COPT(CDP) - 2024 Q1 - Quarterly Results

Earnings Release Highlights COPT Defense Properties reported strong Q1 2024 results, exceeding FFO guidance and increasing dividends by 3.5% First Quarter 2024 Results Overview COPT Defense Properties reported strong Q1 2024 results, with FFO per share exceeding guidance and a 3.5% increase in quarterly dividend, committing $91 million to new investments and maintaining high occupancy and leasing rates in its Defense/IT Portfolio Financial Performance (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change | | :----------------------------------- | :------ | :------ | :----- | | Diluted EPS | $0.29 | $0.70 | -58.6% | | Diluted FFOPS (as adjusted for comparability) | $0.62 | $0.59 | +5.1% | | Same Property Cash NOI Growth (Total Portfolio) | 6.1% | N/A | N/A | | Same Property Cash NOI Growth (Defense/IT Portfolio) | 7.6% | N/A | N/A | | Quarterly Dividend per common share | $0.295 | $0.285 | +3.5% | - Increased midpoint of 2024 FFO per share guidance by $0.03 to $2.54, implying 5% year-over-year growth[132][142] - Raised Same Property Cash NOI guidance for the year by 50 basis points, to 6.0%-7.0%[130][133] - Defense/IT Portfolio: 22.0 million sq ft, 95.6% occupied, 96.8% leased[130][133][136][146] - Total Leasing: 721,000 sq ft (551,000 sq ft renewals, 160,000 sq ft vacancy leasing, 10,000 sq ft development)[130][136] - Tenant Retention Rate: 78% (Total Portfolio), 82.9% (Defense/IT Portfolio)[130][137] - Committed $91 million of capital to new investments, including two development projects ($76 million) and one acquisition ($15 million)[130][134][138] - Active Development Pipeline: Six properties totaling 959,000 sq ft, 74% leased, with an estimated total investment of $381.4 million[130][138] - Adjusted EBITDA fixed charge coverage ratio: 4.5x[138] - Net debt to in-place adjusted EBITDA ratio: 6.1x[139] - Weighted average effective interest rate on consolidated debt: 3.3% with 5.4 years weighted average maturity; 100% fixed interest rates[140] Company Information COPT Defense Properties specializes in defense-related real estate, detailing its portfolio and credit ratings Summary Description COPT Defense Properties is an S&P MidCap 400 REIT specializing in owning, operating, and developing properties near key U.S. Government defense installations, with its Defense/IT Portfolio being 96.8% leased as of March 31, 2024 - COPT Defense Properties is a self-managed real estate investment trust (REIT) focused on owning, operating, and developing properties near key U.S. Government (USG) defense installations and missions (Defense/IT Portfolio)[5] - As of March 31, 2024, the Defense/IT Portfolio consisted of 193 properties, encompassing 22.0 million square feet and was 96.8% leased[5] Corporate Credit Ratings | Agency | Rating | Outlook | | :----- | :----- | :------ | | Fitch | BBB- | Stable | | Moody's | Baa3 | Stable | | S&P | BBB- | Stable | Equity Research Coverage This section lists the equity research firms and their senior analysts who cover COPT Defense Properties, clarifying that their estimates and opinions do not represent management's views - Equity research coverage is provided by firms including Bank of America Securities, BTIG, Citigroup Global Markets, Evercore ISI, Green Street, Jefferies & Co., JP Morgan, Raymond James, Truist Securities, Wedbush Securities, and Wells Fargo Securities[9] - Estimates of the Company's FFO per share from these analysts are tracked through FactSet[9] - Analyst opinions, estimates, or forecasts are their own and do not represent the views, estimates, or forecasts of COPT Defense's management[9] Financial Performance This section details COPT Defense Properties' financial results, covering key GAAP and non-GAAP measures Selected Financial Summary Data This section provides a summary of key financial results, payout ratios, and capitalization data for COPT Defense Properties, including both GAAP and Non-GAAP measures, across several quarters ending March 31, 2024 Summary of Results (in thousands, except per share data) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :----------------------------------- | :------ | :------- | :------ | | Net income (loss) | $33,671 | $34,820 | $80,398 | | NOI from real estate operations | $101,657 | $98,656 | $93,903 | | Same Property NOI | $95,403 | $94,854 | $92,723 | | Same Property cash NOI | $91,619 | $89,493 | $86,391 | | Adjusted EBITDA | $95,841 | $93,934 | $87,443 | | FFO per NAREIT | $72,799 | $72,360 | $68,816 | | Diluted AFFO avail. to common share and unit holders | $59,269 | $54,280 | $38,616 | | Dividend per common share | $0.295 | $0.285 | $0.285 | | EPS (diluted) | $0.29 | $0.30 | $0.70 | | FFO - Nareit (diluted) | $0.62 | $0.62 | $0.59 | | FFO - as adjusted for comparability (diluted) | $0.62 | $0.62 | $0.59 | Payout Ratios (GAAP & Non-GAAP) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------- | :------ | :------- | :------ | | Net income payout ratio (GAAP) | 100.7% | 93.7% | 40.6% | | Diluted FFO payout ratio (Non-GAAP) | 46.8% | 45.7% | 47.9% | | Diluted AFFO payout ratio (Non-GAAP) | 56.8% | 59.7% | 83.9% | Capitalization and Debt Ratios (GAAP & Non-GAAP, in thousands, except ratios) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :----------------------------------- | :------ | :------- | :------ | | Total assets | $4,232,895 | $4,246,966 | $4,177,992 | | Total equity | $1,526,046 | $1,523,755 | $1,768,814 | | Debt per balance sheet | $2,416,873 | $2,416,287 | $2,123,012 | | Debt to assets | 57.1% | 56.9% | 50.8% | | Net income to interest expense ratio | 1.6x | 1.7x | 4.9x | | Debt to net income ratio | 17.9x | 17.3x | 6.6x | | Total Market Capitalization | $5,218,681 | $5,377,815 | $4,856,761 | | Net debt | $2,372,747 | $2,328,941 | $2,181,408 | | Net debt to adjusted book | 40.9% | 40.6% | 38.1% | | Adjusted EBITDA fixed charge coverage ratio | 4.5x | 4.4x | 5.0x | | Net debt to in-place adj. EBITDA ratio | 6.1x | 6.1x | 6.2x | Consolidated Balance Sheets The consolidated balance sheet for COPT Defense Properties as of March 31, 2024, shows total assets of $4.23 billion, with properties (net) being the largest asset category at $3.52 billion, against total liabilities of $2.68 billion and total equity of $1.53 billion Consolidated Balance Sheet Summary (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :----------------------------------- | :------ | :------- | :------ | | Assets: | | | | | Total properties, net | $3,517,878 | $3,503,678 | $3,614,075 | | Cash and cash equivalents | $123,144 | $167,820 | $15,199 | | Total assets | $4,232,895 | $4,246,966 | $4,177,992 | | Liabilities & Equity: | | | | | Debt | $2,416,873 | $2,416,287 | $2,123,012 | | Total liabilities | $2,683,883 | $2,699,631 | $2,383,730 | | Total equity | $1,526,046 | $1,523,755 | $1,768,814 | - Total assets decreased by $14.07 million from December 31, 2023, to March 31, 2024[18] - Cash and cash equivalents decreased by $44.68 million from December 31, 2023, to March 31, 2024[18] Consolidated Statements of Operations For the first quarter ended March 31, 2024, COPT Defense Properties reported total revenues of $193.27 million, an increase from prior periods, while net income decreased significantly year-over-year due to a prior-year gain on real estate sales Revenue Breakdown (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Lease revenue | $165,433 | $160,337 | $150,560 | | Other property revenue | $1,230 | $1,225 | $1,121 | | Construction contract and other service revenues | $26,603 | $18,167 | $15,820 | | Total revenues | $193,266 | $179,729 | $167,501 | Operating Expenses (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :----------------------------------- | :------ | :------- | :------ | | Property operating expenses | $66,746 | $64,577 | $59,420 | | Depreciation and amortization associated with real estate operations | $38,351 | $36,735 | $36,995 | | Construction contract and other service expenses | $26,007 | $17,167 | $15,201 | | Total operating expenses | $142,851 | $129,824 | $122,106 | Net Income (Loss) (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Net income (loss) | $33,671 | $34,820 | $80,398 | | Diluted EPS | $0.29 | $0.30 | $0.70 | - Total revenues increased by 7.5% QoQ and 15.4% YoY[20] - Net income decreased significantly YoY due to a $49.38 million gain on sales of real estate in Q1 2023, which was absent in Q1 2024[20] Funds from Operations For Q1 2024, FFO per Nareit was $72.80 million, and diluted FFO available to common share and unit holders, as adjusted for comparability, was $71.97 million, both showing increases from previous quarters FFO Summary (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :----------------------------------------------------------------- | :------ | :------- | :------ | | Net income (loss) | $33,671 | $34,820 | $80,398 | | Real estate-related depreciation and amortization | $38,351 | $36,735 | $36,995 | | FFO - per Nareit | $72,799 | $72,360 | $68,816 | | Diluted FFO available to common share and common unit holders - per Nareit | $71,892 | $70,913 | $67,651 | | Diluted FFO available to common share and common unit holders, as adjusted for comparability | $71,969 | $71,100 | $67,651 | - FFO per Nareit increased by 0.6% QoQ and 5.8% YoY[22] - Diluted FFO (as adjusted for comparability) increased by 1.2% QoQ and 6.4% YoY[22] Diluted Share + Unit Computations This section details the computations for diluted EPS and FFO per share, showing the weighted average common shares and units outstanding, with diluted EPS at $0.29 and diluted FFO per share at $0.62 for Q1 2024 Diluted EPS Denominator (shares in thousands, EPS in dollars) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Weighted average common shares - basic | 112,231 | 112,199 | 112,127 | | Dilutive effect of share-based compensation awards | 509 | 432 | 410 | | Dilutive effect of redeemable noncontrolling interests | — | — | 91 | | Weighted average common shares - diluted | 112,740 | 112,631 | 112,628 | | Diluted EPS | $0.29 | $0.30 | $0.70 | Diluted FFO Denominator (denominator in thousands, FFO per share in dollars) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :------------------------------------------------ | :------ | :------- | :------ | | Denominator for diluted FFO per share and as adjusted for comparability | 115,312 | 114,145 | 114,117 | | Diluted FFO per share - Nareit | $0.62 | $0.62 | $0.59 | | Diluted FFO per share - as adjusted for comparability | $0.62 | $0.62 | $0.59 | - Diluted FFO per share (Nareit and as adjusted for comparability) increased by $0.03 YoY[25] Adjusted Funds from Operations Diluted AFFO available to common share and unit holders for Q1 2024 was $59.27 million, a notable increase from prior periods, influenced by various adjustments including straight-line rent, amortization, and replacement capital expenditures Diluted AFFO (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :----------------------------------------------------------------- | :------ | :------- | :------ | | Diluted FFO available to common share and common unit holders, as adjusted for comparability | $71,969 | $71,100 | $67,651 | | Straight line rent adjustments and lease incentive amortization | $3,473 | $313 | ($3,516) | | Share-based compensation, net of amounts capitalized | $2,645 | $2,318 | $1,733 | | Amortization of deferred financing costs | $685 | $681 | $632 | | Amortization of net debt discounts, net of amounts capitalized | $1,014 | $1,004 | $618 | | Replacement capital expenditures | ($20,776) | ($21,498) | ($28,210) | | Diluted AFFO available to common share and common unit holders | $59,269 | $54,280 | $38,616 | - Diluted AFFO increased by 9.2% QoQ and 53.5% YoY[28] Replacement Capital Expenditures (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Tenant improvements and incentives | $12,776 | $7,850 | $19,986 | | Building improvements | $4,953 | $14,762 | $2,141 | | Leasing costs | $3,590 | $2,440 | $1,750 | | Replacement capital expenditures | $20,776 | $21,498 | $28,210 | EBITDAre + Adjusted EBITDA For Q1 2024, EBITDAre was $95.24 million, and Adjusted EBITDA was $95.84 million, both showing an increase from previous quarters, with in-place adjusted EBITDA also rising to $96.65 million EBITDAre & Adjusted EBITDA (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Net income (loss) | $33,671 | $34,820 | $80,398 | | Interest expense | $20,767 | $20,383 | $16,442 | | Real estate-related depreciation and amortization | $38,351 | $36,735 | $36,995 | | EBITDAre | $95,236 | $94,589 | $86,888 | | Adjusted EBITDA | $95,841 | $93,934 | $87,443 | | In-place adjusted EBITDA | $96,654 | $95,077 | $88,024 | - Adjusted EBITDA increased by 2.0% QoQ and 9.6% YoY[30] - In-place adjusted EBITDA increased by 1.7% QoQ and 9.8% YoY[30] Portfolio & Operating Metrics This section details COPT Defense Properties' portfolio composition, occupancy, and net operating income Selected Portfolio Data As of March 31, 2024, COPT Defense Properties' Total Portfolio comprised 201 properties totaling 24.14 million square feet, with 93.6% occupied and 94.9% leased, while the core Defense/IT Portfolio showed higher performance Portfolio Overview (as of 3/31/24) | Metric | Total Portfolio | Consolidated Portfolio | Defense/IT Portfolio | Same Property | | :------------------------- | :-------------- | :--------------------- | :------------------- | :------------ | | of Properties | 201 | 177 | 193 | 189 | | % Occupied | 93.6% | 92.2% | 95.6% | 93.5% | | % Leased | 94.9% | 93.8% | 96.8% | 95.0% | | Square Feet (in thousands) | 24,137 | 19,841 | 21,993 | 22,227 | - Total Portfolio Occupancy decreased from 94.2% to 93.6% QoQ[16] - Defense/IT Portfolio Occupancy decreased from 96.2% to 95.6% QoQ[16] - Total Portfolio square feet increased from 23,859k to 24,137k QoQ[16] Properties by Segment As of March 31, 2024, COPT Defense Properties' portfolio consists of 201 properties, with the Defense/IT Portfolio being the largest segment (193 properties, 21.99 million sq ft), and key sub-segments like Lackland AFB and Data Center Shells boasting 100% occupancy and leasing rates Defense/IT Portfolio Breakdown (as of 3/31/24) | Segment | of Properties | Operational Square Feet (thousands) | % Occupied | % Leased | | :--------------------------------------- | :-------------- | :---------------------------------- | :--------- | :--------- | | Fort Meade/BW Corridor | 93 | 9,081 | 95.3% | 96.5% | | Northern Virginia ("NoVA") Defense/IT | 16 | 2,500 | 88.2% | 92.6% | | Lackland AFB (San Antonio, Texas) | 8 | 1,062 | 100.0% | 100.0% | | Navy Support | 22 | 1,273 | 85.9% | 86.2% | | Redstone Arsenal (Huntsville, Alabama) | 24 | 2,374 | 97.4% | 98.6% | | Data Center Shells (Consolidated) | 6 | 1,408 | 100.0% | 100.0% | | Data Center Shells (Unconsolidated JV) | 24 | 4,295 | 100.0% | 100.0% | | Total Defense/IT Portfolio | 193 | 21,993 | 95.6% | 96.8% | - Overall Total Portfolio: 201 properties, 24,137 thousand sq ft, 93.6% occupied, 94.9% leased[34] Consolidated Real Estate Revenues + NOI by Segment For Q1 2024, consolidated real estate revenues reached $166.66 million, with the Defense/IT Portfolio contributing $149.40 million, and NOI from real estate operations totaling $101.66 million, with the Defense/IT Portfolio generating $94.94 million Consolidated Real Estate Revenues (in thousands) | Segment | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Fort Meade/BW Corridor | $78,068 | $74,758 | $69,777 | | NoVA Defense/IT | $21,426 | $20,410 | $19,829 | | Lackland Air Force Base | $16,411 | $17,861 | $15,605 | | Navy Support | $8,226 | $8,405 | $7,925 | | Redstone Arsenal | $16,808 | $14,971 | $13,414 | | Data Center Shells-Consolidated | $8,457 | $7,654 | $6,692 | | Total Defense/IT Portfolio | $149,396 | $144,059 | $133,242 | | Other | $17,267 | $17,503 | $18,439 | | Consolidated real estate revenues | $166,663 | $161,562 | $151,681 | NOI from Real Estate Operations (in thousands) | Segment | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Fort Meade/BW Corridor | $50,178 | $48,894 | $45,257 | | NoVA Defense/IT | $12,164 | $11,972 | $12,257 | | Lackland Air Force Base | $7,723 | $7,708 | $7,660 | | Navy Support | $4,600 | $4,783 | $4,382 | | Redstone Arsenal | $11,016 | $10,157 | $8,778 | | Data Center Shells-Consolidated | $7,514 | $6,966 | $6,098 | | COPT Defense's share of unconsolidated real estate JVs | $1,740 | $1,671 | $1,642 | | Total Defense/IT Portfolio | $94,935 | $92,151 | $86,074 | | Other | $6,722 | $6,505 | $7,829 | | NOI from real estate operations | $101,657 | $98,656 | $93,903 | - Consolidated real estate revenues increased by 9.9% YoY[38] - NOI from real estate operations increased by 8.3% YoY[39] Cash NOI by Segment For Q1 2024, Cash NOI from real estate operations totaled $93.94 million, with the Defense/IT Portfolio contributing $87.21 million, and both total Same Property cash NOI and Defense/IT Portfolio Same Property cash NOI increasing significantly year-over-year Cash NOI from Real Estate Operations (in thousands) | Segment | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Fort Meade/BW Corridor | $47,117 | $46,173 | $43,662 | | NoVA Defense/IT | $12,933 | $12,881 | $11,423 | | Lackland Air Force Base | $8,186 | $8,114 | $7,915 | | Navy Support | $4,503 | $5,008 | $5,023 | | Redstone Arsenal | $6,308 | $4,869 | $4,988 | | Data Center Shells-Consolidated | $6,688 | $5,868 | $5,379 | | COPT Defense's share of unconsolidated real estate JVs | $1,477 | $1,400 | $1,351 | | Total Defense/IT Portfolio | $87,212 | $84,313 | $79,741 | | Other | $6,723 | $6,536 | $7,583 | | Cash NOI from real estate operations | $93,935 | $90,849 | $87,324 | - Percentage change in total Same Property cash NOI (YoY): 6.1%[55] - Percentage change in Defense/IT Portfolio Same Property cash NOI (YoY): 7.6%[55] NOI from Real Estate Operations + Occupancy by Property Grouping As of March 31, 2024, the Total Portfolio generated $101.66 million in NOI from real estate operations, with the Same Property grouping within the Defense/IT Portfolio comprising 181 properties and 20.08 million square feet, being 95.8% occupied and 97.0% leased, contributing $88.89 million to NOI Portfolio Occupancy & Leasing (as of 3/31/24) | Property Grouping | of Properties | Operational Square Feet (thousands) | % Occupied | % Leased | | :--------------------------------------- | :-------------- | :---------------------------------- | :--------- | :--------- | | Total Same Property in Defense/IT Portfolio | 181 | 20,083 | 95.8% | 97.0% | | Properties Placed in Service | 8 | 960 | 97.8% | 97.8% | | Acquired property | 1 | 202 | 55.6% | 55.6% | | Total Defense/IT Portfolio | 193 | 21,993 | 95.6% | 96.8% | | Other | 8 | 2,144 | 72.5% | 76.1% | | Total Portfolio | 201 | 24,137 | 93.6% | 94.9% | NOI from Real Estate Operations (in thousands, for three months ended 3/31/24) | Property Grouping | NOI from Real Estate Operations | | :--------------------------------------- | :------------------------------ | | Total Same Property in Defense/IT Portfolio | $88,888 | | Properties Placed in Service | $5,532 | | Acquired property | $71 | | Total Defense/IT Portfolio | $94,935 | | Other | $6,722 | | Total Portfolio | $101,657 | Same Property Average Occupancy Rates by Segment As of March 31, 2024, the Total Same Property average occupancy was 93.4%, and period-end occupancy was 93.5%, with the Defense/IT Portfolio consistently showing higher rates, with its average occupancy at 95.7% and period-end occupancy at 95.8% Same Property Average Occupancy Rates (as of 3/31/24) | Segment | of Properties | Operational Square Feet (thousands) | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :-------------- | :---------------------------------- | :------ | :------- | :------ | | Fort Meade/BW Corridor | 91 | 8,693 | 96.2% | 96.2% | 93.0% | | NoVA Defense/IT | 16 | 2,500 | 87.9% | 88.5% | 90.6% | | Lackland Air Force Base | 8 | 1,062 | 100.0% | 100.0% | 100.0% | | Navy Support | 21 | 1,244 | 85.6% | 87.8% | 88.9% | | Redstone Arsenal | 20 | 2,049 | 97.7% | 97.4% | 89.7% | | Data Center Shells (Consolidated) | 4 | 988 | 100.0% | 100.0% | 100.0% | | Data Center Shells (Unconsolidated JV) | 21 | 3,547 | 100.0% | 100.0% | 100.0% | | Total Defense/IT Portfolio | 181 | 20,083 | 95.7% | 95.9% | 94.1% | | Other | 8 | 2,144 | 72.0% | 73.9% | 78.6% | | Total Same Property | 189 | 22,227 | 93.4% | 93.8% | 92.6% | Same Property Period End Occupancy Rates by Segment This section provides the period-end occupancy rates for Same Property groupings by segment, showing a slight quarter-over-quarter decrease but a year-over-year increase for the Total Same Property period-end occupancy at 93.5% as of March 31, 2024 Same Property Period End Occupancy Rates (as of 3/31/24) | Segment | of Properties | Operational Square Feet (thousands) | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :-------------- | :---------------------------------- | :------ | :------- | :------ | | Fort Meade/BW Corridor | 91 | 8,693 | 96.1% | 96.3% | 93.4% | | NoVA Defense/IT | 16 | 2,500 | 88.2% | 88.9% | 90.7% | | Lackland Air Force Base | 8 | 1,062 | 100.0% | 100.0% | 100.0% | | Navy Support | 21 | 1,244 | 86.4% | 88.0% | 88.4% | | Redstone Arsenal | 20 | 2,049 | 97.5% | 97.7% | 89.7% | | Data Center Shells (Consolidated) | 4 | 988 | 100.0% | 100.0% | 100.0% | | Data Center Shells (Unconsolidated JV) | 21 | 3,547 | 100.0% | 100.0% | 100.0% | | Total Defense/IT Portfolio | 181 | 20,083 | 95.8% | 96.0% | 94.2% | | Other | 8 | 2,144 | 72.5% | 73.2% | 77.6% | | Total Same Property | 189 | 22,227 | 93.5% | 93.8% | 92.6% | - Total Same Property period-end occupancy rates saw a slight QoQ decrease but a YoY increase[48] Same Property Real Estate Revenues + NOI by Segment For Q1 2024, Same Property real estate revenues totaled $157.99 million, with the Defense/IT Portfolio contributing $142.73 million, and Same Property NOI reaching $95.40 million, with the Defense/IT Portfolio generating $88.89 million Same Property Real Estate Revenues (in thousands) | Segment | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Fort Meade/BW Corridor | $76,082 | $74,008 | $69,769 | | NoVA Defense/IT | $21,426 | $20,411 | $19,829 | | Lackland Air Force Base | $16,411 | $17,860 | $15,605 | | Navy Support | $8,073 | $8,251 | $7,771 | | Redstone Arsenal | $14,311 | $13,861 | $13,292 | | Data Center Shells-Consolidated | $6,427 | $6,186 | $6,293 | | Total Defense/IT Portfolio | $142,730 | $140,577 | $132,559 | | Other | $15,262 | $15,500 | $16,790 | | Same Property real estate revenues | $157,992 | $156,077 | $149,349 | Same Property NOI from Real Estate Operations (in thousands) | Segment | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Fort Meade/BW Corridor | $48,330 | $48,239 | $45,257 | | NoVA Defense/IT | $12,164 | $11,972 | $12,257 | | Lackland Air Force Base | $7,723 | $7,708 | $7,660 | | Navy Support | $4,522 | $4,702 | $4,293 | | Redstone Arsenal | $9,321 | $9,148 | $8,682 | | Data Center Shells-Consolidated | $5,527 | $5,538 | $5,539 | | COPT Defense's share of unconsolidated real estate JVs | $1,301 | $1,233 | $1,245 | | Total Defense/IT Portfolio | $88,888 | $88,540 | $85,147 | | Other | $6,515 | $6,314 | $7,576 | | Same Property NOI | $95,403 | $94,854 | $92,723 | - Same Property real estate revenues increased by 5.8% YoY[51] - Same Property NOI increased by 2.9% YoY[52] Same Property Cash NOI by Segment For Q1 2024, Same Property cash NOI from real estate operations was $91.62 million, with the Defense/IT Portfolio contributing $85.18 million, and the total Same Property cash NOI increased by 6.1% YoY, and the Defense/IT Portfolio's Same Property cash NOI increased by 7.6% YoY Same Property Cash NOI from Real Estate Operations (in thousands) | Segment | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Fort Meade/BW Corridor | $47,052 | $46,267 | $43,662 | | NoVA Defense/IT | $12,933 | $12,882 | $11,423 | | Lackland Air Force Base | $8,186 | $8,114 | $7,915 | | Navy Support | $4,429 | $4,932 | $4,940 | | Redstone Arsenal | $6,412 | $4,966 | $5,015 | | Data Center Shells-Consolidated | $4,984 | $4,960 | $5,101 | | COPT Defense's share of unconsolidated real estate JVs | $1,183 | $1,108 | $1,092 | | Total Defense/IT Portfolio | $85,179 | $83,229 | $79,148 | | Other | $6,440 | $6,264 | $7,243 | | Same Property cash NOI | $91,619 | $89,493 | $86,391 | - Total Same Property cash NOI increased by 6.1% YoY[55] - Defense/IT Portfolio Same Property cash NOI increased by 7.6% YoY[55] Leasing & Tenant Information This section details COPT Defense Properties' leasing, retention rates, rent spreads, expirations, and top tenants Leasing For Q1 2024, COPT Defense Properties leased a total of 721,000 square feet, demonstrating strong tenant retention rates of 78% for the Total Portfolio and 82.9% for the Defense/IT Portfolio, with straight-line rents on renewals increasing by 3.7% Leasing Activity (Three Months Ended 3/31/24, in thousands of sq ft) | Category | Ft Meade/BW Corridor | NoVA Defense/IT | Navy Support | Redstone Arsenal | Total Defense/IT Portfolio | Other | Total | | :--------------------------------------- | :------------------- | :-------------- | :----------- | :--------------- | :------------------------- | :---- | :---- | | Renewed Space (Leased Sq Ft) | 227 | 116 | 80 | 85 | 509 | 42 | 551 | | Development and Redevelopment Space (Leased Sq Ft) | — | — | — | 10 | 10 | — | 10 | | Vacant Space (Leased Sq Ft) | 80 | 20 | 13 | — | 113 | 47 | 160 | | Total Square Feet Leased | 307 | 136 | 93 | 95 | 632 | 89 | 721 | - Tenant Retention Rate: 78.0% for Total Portfolio and 82.9% for Defense/IT Portfolio[58] Rent Spreads on Renewing Leases (Three Months Ended 3/31/24) | Metric | Total Defense/IT Portfolio | Other | Total | | :--------------------------------------- | :------------------------- | :---- | :---- | | Change in Straight-line Rent | 3.6% | 5.7% | 3.7% | | Change in Cash Rent | (1.9%) | (9.2%) | (2.5%) | Weighted Average Lease Term (in Years, Three Months Ended 3/31/24) | Category | Total Defense/IT Portfolio | Other | Total | | :--------------------------------------- | :------------------------- | :---- | :---- | | Renewed Space | 3.8 | 7.9 | 4.1 | | Development and Redevelopment Space | 5.3 | — | 5.3 | | Vacant Space | 8.5 | 7.4 | 8.2 | Lease Expiration Analysis As of March 31, 2024, COPT Defense Properties has 22.58 million square feet of leases expiring across its Total Portfolio, with a weighted average remaining lease term of 5.2 years, and significant expirations projected for 2025 and thereafter Total Portfolio Lease Expiration (as of 3/31/24) | Metric | Square Footage of Leases Expiring (thousands) | Annualized Rental Revenue of Expiring Leases (thousands) | % of Total Annualized Rental Revenue Expiring | Annualized Rental Revenue per Occupied Sq. Foot | | :--------------------------------------- | :-------------------------------------------- | :------------------------------------------------------- | :-------------------------------------------- | :---------------------------------------------- | | Total Defense/IT Portfolio | 21,030 | $589,300 | 90.0% | $34.01 | | Total Other | 1,554 | $65,622 | 10.0% | $38.21 | | Total Portfolio | 22,584 | $654,922 | 100.0% | $34.36 | Defense/IT Portfolio Expiration by Year (as of 3/31/24) | Year of Expiration | Square Footage of Leases Expiring (thousands) | Annualized Rental Revenue of Expiring Leases (thousands) | % of Defense/IT Annualized Rental Revenue Expiring | | :----------------- | :-------------------------------------------- | :------------------------------------------------------- | :------------------------------------------------- | | 2024 | 1,868 | $59,577 | 10.1% | | 2025 | 3,475 | $134,939 | 22.9% | | 2026 | 1,998 | $63,146 | 10.7% | | 2027 | 1,722 | $49,063 | 8.3% | | 2028 | 2,201 | $57,515 | 9.8% | | Thereafter (Consolidated Properties) | 7,227 | $220,697 | 37.5% | | Thereafter (Unconsolidated JV Properties) | 2,539 | $4,363 | 0.7% | - Weighted average lease term for both the Defense/IT and total portfolio was 5.2 years, and 5.1 years for the consolidated portfolio[64] 2024 Defense/IT Portfolio Quarterly Lease Expiration Analysis This section provides a detailed quarterly breakdown of lease expirations for the Defense/IT Portfolio in 2024, highlighting Q2 2024 as having the largest amount of expiring square footage (804,000 sq ft) and annualized rental revenue ($31.61 million), representing 5.4% of the Defense/IT Annualized Rental Revenue Defense/IT Portfolio Quarterly Expiration (as of 3/31/24, in thousands) | Quarter of Expiration | Square Footage of Leases Expiring | Annualized Rental Revenue of Expiring Leases | % of Defense/IT Annualized Rental Revenue Expiring | | :-------------------- | :-------------------------------- | :------------------------------------------- | :------------------------------------------------- | | Q2 2024 | 804 | $31,607 | 5.4% | | Q3 2024 | 677 | $11,912 | 2.1% | | Q4 2024 | 387 | $16,058 | 2.8% | | Total 2024 | 1,868 | $59,577 | 10.1% | - Q2 2024 expirations include 663,000 sq ft and $27.42 million ARR from Ft Meade/BW Corridor, and 89,000 sq ft and $3.01 million ARR from NoVA Defense/IT[67] Top 20 Tenants As of March 31, 2024, the top 20 tenants account for 73.3% of COPT Defense Properties' total annualized rental revenue (ARR) and 75% of occupied square feet, with the United States Government being the largest tenant, contributing 35.6% of total ARR Top 20 Tenants Summary (as of 3/31/24, in thousands) | Tenant | Total Annualized Rental Revenue | % of Total Annualized Rental Revenue | Occupied Square Feet | Weighted Average Remaining Lease Term (Years) | | :--------------------------------------- | :------------------------------------------ | :----------------------------------- | :------------------------------- | :-------------------------------------------- | | United States Government | $232,891 | 35.6% | 5,529 | 3.5 | | Fortune 100 Company | $57,542 | 8.8% | 6,182 | 7.9 | | General Dynamics Corporation | $32,844 | 5.0% | 703 | 3.6 | | Northrop Grumman Corporation | $15,048 | 2.3% | 519 | 5.5 | | The Boeing Company | $14,701 | 2.2% | 443 | 2.7 | | Subtotal Top 20 Tenants | $479,808 | 73.3% | 16,925 | 5.6 | | All remaining tenants | $175,114 | 26.7% | 5,659 | 4.1 | | Total / Weighted Average | $654,922 | 100.0% | 22,584 | 5.2 | - Substantially all government leases are subject to customary early termination provisions[70] - $5.8 million of ARR (2.5% of USG ARR, 0.9% of total ARR) is through the General Services Administration (GSA)[70] Investment & Development Activities This section outlines COPT Defense Properties' acquisitions, development, and land inventory Operating Property Acquisition On March 15, 2024, COPT Defense Properties acquired 6841 Benjamin Franklin Drive in the Fort Meade/BW Corridor, a 202,000 square foot property that was 55.6% occupied at the time of the $15 million transaction Acquisition Details | Property | Property Segment/SubSegment | Location | of Properties | Operational Square Feet (thousands) | Transaction Date | % Occupied on Transaction Date | Transaction Value (in millions) | | :--------------------------------------- | :-------------------------- | :--------------- | :-------------- | :---------------------------------- | :--------------- | :------------------------------ | :------------------------------ | | 6841 Benjamin Franklin Drive | Fort Meade/BW Corridor | Columbia, Maryland | 1 | 202 | 3/15/24 | 55.6% | $15 | Summary of Development Projects As of March 31, 2024, COPT Defense Properties has six active development projects totaling 959,000 rentable square feet, which are 74% leased with an anticipated total cost of $381.39 million, primarily focused on 100% leased Data Center Shells Development Pipeline (as of 3/31/24, in thousands) | Property and Segment/SubSegment | Location | Total Rentable Square Feet | % Leased as of 3/31/24 | Anticipated Total Cost (thousands) | Cost to Date (thousands) | Anticipated Shell Completion Date | Anticipated Operational Date | | :--------------------------------------- | :--------------- | :------------------------- | :--------------------- | :--------------------------------- | :----------------------- | :-------------------------- | :--------------------------- | | 400 National Business Parkway (Ft Meade/BW Corridor) | Annapolis Junction, Maryland | 138 | 0% | $65,100 | $12,776 | 1Q 25 | 1Q 26 | | 8100 Rideout Road (Redstone Arsenal) | Huntsville, Alabama | 128 | 42% | $45,991 | $33,085 | 3Q 23 | 3Q 24 | | 9700 Advanced Gateway (Redstone Arsenal) | Huntsville, Alabama | 50 | 20% | $11,000 | $161 | 1Q 25 | 1Q 26 | | Southpoint Phase 2 Bldg A (Data Center Shells) | Northern Virginia | 225 | 100% | $82,500 | $27,222 | 3Q 24 | 3Q 24 | | Southpoint Phase 2 Bldg B (Data Center Shells) | Northern Virginia | 193 | 100% | $65,000 | $5,410 | 3Q 25 | 3Q 25 | | MP 3 (Data Center Shells) | Northern Virginia | 225 | 100% | $111,800 | $10,402 | 4Q 25 | 4Q 25 | | Total Defense/IT Portfolio Under Development | | 959 | 74% | $381,391 | $89,056 | | | - Data Center Shells projects are 100% leased, indicating strong demand[76] - 8100 Rideout Road, while classified as under development, had 27,000 sq ft operational as of 3/31/24[76] Development Placed in Service As of March 31, 2024, COPT Defense Properties placed 73,000 square feet of development projects into service, including properties at Redstone Arsenal, all of which are 100% leased Development Placed in Service (as of 3/31/24, in thousands of sq ft) | Property and Location | Property Segment/SubSegment | % Leased as of 3/31/24 | Property Rentable Square Feet (thousands) | Square Feet Placed in Service 2024 1st Quarter (thousands) | Total Space Placed in Service % Leased as of 3/31/24 | | :--------------------------------------- | :-------------------------- | :--------------------- | :------------------------------------ | :------------------------------------------------------- | :------------------------------------------------- | | 5300 Redstone Gateway Huntsville, Alabama | Redstone Arsenal | 100% | 46 | 46 | 100% | | 8100 Rideout Road Huntsville, Alabama | Redstone Arsenal | 42% | 128 | 27 | 100% | | Total Development Placed in Service | | 57% | 174 | 73 | 100% | - All 73,000 square feet placed in service during Q1 2024 are fully leased[79] Summary of Land Owned/Controlled As of March 31, 2024, COPT Defense Properties owned or controlled 704 acres of land with an estimated developable area of 9.23 million square feet, carrying a total amount of $168.50 million, primarily within the Defense/IT Portfolio for future development Land Inventory (as of 3/31/24, in thousands) | Location | Acres | Estimated Developable Square Feet (thousands) | Carrying Amount (thousands) | | :--------------------------------------- | :---- | :-------------------------------------------- | :-------------------------- | | Fort Meade/BW Corridor | 289 | 3,111 | N/A | | NoVA Defense/IT | 29 | 1,171 | N/A | | Navy Support | 38 | 64 | N/A | | Redstone Arsenal | 295 | 3,350 | N/A | | Total Defense/IT Portfolio land owned/controlled for future development | 651 | 7,696 | $158,839 | | Other land owned/controlled | 53 | 1,538 | $9,656 | | Land held, net | 704 | 9,234 | $168,495 | - Redstone Arsenal land is controlled under a long-term master lease agreement to LW Redstone Company, LLC (a consolidated JV), with site-specific leases commencing upon tenant lease cash rents[82] Capital Structure & Debt Management This section overviews COPT Defense Properties' capital structure, debt, maturity, and key ratios Capitalization Overview As of March 31, 2024, COPT Defense Properties' total consolidated debt was $2.44 billion, with a weighted average maturity of 5.4 years and an effective rate of 3.34%, with 100% fixed-rate debt and a total market capitalization of $5.22 billion Debt Structure (as of 3/31/24, in thousands) | Metric | Wtd. Avg. Maturity (Years) | Stated Rate | Effective Rate | Amount Outstanding (thousands) | | :--------------------------------------- | :------------------------- | :---------- | :------------- | :----------------------------- | | Secured debt | 1.4 | 5.04% | 3.54% | $98,820 | | Unsecured debt | 5.6 | 3.26% | 3.34% | $2,345,411 | | Total Consolidated Debt | 5.4 | 3.33% | 3.34% | $2,444,231 | - 100% of total consolidated debt is fixed-rate, including the effect of interest rate swaps with notional amounts totaling $233.0 million[86] Equity and Market Capitalization (as of 3/31/24, in thousands) | Metric | Amount | | :--------------------------------------- | :------------- | | Common Shares | 112,641 | | Common Units | 2,148 | | Total Common Shares and Units | 114,789 | | Closing Common Share Price on 3/28/24 | $24.17 | | Equity Market Capitalization (thousands) | $2,774,450 | | Total Market Capitalization (thousands) | $5,218,681 | - Investment Grade Ratings: Fitch BBB- Stable, Moody's Baa3 Stable, S&P BBB- Stable[84] Summary of Outstanding Debt As of March 31, 2024, COPT Defense Properties had $2.44 billion in consolidated debt, primarily unsecured senior notes ($2.15 billion) and unsecured bank term loans ($125 million), with significant maturities scheduled for 2025, 2026, and thereafter Outstanding Debt Breakdown (as of 3/31/24, in thousands) | Debt Type | Stated Rate | Amount Outstanding (thousands) | | :--------------------------------------- | :---------- | :----------------------------- | | Revolving Credit Facility | SOFR+0.10%+1.05% | $75,000 | | Senior Unsecured Notes (various maturities) | 2.00% - 5.25% | $2,145,000 | | Unsecured Bank Term Loans | SOFR+0.10%+1.30% | $125,000 | | Other Unsecured Debt | 0.00% | $411 | | Total Unsecured Debt | 3.26% | $2,345,411 | | Secured Debt (various properties) | 3.82% - 5.04% | $98,820 | | Consolidated Debt | 3.33% | $2,444,231 | | COPT Defense's share of unconsolidated JV gross debt | N/A | $52,819 | | Gross debt | N/A | $2,497,050 | - The debt maturity schedule shows significant amounts of Senior Notes maturing in 2026 ($400M), 2028 ($345M), 2029 ($400M), 2031 ($600M), and 2033 ($400M)[88][92] - Revolving Credit Facility ($75M) is included in 2027 assuming extension options, and Term Loan ($125M) is included in 2028 assuming extension options[92] Debt Analysis As of March 31, 2024, COPT Defense Properties maintained strong debt metrics, including a GAAP debt to assets ratio of 57.1% and a non-GAAP net debt to adjusted book ratio of 40.9%, with an Adjusted EBITDA fixed charge coverage ratio of 4.5x and a highly unencumbered portfolio Debt Ratios and Covenants (as of 3/31/24) | Metric | Required | As of 3/31/24 | | :--------------------------------------- | :------- | :------------ | | Senior Note Covenants: | | | | Total Debt / Total Assets | < 60% | 42.5% | | Secured Debt / Total Assets | < 40% | 1.7% | | Debt Service Coverage | > 1.5x | 4.3x | | Unencumbered Assets / Unsecured Debt | > 150% | 234.3% | | Line of Credit & Term Loan Covenants: | | | | Total Debt / Total Assets | < 60% | 38.3% | | Secured Debt / Total Assets | < 40% | 2.0% | | Adjusted EBITDA / Fixed Charges | > 1.5x | 4.6x | | Unsecured Debt / Unencumbered Assets | < 60% | 38.0% | | Unencumbered Adjusted NOI / Unsecured Interest Expense | > 1.75x | 4.6x | GAAP & Non-GAAP Debt Ratios (as of 3/31/24) | Metric | 3/31/24 | | :--------------------------------------- | :------ | | Debt to assets (GAAP) | 57.1% | | Net income to interest expense ratio (GAAP) | 1.6x | | Debt to net income ratio (GAAP) | 17.9x | | Net debt to adjusted book (Non-GAAP) | 40.9% | | Net debt to in-place adjusted EBITDA ratio (Non-GAAP) | 6.1x | | Adjusted EBITDA fixed charge coverage ratio (Non-GAAP) | 4.5x | - Unencumbered Portfolio: 173 properties (86% of total portfolio), 20,124 thousand sq ft in-service (83% of total portfolio), and $97,073 thousand NOI from unencumbered real estate operations (95% of total NOI)[96] Joint Venture Details This section details COPT Defense Properties' consolidated and unconsolidated real estate joint ventures Consolidated Real Estate Joint Ventures As of March 31, 2024, COPT Defense Properties has three consolidated real estate joint ventures with operating properties totaling 2.84 million operational square feet, 94.2% occupied and 97.7% leased, generating $13.48 million in NOI for Q1 2024 Operating Properties in Consolidated JVs (as of 3/31/24, in thousands) | JV Name | Operational Square Feet (thousands) | % Occupied | % Leased | NOI from Real Estate Operations (3 months ended 3/31/24, in thousands) | Venture Level Debt Outstanding (thousands) | COPT Defense Nominal Ownership | | :--------------------------------------- | :-------------------------------- | :--------- | :--------- | :--------------------------------------------------------------------- | :----------------------------------------- | :----------------------------- | | M Square Associates, LLC (4 properties) | 414 | 88.8% | 95.5% | $1,565 | $48,555 | 50% | | LW Redstone Company, LLC (23 properties) | 2,237 | 98.0% | 99.2% | $10,660 | $50,265 | 85% | | Stevens Place (1 property) | 188 | 60.6% | 83.5% | $1,255 | — | 95% | | Total / Average | 2,839 | 94.2% | 97.7% | $13,480 | $98,820 | | Non-Operating Properties in Consolidated JVs (as of 3/31/24, in thousands) | JV Name | Estimated Developable Square Feet (thousands) | Total Assets (thousands) | Venture Level Debt Outstanding (thousands) | COPT Defense Nominal Ownership | | :--------------------------------------- | :-------------------------------------------- | :----------------------- | :----------------------------------------- | :----------------------------- | | M Square Research Park | 348 | $5,942 | — | 50% | | Redstone Gateway | 3,501 | $130,075 | — | 85% | Unconsolidated Real Estate Joint Ventures As of March 31, 2024, COPT Defense Properties has equity method investments in five unconsolidated JVs, primarily owning data center shell properties, representing a total investment of $40.6 million and contributing $1.74 million to COPT Defense's share of NOI for Q1 2024 Joint Venture Information (as of 3/31/24, in thousands) | Metric | Total | COPT Defense's Share | | :--------------------------------------- | :---- | :------------------- | | COPT Defense's investment (thousands) | N/A | $40,597 | | of Properties | 24 | N/A | | Square Feet (thousands) | 4,295 | N/A | | % Occupied | 100% | N/A | | COPT Defense's share of ARR (thousands) | N/A | $7,181 | Operating Information (Three Months Ended 3/31/24, in thousands) | Metric | Total | COPT Defense's Share | | :--------------------------------------- | :---- | :------------------- | | Revenue | $20,891 | $2,089 | | Operating expenses | ($3,492) | ($349) | | NOI from real estate operations and EBITDAre | $17,399 | $1,740 | | Interest expense | ($8,933) | ($893) | | Depreciation and amortization | ($8,238) | ($778) | | Net income | $228 | $69 | | Cash NOI from real estate operations | $14,774 | $1,477 | Balance Sheet Information (as of 3/31/24, in thousands) | Metric | Total | COPT Defense's Share | | :--------------------------------------- | :---- | :------------------- | | Operating properties, net | $953,549 | $95,355 | | Total assets | $1,052,588 | $105,259 | | Debt | $524,949 | $52,495 | | Total liabilities | $609,039 | $60,904 | - Maturities on JV debt range from 2027 (assuming exercise of three one-year extension options) to 2030[104] Supplementary Reconciliations of Non-GAAP Measures This section provides detailed reconciliations of various non-GAAP financial measures to their GAAP equivalents Non-GAAP Reconciliations Overview This section provides detailed reconciliations of various non-GAAP financial measures, such as NOI, Cash NOI, Same Property NOI, Same Property Cash NOI, Adjusted Book, Net Debt, and Net Debt Adjusted for Fully-Leased Development, to their most directly comparable GAAP measures, crucial for understanding the company's operating performance and financial position Reconciliation of Net Income (Loss) to NOI from Real Estate Operations (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Net income (loss) | $33,671 | $34,820 | $80,398 | | Construction contract and other service revenues | ($26,603) | ($18,167) | ($15,820) | | Depreciation and other amortization associated with real estate operations | $38,351 | $36,735 | $36,995 | | Construction contract and other service expenses | $26,007 | $17,167 | $15,201 | | General and administrative expenses | $8,378 | $8,240 | $7,996 | | Leasing expenses | $2,187 | $2,308 | $1,999 | | Business development expenses and land carry costs | $1,182 | $797 | $495 | | Interest expense | $20,767 | $20,383 | $16,442 | | Interest and other income, net | ($4,122) | ($5,659) | ($2,256) | | Gain on sales of real estate | — | — | ($49,378) | | Equity in (income) loss of unconsolidated entities | ($69) | $240 | $64 | | Unconsolidated real estate JVs NOI allocable to COPT Defense | $1,740 | $1,671 | $1,642 | | Income tax expense | $168 | $121 | $125 | | NOI from real estate operations | $101,657 | $98,656 | $93,903 | Reconciliation of NOI to Cash NOI (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | NOI from real estate operations | $101,657 | $98,656 | $93,903 | | Straight line rent adjustments and lease incentive amortization | $3,632 | $703 | ($3,818) | | Amortization of acquired above- and below-market rents | ($24) | ($121) | ($166) | | Lease termination fees, net | ($775) | ($716) | ($1,221) | | Tenant funded landlord assets and lease incentives | ($10,439) | ($7,548) | ($1,230) | | Cash NOI adjustments in unconsolidated real estate JVs | ($263) | ($271) | ($291) | | Cash NOI from real estate operations | $93,935 | $90,849 | $87,324 | Reconciliation of Same Property NOI to Same Property Cash NOI (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Same Property NOI from real estate operations | $95,403 | $94,854 | $92,723 | | Straight line rent adjustments and lease incentive amortization | $5,367 | $3,142 | ($3,570) | | Amortization of acquired above- and below-market rents | ($69) | ($121) | ($166) | | Lease termination fees, net | ($775) | ($717) | ($1,221) | | Tenant funded landlord assets and lease incentives | ($8,190) | ($7,541) | ($1,222) | | Cash NOI adjustments in unconsolidated real estate JVs | ($117) | ($124) | ($153) | | Same Property Cash NOI from real estate operations | $91,619 | $89,493 | $86,391 | Reconciliation of Total Assets to Adjusted Book (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Total assets | $4,232,895 | $4,246,966 | $4,177,992 | | Accumulated depreciation | $1,434,621 | $1,400,162 | $1,300,430 | | Accumulated amortization of intangibles on property acquisitions and deferred leasing costs | $225,443 | $228,484 | $224,791 | | COPT Defense's share of liabilities of unconsolidated real estate JVs | $60,904 | $60,583 | $60,734 | | COPT Defense's share of accumulated depreciation and amortization of unconsolidated real estate JVs | $10,364 | $9,528 | $6,936 | | Less: Property - operating lease liabilities | ($33,141) | ($33,931) | ($34,896) | | Less: Property - finance lease liabilities | ($409) | ($415) | ($431) | | Less: Cash and cash equivalents | ($123,144) | ($167,820) | ($15,199) | | Less: COPT Defense's share of cash of unconsolidated real estate JVs | ($1,159) | ($852) | ($881) | | Adjusted book | $5,806,374 | $5,742,705 | $5,719,476 | Reconciliation of Debt to Net Debt and Net Debt Adjusted for Fully-Leased Development (in thousands) | Metric | 3/31/24 | 12/31/23 | 3/31/23 | | :--------------------------------------- | :------ | :------- | :------ | | Debt per balance sheet | $2,416,873 | $2,416,287 | $2,123,012 | | Net discounts and deferred financing costs | $27,358 | $28,713 | $22,250 | | COPT Defense's share of unconsolidated JV gross debt | $52,819 | $52,613 | $52,226 | | Gross debt | $2,497,050 | $2,497,613 | $2,197,488 | | Less: Cash and cash equivalents | ($123,144) | ($167,820) | ($15,199) | | Less: COPT Defense's share of cash of unconsolidated real estate JVs | ($1,159) | ($852) | ($881) | | Net debt | $2,372,747 | $2,328,941 | $2,181,408 | | Costs incurred on fully-leased development properties | ($43,034) | ($53,914) | ($137,309) | | Net debt adjusted for fully-leased development | $2,329,713 | $2,275,027 | $2,044,099 | Definitions This section defines various financial and operational terms used in the report for clarity Non-GAAP Measures Definitions This section provides detailed definitions for various Non-GAAP financial measures used throughout the report, clarifying their calculation and purpose as supplemental measures for investors, covering terms such as Adjusted Book, Adjusted EBITDA, FFO, Cash NOI, and various payout and coverage ratios - Adjusted book: Total assets adjusted for lease liabilities, cash, accumulated depreciation/amortization, and JV-related items[115] - Adjusted EBITDA: Net income adjusted for interest, taxes, depreciation, amortization, gains/losses on real estate, and other non-operating items, including JV adjustments[115] - Cash NOI: NOI from real estate operations adjusted for non-cash rental items, amortization of intangibles, lease termination fees, and tenant-funded landlord assets, including JV adjustments[115][116] - Diluted AFFO: Diluted FFO (as adjusted for comparability) further adjusted for non-cash revenues/expenses, share-based compensation, amortization of financing costs/discounts, and replacement capital expenditures, including JV adjustments[116] - EBITDAre: Net income adjusted for interest, taxes, depreciation, amortization, gains/losses on real estate, and income taxes, including JV adjustments[118] - FFO (per Nareit): Net income excluding gains/losses on real estate and real estate-related depreciation/amortization, including JV adjustments[118] - Net debt: Gross debt minus cash and cash equivalents, including COPT Defense's share of unconsolidated JV cash[118] - Replacement capital expenditures: Non-transformative capital expenditures for existing operating properties, excluding certain expansion, renovation, or new addition costs[124] - Same Property NOI/Cash NOI: NOI/Cash NOI from properties stably owned and 100% operational since at least 1/1/23[125] Other Definitions This section defines additional financial and operational terms used in the report, such as Annualized Rental Revenue (ARR), Defense/IT Portfolio, Total Market Capitalization, and various property and leasing-related metrics, providing clarity for stakeholders - Annualized Rental Revenue ("ARR"): The monthly contractual base rent (ignoring free rent and tenant-funded landlord assets) multiplied by 12, plus estimated annualized expense reimbursements[127] - Defense/IT Portfolio: Represents properties in locations proximate to, or sometimes containing, key U.S. Government ("USG") defense installations and missions[127] - Total Market Capitalization: Defined as the sum of: (1) consolidated outstanding debt, excluding discounts, premiums and deferred financing costs; (2) the product of the closing price of our common shares on the NYSE and the sum of (a) common shares outstanding and (b) common units outstanding; and (3) the liquidation value of preferred shares and preferred units in our operating partnership[127]