Highlights (Six Months Ended June 30, 2025, in thousands) | Metric | Balance at Dec 31, 2024 | Comprehensive Income | Dividends | Share-based Compensation | Balance at Jun 30, 2025 | | :----- | :-------------------- | :------------------- | :-------- | :----------------------- | :-------------------- | | Total Equity | $1,536,593 | $74,325 | $(68,904) | $6,095 | $1,545,741 | Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | YoY Change (%) | | :----- | :--- | :--- | :----- | :------------- | | Net cash provided by operating activities | $159,972 | $164,825 | $(4,853) | -2.9% | | Net cash used in investing activities | $(148,573) | $(132,242) | $(16,331) | 12.3% | | Net cash used in financing activities | $(27,713) | $(99,404) | $71,691 | -72.1% | | Net decrease in cash and cash equivalents and restricted cash | $(16,314) | $(66,821) | $50,507 | -75.6% | | Cash and cash equivalents and restricted cash, End of period | $23,383 | $102,603 | $(79,220) | -77.2% | Notes to Consolidated Financial Statements Provides detailed explanations of accounting policies, financial statement line items, and other disclosures 1. Organization Describes the company's structure, business, and ownership details - COPT Defense Properties is a self-managed REIT focused on owning, operating, and developing properties near U.S. Government defense installations, with 97.2% ownership in its operating partnership, CDPLP[27][29] Defense/IT Portfolio Overview (as of June 30, 2025) | Portfolio Component | Details | | :------------------ | :------ | | Operating Properties | 198 properties, 22.6 million sq ft (16.7M sq ft office, 5.9M sq ft data center shells) | | Properties Under Development | 5 properties (3 office, 2 data center shells), ~756,000 sq ft upon completion | | Developable Land | ~1,010 acres, potential for ~10.8 million sq ft | 2. Summary of Significant Accounting Policies Outlines the key accounting principles and methods applied in financial reporting - The company consolidates entities where it has a majority voting interest or is the primary beneficiary of VIEs, using the equity method for significant influence and fair value/cost for other investments[31][32][33] - Adopted FASB guidance on profits interest awards effective January 1, 2025, with no material effect on financial statements[37] - New FASB guidance on income tax disclosures is effective for 2025 annual reporting, not expected to materially affect future disclosures[38] - New FASB guidance on disaggregated expense disclosures is effective for annual periods after December 15, 2026, and interim periods after December 15, 2027; impact is currently being assessed[39] 3. Fair Value Measurements Details the valuation techniques and inputs used for financial instruments measured at fair value - Interest rate derivatives are classified as Level 2 in the fair value hierarchy, with credit valuation adjustments using Level 3 inputs deemed not significant[40] - Unsecured senior notes are valued using Level 1 inputs (quoted market rates), while other debt and investing receivables use Level 3 inputs (discounted estimated future cash flows)[41] Fair Value Measurements of Financial Assets (June 30, 2025, in thousands) | Description | Level 1 | Level 2 | Level 3 | Total | | :---------- | :------ | :------ | :------ | :---- | | Interest rate derivatives | $— | $581 | $— | $581 | 4. Properties, Net Provides a breakdown of the company's real estate properties, including buildings and accumulated depreciation Operating Properties, Net (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :----- | :------------ | :---------------- | :----- | | Operating properties, net | $3,359,676 | $3,353,477 | $6,199 | | Buildings and improvements | $4,472,185 | $4,395,063 | $77,122 | | Accumulated depreciation | $(1,608,032) | $(1,537,293) | $(70,739) | 5. Leases Presents information on the company's lessor and lessee arrangements, including lease revenues and costs Lessor Arrangements - Lease Revenue (Six Months Ended June 30, in thousands) | Lease Revenue Type | 2025 | 2024 | Change | YoY Change (%) | | :----------------- | :--- | :--- | :----- | :------------- | | Fixed | $268,025 | $253,561 | $14,464 | 5.7% | | Variable | $82,881 | $77,491 | $5,390 | 7.0% | | Total Lease Revenue | $350,906 | $331,052 | $19,854 | 6.0% | - As of June 30, 2025, operating leases had a weighted average remaining lease term of 39 years and a weighted average discount rate of 7.3%[45] Lessee Arrangements - Property Lease Cost (Six Months Ended June 30, in thousands) | Lease Cost Type | 2025 | 2024 | Change | YoY Change (%) | | :-------------- | :--- | :--- | :----- | :------------- | | Operating lease cost | $4,591 | $3,935 | $656 | 16.7% | | Finance lease cost | $55 | $56 | $(1) | -1.8% | | Total Property Lease Cost | $4,646 | $3,991 | $655 | 16.4% | 6. Real Estate Joint Ventures Details the company's investments in consolidated and unconsolidated real estate joint ventures Consolidated Real Estate Joint Ventures (June 30, 2025, in thousands) | Entity | Nominal Ownership % | Location | Total Encumbered Assets | Mortgage Debt | | :----- | :------------------ | :------- | :---------------------- | :------------ | | LW Redstone Company, LLC | 85% | Huntsville, AL | $747,960 | $22,025 | | Stevens Investors, LLC | 95% | Washington, DC | $141,483 | $— | | M Square Associates, LLC | 50% | College Park, MD | $100,213 | $46,816 | Unconsolidated Real Estate Joint Ventures - Carrying Value (June 30, 2025, in thousands) | Entity | Nominal Ownership % | Number of Properties | Carrying Value of Investment | | :----- | :------------------ | :------------------- | :--------------------------- | | Redshift JV LLC | 10% | 3 | $20,842 | | BREIT COPT DC JV LLC | 10% | 9 | $9,058 | | Quark JV LLC | 10% | 2 | $6,675 | | B RE COPT DC JV III LLC | 10% | 2 | $1,980 | | B RE COPT DC JV II LLC | 10% | 8 | $(3,823) | | Total | | 24 | $34,732 | 7. Investing Receivables Describes the nature and balances of the company's investing loans and notes receivable Investing Receivables, Net (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :----- | :------------ | :---------------- | :----- | | Investing receivables, net | $79,300 | $69,680 | $9,620 | | Notes receivable from City of Huntsville | $71,963 | $69,241 | $2,722 | | Other investing loans receivable | $11,903 | $3,231 | $8,672 | | Allowance for credit losses | $(4,566) | $(2,792) | $(1,774) | - Notes receivable from the City of Huntsville carry a 9.95% interest rate, while other investing loans receivable carry effective interest rates ranging from 12.0% to 14.0% and mature by early 2026[51] 8. Debt, Net Provides a comprehensive overview of the company's debt obligations, including types, interest rates, and maturities Debt, Net (June 30, 2025, in thousands) | Debt Type | Carrying Value | Stated Interest Rate | Scheduled Maturity | | :-------- | :------------- | :------------------- | :----------------- | | Mortgage and Other Secured Debt | $68,841 | 3.82% (fixed), SOFR + 0.10% + 1.45-1.55% (variable) | June 2026, 2026 | | Revolving Credit Facility | $120,000 | SOFR + 0.10% + 0.725-1.400% | October 2026 | | Term Loan Facility | $124,805 | SOFR + 0.10% + 0.850-1.700% | January 2026 | | Unsecured Senior Notes (various) | $2,124,788 | 2.00% - 5.25% | March 2026 - December 2033 | | Total Debt, Net | $2,438,591 | | | - The company was compliant with all restrictive financial covenants as of June 30, 2025[62][164] Debt Maturity Schedule (June 30, 2025, in thousands) | Year Ending December 31, | Amount | | :----------------------- | :----- | | 2025 (remaining 6 months) | $925 | | 2026 | $713,175 | | 2027 | $— | | 2028 | $345,000 | | 2029 | $400,000 | | Thereafter | $1,000,000 | | Total | $2,459,100 | 9. Interest Rate Derivatives Details the fair value and impact of the company's interest rate derivative instruments Fair Value of Interest Rate Derivatives (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :----- | :------------ | :---------------- | :----- | | Fair Value | $581 | $1,315 | $(734) | - Approximately $569,000 of gains are estimated to be reclassified from accumulated other comprehensive income (AOCI) as a decrease to interest expense over the next 12 months[68] 10. Redeemable Noncontrolling Interest Reports changes in the redeemable noncontrolling interest during the reporting period Redeemable Noncontrolling Interest Activity (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | | :----- | :--- | :--- | :----- | | Beginning balance | $23,974 | $23,580 | $394 | | Ending balance | $23,258 | $22,765 | $493 | | Adjustments for changes in fair value of interest | $(716) | $(816) | $100 | 11. Equity Summarizes key equity-related activities, including stock offerings and dividends - Remaining capacity under the at-the-market stock offering program is $300 million[71] Dividends per Common Share | Period | Dividends per Common Share | | :----- | :------------------------- | | Three months ended June 30, 2025 | $0.305 | | Three months ended June 30, 2024 | $0.295 | | Six months ended June 30, 2025 | $0.61 | | Six months ended June 30, 2024 | $0.59 | - 11,589 common units in CDPLP were converted to common shares during the six months ended June 30, 2025[71] 12. Information by Business Segment Presents financial performance data disaggregated by the company's operating segments - The company's reportable segments are Defense/IT Portfolio and Other, with the Defense/IT Portfolio further broken down into sub-segments[73] - Segment performance is measured by Net Operating Income from real estate operations (NOI from real estate operations)[74] Same Property NOI from Real Estate Operations by Segment (Six Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change | YoY Change (%) | | :------ | :--- | :--- | :----- | :------------- | | Defense/IT Portfolio | $195,631 | $191,552 | $4,079 | 2.1% | | Other | $17,310 | $13,652 | $3,658 | 26.8% | | Total Same Property NOI from real estate operations | $212,941 | $205,204 | $7,737 | 3.8% | Total Revenues by Type (Six Months Ended June 30, in thousands) | Revenue Type | 2025 | 2024 | Change | YoY Change (%) | | :----------- | :--- | :--- | :----- | :------------- | | Segment revenues from real estate operations | $355,054 | $333,748 | $21,306 | 6.4% | | Construction contract and other service revenues | $22,717 | $46,861 | $(24,144) | -51.5% | | Total Revenues | $377,771 | $380,609 | $(2,838) | -0.7% | 13. Construction Contract and Other Service Revenues Details revenues from construction contracts and other services by compensation arrangement Construction Contract and Other Service Revenues by Compensation Arrangement (Six Months Ended June 30, in thousands) | Revenue Type | 2025 | 2024 | Change | YoY Change (%) | | :----------- | :--- | :--- | :----- | :------------- | | Firm fixed price | $11,813 | $21,185 | $(9,372) | -44.2% | | Guaranteed maximum price | $7,454 | $22,092 | $(14,638) | -66.3% | | Cost-plus fee | $2,907 | $2,706 | $201 | 7.4% | | Other | $543 | $878 | $(335) | -38.2% | | Total | $22,717 | $46,861 | $(24,144) | -51.5% | - Revenue allocated to remaining performance obligations as of June 30, 2025, was $23.4 million, all expected to be recognized in the six months ending December 31, 2025[86] 14. Credit Losses on Financial Assets and Other Instruments Provides information on the allowance for credit losses and credit quality of financial assets Allowance for Credit Losses Activity (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | | :----- | :--- | :--- | :----- | | Beginning balance | $3,482 | $3,196 | $286 | | Net credit loss expense (recoveries) | $1,702 | $458 | $1,244 | | Ending balance | $5,184 | $3,654 | $1,530 | - As of June 30, 2025, $71,963 thousand of investing receivables were investment grade, and $11,903 thousand were non-investment grade. For tenant notes receivable, $480 thousand were investment grade, and $1,654 thousand were non-investment grade[90] 15. Share-Based Compensation Details activity related to restricted shares and profit interest units under share-based compensation plans Restricted Shares Activity (Six Months Ended June 30, 2025) | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :----- | :--------------- | :----------------------------------- | | Unvested as of Dec 31, 2024 | 353,014 | $25.65 | | Granted | 238,084 | $27.07 | | Forfeited | (11,824) | $26.49 | | Vested | (133,247) | $25.43 | | Unvested as of Jun 30, 2025 | 446,027 | $26.46 | Time-Based Profit Interest Units (TB-PIUs) Activity (Six Months Ended June 30, 2025) | Metric | Number of TB-PIUs | Weighted Average Grant Date Fair Value | | :----- | :---------------- | :----------------------------------- | | Unvested as of Dec 31, 2024 | 223,939 | $25.14 | | Granted | 123,250 | $27.11 | | Vested | (106,592) | $25.32 | | Unvested as of Jun 30, 2025 | 240,597 | $26.07 | - Performance-based awards granted on January 1, 2025, include 246,230 PB-PIUs and 20,296 PSUs, with a three-year performance period tied to COPT Defense's total shareholder return (TSR) relative to a peer group[98][99] 16. Earnings Per Share ("EPS") Presents basic and diluted earnings per share calculations and related adjustments EPS Summary (Three Months Ended June 30) | Metric | 2025 | 2024 | Change | YoY Change (%) | | :----- | :--- | :--- | :----- | :------------- | | Basic EPS attributable to common shareholders | $0.34 | $0.31 | $0.03 | 9.7% | | Diluted EPS attributable to common shareholders | $0.34 | $0.31 | $0.03 | 9.7% | EPS Summary (Six Months Ended June 30) | Metric | 2025 | 2024 | Change | YoY Change (%) | | :----- | :--- | :--- | :----- | :------------- | | Basic EPS attributable to common shareholders | $0.65 | $0.60 | $0.05 | 8.3% | | Diluted EPS attributable to common shareholders | $0.64 | $0.60 | $0.04 | 6.7% | - Diluted EPS computations exclude the conversion of common units and redeemable noncontrolling interest, as well as certain share-based compensation awards, because their effect was antidilutive for the respective periods[107][109] 17. Commitments and Contingencies Discloses potential future obligations and liabilities, including legal and environmental matters - Management believes it is reasonably possible to recognize a loss of up to $5.1 million for certain municipal tax claims, which could be material to results of operations[111] - Environmental assessments have not revealed any environmental liability that would have a materially adverse effect on financial position, operations, or liquidity[112] - The company does not expect future fundings for its $25 million tax incremental financing obligation related to the National Business Park[114] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key performance indicators such as occupancy, leasing activity, and Net Operating Income (NOI). It details the drivers behind changes in revenues and expenses for both real estate and service operations, discusses Funds from Operations (FFO), property additions, cash flows, and outlines the company's liquidity and capital resources Overview Provides a high-level summary of the company's operational performance, occupancy, and key forward-looking statements - Portfolio occupancy was 94.0% and leased percentage was 95.6% as of June 30, 2025[119] - Achieved an 81.9% tenant retention rate for the six months ended June 30, 2025, primarily driven by the Defense/IT Portfolio[119][123] - Forward-looking statements are subject to risks including general economic conditions, real estate market changes, borrowing ability, property acquisition/development risks, joint venture risks, government actions, and cybersecurity[120][124] Occupancy and Leasing Details the company's portfolio occupancy rates, leasing activity, and tenant retention metrics Occupancy Rates at Period End | Segment | June 30, 2025 | December 31, 2024 | Change (pp) | | :------ | :------------ | :---------------- | :---------- | | Total | 94.0% | 93.6% | 0.4% | | Defense/IT Portfolio | 95.6% | 95.4% | 0.2% | | Data Center Shells | 100.0% | 100.0% | 0.0% | | Other | 76.2% | 72.7% | 3.5% | - Annualized Rental Revenue (ARR) per occupied square foot increased to $35.77 at June 30, 2025, from $35.35 at December 31, 2024[122] - Leased 1.4 million square feet during the six months ended June 30, 2025, comprising 915,000 sq ft of renewals (81.9% retention), 353,000 sq ft of vacant space, and 103,000 sq ft of investment space[123] Results of Operations Analyzes the company's financial performance by comparing revenues and expenses across reporting periods - Operating performance is evaluated using Net Operating Income (NOI) from real estate operations and NOI from service operations[125][126] - The Same Property pool consisted of 198 properties, representing 97.1% of the portfolio's square footage as of June 30, 2025[125] Comparison of Statements of Operations for the Three Months Ended June 30, 2025 and 2024 Compares the company's operational results for the three-month periods ended June 30 Statements of Operations Comparison (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Variance | | :----- | :--- | :--- | :------- | | Revenues from real estate operations | $177,457 | $167,085 | $10,372 | | Construction contract and other service revenues | $12,458 | $20,258 | $(7,800) | | Total revenues | $189,915 | $187,343 | $2,572 | | Total operating expenses | $130,272 | $133,215 | $(2,943) | | Net income | $40,166 | $36,407 | $3,759 | NOI from Real Estate Operations (3 Months) Analyzes Net Operating Income from real estate for the three-month period, highlighting drivers of change NOI from Real Estate Operations (Three Months Ended June 30, in thousands) | Category | 2025 | 2024 | Variance | | :------- | :--- | :--- | :------- | | Same Property NOI | $108,665 | $104,092 | $4,573 | | Developed properties placed in service | $2,424 | $844 | $1,580 | | Acquired properties | $926 | $370 | $556 | | Total NOI from real estate operations | $112,412 | $105,410 | $7,002 | - The increase in Same Property NOI was primarily due to additional revenue from increased rental and occupancy rates[131] - Average occupancy rate for Same Property increased by 0.5% to 94.3%, and average straight-line rent per occupied square foot increased by $0.25 to $7.10[130] NOI from Service Operations (3 Months) Analyzes Net Operating Income from service operations for the three-month period NOI from Service Operations (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Variance | | :----- | :--- | :--- | :------- | | Construction contract and other service revenues | $12,458 | $20,258 | $(7,800) | | Construction contract and other service expenses | $(11,873) | $(19,612) | $7,739 | | NOI from service operations | $585 | $646 | $(61) | - Decrease in service operations NOI was due to lower volume of construction activity for a tenant[132] Comparison of Statements of Operations for the Six Months Ended June 30, 2025 and 2024 Compares the company's operational results for the six-month periods ended June 30 Statements of Operations Comparison (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Variance | | :----- | :--- | :--- | :------- | | Revenues from real estate operations | $355,054 | $333,748 | $21,306 | | Construction contract and other service revenues | $22,717 | $46,861 | $(24,144) | | Total revenues | $377,771 | $380,609 | $(2,838) | | Total operating expenses | $263,532 | $276,066 | $(12,534) | | Net income | $76,394 | $70,078 | $6,316 | NOI from Real Estate Operations (6 Months) Analyzes Net Operating Income from real estate for the six-month period, highlighting drivers of change NOI from Real Estate Operations (Six Months Ended June 30, in thousands) | Category | 2025 | 2024 | Variance | | :------- | :--- | :--- | :------- | | Same Property NOI | $212,941 | $205,204 | $7,737 | | Developed properties placed in service | $4,896 | $1,106 | $3,790 | | Acquired properties | $1,242 | $441 | $801 | | Total NOI from real estate operations | $219,858 | $207,067 | $12,791 | - Same Property NOI increase was largely due to additional revenue from increased rental and occupancy rates, partially offset by higher property operating expenses[136] - The Other segment's NOI increase included $2.2 million from refunds of prior year real estate taxes, net of related tenant reimbursements[136] - Average occupancy rate for Same Property increased by 0.4% to 94.2%, and average straight-line rent per occupied square foot increased by $0.45 to $14.14[135] NOI from Service Operations (6 Months) Analyzes Net Operating Income from service operations for the six-month period NOI from Service Operations (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Variance | | :----- | :--- | :--- | :------- | | Construction contract and other service revenues | $22,717 | $46,861 | $(24,144) | | Construction contract and other service expenses | $(21,578) | $(45,619) | $24,041 | | NOI from service operations | $1,139 | $1,242 | $(103) | - Decrease in service operations NOI was due to lower volume of construction activity for a tenant[137] Interest and Other Income, Net Discusses the components and changes in the company's interest and other net income Interest and Other Income, Net (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change | YoY Change (%) | | :----- | :--- | :--- | :----- | :------------- | | Interest and other income, net | $2,791 | $7,006 | $(4,215) | -60.2% | - Decrease primarily due to lower interest income from excess loan proceeds invested in short-term money market accounts in the prior period[138] Funds from Operations Explains the calculation and drivers of Funds from Operations (FFO), a key REIT performance metric - Funds from Operations (FFO) is a non-GAAP measure used to compare operating performance between periods by excluding real estate-related depreciation, amortization, and gains/losses on sales[139] Diluted FFO per Share (Three Months Ended June 30) | Metric | 2025 | 2024 | Change | YoY Change (%) | | :----- | :--- | :--- | :----- | :------------- | | Diluted FFO per share | $0.68 | $0.64 | $0.04 | 6.3% | Diluted FFO per Share (Six Months Ended June 30) | Metric | 2025 | 2024 | Change | YoY Change (%) | | :----- | :--- | :--- | :----- | :------------- | | Diluted FFO per share | $1.33 | $1.27 | $0.06 | 4.7% | Property Additions Details capital expenditures related to properties in development, tenant improvements, and capital improvements Major Components of Property Additions (Six Months Ended June 30, 2025, in thousands) | Component | Amount | | :-------- | :----- | | Properties in development or held for future development | $93,771 | | Tenant improvements on operating properties | $21,670 | | Capital improvements on operating properties | $7,513 | | Total | $122,954 | Cash Flows Analyzes the company's cash flow activities from operations, investing, and financing - Net cash flow from operating activities decreased by $4.9 million for the six months ended June 30, 2025, compared to 2024[151] - Net cash flow used in investing activities increased by $16.3 million, primarily due to properties in development and funding of investing receivables[152] - Net cash flow used in financing activities decreased by $71.7 million, driven by $44.1 million net debt proceeds in 2025 versus $29.1 million debt repayments in 2024[152][157] Supplemental Guarantor Information Provides additional financial information regarding the company's guarantees of its operating partnership's obligations - COPT Defense fully and unconditionally guarantees CDPLP's unsecured senior notes and other obligations[153] - COPT Defense holds no direct indebtedness, and its only material asset is its investment in CDPLP[153] Liquidity and Capital Resources Discusses the company's current liquidity position, capital availability, and future cash requirements Liquidity Position (as of June 30, 2025, in thousands) | Metric | Amount | | :----- | :----- | | Cash and cash equivalents | $21,300 | | Available borrowing capacity under Revolving Credit Facility | $480,000 | - The company expects to spend $115 million to $135 million on properties actively under development during the remainder of 2025[162] - Material cash requirements include property operating expenses, construction expenses, general/administrative expenses, debt service, property development costs, tenant/capital improvements, debt balloon payments, and dividends[166] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily interest rate risk. It explains how changes in interest rates could impact variable-rate debt and refinanced fixed-rate debt, providing a quantitative sensitivity analysis for interest expense and debt fair value - Primary market risk exposure is to changes in interest rates, affecting variable-rate debt and refinanced fixed-rate debt[165] - A 1% increase in the applicable variable index rate would have increased interest expense by approximately $260,000 for the six months ended June 30, 2025[169] Debt Obligations and Weighted Average Interest Rates (June 30, 2025, in thousands) | Debt Type | 2025 (remaining) | 2026 | 2028 | 2029 | Thereafter | Total | | :-------- | :--------------- | :--- | :--- | :--- | :--------- | :---- | | Fixed rate debt | $655 | $436,140 | $345,000 | $400,000 | $1,000,000 | $2,181,795 | | Wtd Avg Interest Rate (Fixed) | 3.24% | 2.38% | 5.25% | 2.00% | 2.81% | 2.96% | | Variable rate debt | $270 | $277,035 | $— | $— | $— | $277,305 | | Wtd Avg Interest Rate (Variable) | 5.89% | 5.63% | —% | —% | —% | 5.64% | Item 4. Controls and Procedures Management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the company's disclosure controls and procedures, concluding they were effective as of June 30, 2025. No material changes in internal control over financial reporting occurred during the most recent fiscal quarter - Disclosure controls and procedures were functioning effectively as of June 30, 2025[170] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[171] PART II. OTHER INFORMATION Contains non-financial disclosures and other required information not covered in Part I Item 1. Legal Proceedings The company is not currently involved in any material litigation, nor is any material litigation currently threatened against it, beyond routine matters expected to be covered by liability insurance - No material litigation is currently ongoing or threatened against the company[172] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes to risk factors since the 2024 Annual Report on Form 10-K[173] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the current reporting period - Not applicable[174] Item 3. Defaults Upon Senior Securities This item is not applicable for the current reporting period - Not applicable[175] Item 4. Mine Safety Disclosures This item is not applicable for the current reporting period - Not applicable[175] Item 5. Other Information During the quarter ended June 30, 2025, no trustees or executive officers adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements - No Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements were adopted or terminated by trustees or executive officers during the quarter[176] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, as well as various XBRL (eXtensible Business Reporting Language) documents - Includes certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2) and various XBRL documents (Exhibits 101.INS, SCH, CAL, LAB, PRE, DEF, 104)[178] SIGNATURES Confirms the official signing and certification of the report by authorized officers SIGNATURES The report is officially signed by Stephen E. Budorick, President and Chief Executive Officer, and Anthony Mifsud, Executive Vice President and Chief Financial Officer, on behalf of COPT Defense Properties - Report signed by Stephen E. Budorick (President and CEO) and Anthony Mifsud (EVP and CFO) on July 31, 2025[183]