COPT Defense Properties (CDP) Nareit REIT Week: 2024 Investor Conference summary

Business overview and portfolio strategy

• Focuses on mission-critical assets supporting U.S. national defense, with 201 properties mainly adjacent to defense installations in Maryland, Virginia, Alabama, and Texas.

• 85% of the portfolio is high-security, with 90% of annualized rental revenue from defense IT properties, which are 96.8% leased.

• Three largest locations (National Business Park, Redstone Gateway, Lackland AFB) are 99% occupied and account for 45% of annualized rental revenue.

• U.S. government is the largest tenant, occupying 5.5 million sq ft and generating 36% of annualized revenue; defense contractors lease over 14 million sq ft.

• Non-defense assets make up 10% of revenue and are targeted for recycling as market conditions allow.

Development, growth, and financial strategy

• All incremental capital since 2016 has been allocated to defense IT locations, with a focus on low-risk, highly pre-leased development.

• Over $2.5 billion in developments delivered in the past decade, with current projects totaling $380 million and 74% pre-leased.

• Self-funds equity for development from operations after dividends; debt funded by cash and credit lines, with plans for unsecured long-term financing.

• Projects 4% compound FFO per share growth from 2023 to 2026, regardless of interest rate changes.

• Dividend increases initiated in 2023 and again in 2024, one of only two office REITs to do so both years.

Leasing dynamics and demand drivers

• Frequently starts developments with little or no pre-leasing due to high demand and low vacancy near defense missions, leveraging deep government relationships.

• Government leasing typically occurs within the fiscal year after appropriation, while contractor demand materializes 12-18 months post-appropriation.

• High tenant retention (75-85% guidance for 2024) driven by proximity to defense missions and the presence of SCIFs, which are costly and difficult to relocate.

• SCIF build-outs are funded by tenants, making relocation unattractive and supporting high retention.

• Vacancy leasing target for 2024 is 400,000 sq ft, with over half achieved before mid-year due to strong demand.