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Welcome to the COPT Defense Properties First Quarter 2026 Results Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Venkat Kommineni at COPT Defenses Vice President of Investor Relations, Mr. Kommineni. Please go ahead.

Thank you, Dee. Good afternoon, and welcome to COPT Defense's conference call to discuss first quarter results. With me today are Steve Budorick, President and CEO; Britt Snider, Executive Vice President and COO; and Anthony Mifsud, Executive Vice President and CFO. Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website in the results, press release and presentation and in our supplemental information package. As a reminder, forward-looking statements made during today's call are subject to risks and uncertainties, which are discussed in our SEC filings. Actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them. Steve?

Good afternoon, and thank you for joining us. We're off to a solid start in 2026, and all aspects of the business are on track to achieve our objectives for the year, based on our strong results in 2025 and our outlook for 2026. In February, we recommended and our Board approved an increase in our annual dividend of $0.06 per share or 4.9%, marking our fourth consecutive year of dividend increases. Since 2022, our dividend has increased 16.4% and our FFO per share has increased 15.3%, demonstrating our attractive total return investment profile, all while maintaining a conservative AFFO payout ratio below 65% and continuing to have the capacity to self-fund the equity required for our external investments.

For the first quarter, FFO per share was $0.69, which is $0.01 above the midpoint of guidance and represents a 6.2% year-over-year increase. Same-property cash NOI increased 5.4% year-over-year driven in part by a 70 basis point increase in our average active. We executed 1.2 million square feet of renewal leasing and achieved a 91% retention rate. This included the full renewal of our nearly 1 million square foot campus leased to the U.S. government near Lakeland Air Force Base in San Antonio.

These renewals address the significant portion of our maturity risk in 2026 reducing our annual -- our expiring annualized rental revenue from 21% at the beginning of the year to 11%. We executed 92,000 square feet of vacancy leasing and we are right on track to meet our full year target of 400,000 square feet.

We executed 384,000 square feet of investment leasing. -- which consists of 2 previously announced full building leases at the National Business Park. Year-to-date, we've committed nearly $250 million of capital to new investments consisting of 620 Guardian Way, which is fully leased full-suite project at the National Business Park and 2 new investments totaling nearly $100 million. Based on these strong results, we're elevating forward guidance metrics, and Anthony will provide additional details in his section.

Regarding these 2 new investments, first, we committed $55 million to 150,000 square foot development project at Redstone Gateway, which sits inside the fence within our secure parcel and Redstone Arsenal. This investment creates antiterrorism force protected inventory or ATFP, for the United States government in advance of expected requirements. We're currently seeing demand for multiple government missions experiencing growth related to missile defense and space activities, which, in aggregate, exceeds capacity of the building.

Second, we committed roughly $43 million to the acquisition of 17 acres of land in a ground lease in the Westfield submarket Shentel, Virginia. The ground lease has very attractive long-term economics, which are supported by 2 highly strategic 100% leased office buildings, known as Mission Rich. These buildings are occupied by the FBI's Technology division, including their cyber group, and 2 leading defense contractors who are among our top 20 defense IT tenants.

This transaction provides us with essentially perpetual control of a strategic land parcel and run our priority submarkets in which we currently have a dominant market share and importantly, the senior position in the capital structure, which should lead to an opportunity to acquire the leasehold interest in attractive terms sometime in the future.

Recall last quarter, we acquired Stonegate 1 in this same Westfield submarket, which was a $40 million purchase of 140,000 square foot building that is fully leased to a top 20 U.S. bench count director. As shown on Slide 15 of our foot book, Stonegate Mission Ridge are located within 0.5 mile of each other in the same rich ecosystem of trench contractors supporting the adjacent U.S. government demand drivers.

In March, we are very pleased to receive the news that Moody's upgraded our investment grade rating by 1 level to Baa2 with a stable outlook. Over the past 5 years, we've issued $1.8 billion of unsecured debt in 4 separate offerings. We achieved stellar pricing in each of those transactions with a weighted average credit spread of 120 basis points and a maturity of nearly 9 years.

Clearly, our fixed income investors recognize the inherent strength of our strategy and our portfolio, and we're pleased to receive that recognition for Moody's as well. We are 1 of only 3 office REITs with the Baa2 rating, which we believe acknowledges our proven performance over the last 6 years, which encompass the global COVID pandemic, significant increase in both inflation and interest rates, along with factors that led to the highest U.S. office national vacancy rate in over 40 years.

Turning to the defense budget. Earlier this month, President of Trump submitted the FY 2027 budget, which the administration describes as a historic paradigm shift for investment in our national security infrastructure. The top line figure for defense budget request is a record $1.5 trillion, which is nearly a 45% increase year-over-year. And it's comprised of a base budget of $1.1 trillion and anticipated reconciliation funding of $350 billion.

Our business has really driven off the proposed base budget of $1.1 trillion, which has been described as the new baseline by the Chairman of the House Farm Services Committee, Mike Rogers. The FY 2027 proposed budget represents nearly 30% increase over last year and nearly 50% increase over the last 5 years.

The defense-based budget request includes a $16 billion increase for Intelligence or 14%, which is the largest year-over-year increase in over 20 years, a $4 billion increase for DoD cyber funding or 25%, which is the largest increase in the history of DoD cyber funding, an additional $18 billion for Golden Dome, which brings appropriations and requests to date for this program to roughly $40 billion of the $185 billion total.

$21 billion was appropriate for Golden Dome in FY 2026. But only a small portion of this amount has actually been awarded to date, which bodes well for emerging demand through the end of the year. And there is still more than $160 billion yet to be appropriated.

This current and anticipated funding should provide a long runway of tenant demand that will develop and support the Golden Dome initiative in the coming years as there is typically a 12- to 18-month lag time between appropriations and lease executions. The FY 2027 defense budget is a continuation of a 12-year trend of growth in defense spending and represents one of the few areas of public policy that garner strong bipartisan support. The country's significant investment on the priority missions, which are location support should result in a favorable demand backdrop for our portfolio over the near and medium term and provide additional opportunities for external growth. With that, I'll turn the call over to Britt.

Thank you, Steve. We finished the quarter with strong occupancy at 94.4% in the total portfolio and 95.6% in the Defense IT portfolio. Year-over-year occupancy increased in both portfolios by 80 basis points and 30 basis points, respectively. During the first quarter, we executed 92,000 square feet of vacancy leasing, nearly 70% of which is tied to cyber activity. Year-to-date, we have signed 152,000 square feet of vacancy leasing, which equates to 38% of our full year target of 400,000 square feet. .

We have approximately 115,000 square feet of prospects in advanced negotiations, which we define as over 90% likely to execute. Taken together, we have over 265,000 square feet of leases either executed or in advanced negotiations, which amounts to 2/3 of our full year target.

In April, we leased the remaining floor at 8,100 Rideout Road in Huntsville to a top 20 U.S. defense contractor. This lease doubles the tenant's footprint in the building to over 50,000 square feet and brings the property to 100% leased. 23 of the 24 operating buildings in our Redstone Gateway Park are now 100% leased, bringing this nearly 2.5 million square foot campus to 99.6% leased with only one 10,000 square foot suite available.

Also in April, we signed a 12,000 square foot expansion lease at the Franklin Center in Columbia Gateway with a top 10 U.S. defense contractor. This lease increases the tenant's footprint in the building to 60,000 square feet and we are tracking 155,000 square feet of prospects on the remaining 55,000 square feet of availability.

Turning to renewal leasing. We executed 1.2 million square feet in the quarter with tenant retention of 91% and cash rent spreads of 3.8% and GAAP rent spreads up 12%. Our quarterly volume was driven by the full renewal of our U.S. government campus near Lakeland Air Force Base in San Antonio, which totaled 953,000 square feet and accounted for over 40% of our annualized rental revenue expiring in 2026 at the beginning of the year.

Cash rent spreads on the San Antonio renewals increased 4.2% with annual rent bumps of 3%. Once we include these 4 large lease renewals in San Antonio, our track record for retention on leases in excess of 50,000 square feet becomes even more impressive. .

For large leases that expire between mid-2024 and year-end 2026, we have renewed nearly 3 million square feet with a retention rate of 97%. We have 8 leases remaining, totaling 950,000 square feet, all with the U.S. government. We expect 100% retention on these leases with execution anticipated in 2027.

Additionally, since we started providing this disclosure nearly 4 years ago, we have renewed over 5 million square feet of large leases with a retention rate of over 97%. Moving on to development, we commenced 2 projects in the first quarter, and our active pipeline now totals over 1 million square feet that is 73% pre-leased and amounts to over $0.5 billion in capital commitments.

Each of these 7 projects are on schedule and on budget, and 5 of the 7 are 100% pre-leased. The 2 developments with available space are both inventory buildings in Huntsville, 1 inside defense, targeting government tenancy and 1 outside defense for defense contractors. We commenced construction of 410 Goss Road in the first quarter, which is designed for the government inside defense and we are tracking demand that exceeds the availability in the building from multiple missions, all of which require secure facilities at our ATFP compliant.

We achieved substantial completion of 8,500 Advanced Gateway earlier this month, which is outside defense and is currently 20% leased to a defense contractor. We are finalizing a lease for a full floor, which we expect to execute imminently that will increase the lease rate to 40%, and we're working on another deal for 2 fold floors, which would increase the lease rate to over 80%. We've already planned the next inventory building, RG 6300 and expect to commence development once we approach that 80% threshold. Our development leasing pipeline, which we define as opportunities we consider 50% likely to win or better within 2 years or less, currently stands at nearly 1 million square feet.

Beyond that, we are tracking an additional 600,000 square feet of potential development opportunities. With that, I'll hand it over to Anthony.

Thank you, Britt. We reported first quarter FFO per share of $0.69, which was $0.01 above the midpoint of guidance and represents a 6.2% increase year-over-year. The quarter benefited from the earlier than budgeted commencement of several leases, strong renewal leasing, the timing of certain R&M projects and unbudgeted real estate tax refunds from continued successful assessment appeals.

These favorable items were partially offset by higher-than-forecasted net winter weather-related expenses. Same-property cash NOI increased 5.4% year-over-year, driven by the burn-off of free rent on development and acquisition leases, which commenced in prior years and a 70 basis point increase in same-property average occupancy. We received $2 million less of nonrecurring real estate tax refunds in 2026, which muted this quarter's strong growth by approximately 200 basis points.

Same-property occupancy ended the quarter at 94.2%, which is a 60 basis point increase over the year and was driven by a 500 basis point increase in the other segment. With respect to capital transactions, on March 16, we repaid our $400 million bond, which carried an interest rate of 2.25%. Recall that we prefunded the capital for this maturity roughly 7 months ago, when we issued $400 million of 5-year unsecured notes at 4.5% at a sector-leading credit spread of 95 basis points.

The increased interest on this $400 million of debt results in $0.09 of higher financing costs in 2026. We have no significant near-term refinancing risk as our next bond maturity is not until the fall of 2028. As Steve mentioned, Moody's upgraded our investment grade credit rating in March to Baa2. In its press release, Moody's highlighted the strong operating performance of our specialized office portfolio, our solid EBITDA to interest expense ratio and income growth from assets under development. I would like to give a special recognition to our team who worked diligently to achieve this important milestone, which represents the culmination of years of effort and outreach. We appreciate that Moody's recognizes the strength and specialized nature of our strategy, platform, portfolio and tenants. With respect to guidance, we increased the midpoint for several items.

We increased the midpoint of FFO per share guidance by $0.01 to $2.76, which is driven by the contribution from both the outperformance during the quarter and the Mission Ridge land acquisition, partially offset by the accounting treatment for the dilution from our exchangeable notes.

We increased the midpoint of same-property cash NOI growth by 50 basis points to 3% due to stronger renewal leasing and unanticipated real estate tax refunds. We increased the midpoint of tenant retention guidance by 250 basis points to 82.5%, we increased the midpoint of capital committed to new investment guidance by $40 million to $290 million due to the Mission Ridge land acquisition. And finally, we're establishing second quarter guidance for FFO per share in a range of $0.68 to $0.70. With that, I'll turn the call back to Steve.

So in closing, we're off to a great start to the year with leasing volume right on track with full year plan. We delivered FFO per share growth of 6.2% year-over-year, marking our 23rd consecutive quarter of year-over-year growth. We increased the midpoint of 2026 guidance for 4 key metrics. We increased the dividend again in the first quarter by 4.9% and have increased it over 16% over the last 4 years. We committed nearly $250 million of capital to 3 new investments year-to-date. And since beginning of 2025, the strength of our strategy has resulted in over $0.5 billion of capital commitments to new investments consisting of 8 projects in 5 different markets. 80% of the dollar value is for 100% pre-leased projects and 20% of the dollar value is there much needed inventory to meet the demand we're seeing from both the U.S. government and defense contractors in parks where we have little to no availability.

These investments combined with the expected additional opportunities from the substantial increase in the proposed defense budget. We will support continued -- the continued track record of growth we've delivered in NOI and shareholder value. With that, operator, please open the trough for questions.

Thank you, Mr. Budorick. [Operator Instructions]

And our first question comes from Seth Bergey of Citi.

Just kind of wanted to ask, you have a slide in the foot book on just kind of the long-term growth rate of like 4.5% kind of FFO per share CAGR. Just with the kind of increase in defense spending, is that kind of how you think about the long-term kind of earnings power? Or do you kind of see a path to that accelerating as the defense spending increases and the development pipeline kind of continues to mature?

Sure. The slide sets referring to demonstrates the 4.5% growth rate we've compounded at for the last 7 or 8 years. Looking forward, Seth, this year, our growth is a little muted because of the $0.09 of additional interest expense, Anthony referred to in his comments. So we expect to get somewhere around 1.5% of growth.

Looking forward, we generally expect that we can return to the growth path that we've experienced recently. And hypothetically, there could be upside to that from the increase in defense spending. I remind you that Bill has not even been pass an appropriated yet. So it's aspirational, but it certainly supports the continued trend we referred to over the last 12 years of increases in investment which will be good for our business and potentially lead to a better outlook.

Great. And then with the acquisition kind of the second acquisition you've made in that submarket. Are there any other types of kind of buildings or ground leases that you're looking at in that market? And then just kind of the business improves, defense spending increases, are you seeing any kind of changes to other players in this space?

So to speak to the first one, if you look at the area on Slide 15, you'll see that market is, as we described it a rich ecosystem of defense contractors supporting low commissions. And we control -- well, we own about 28% of that market now. There are certainly buildings that have great tenants with characteristics that would be compatible with us. that under the right price or terms, we'd be very interested in buying. There are none currently available, but it's certainly one of the top 30 markets we've staked out and we keep pretty sharp eye appeal on opportunities there.

Second part of the question referred to -- Seth, any other...

Yes, just increased competition that are also kind of seeing the increase in defense spending and getting more interested in taking a look at the space.

Nothing meaningful that I could talk about. -- there are several investment groups that are considerably smaller they like to invest in Northern Virginia in similar assets. And I think their interest will remain high as it has been in the past. But I can't say that I can identify any new entrants.

And our next question comes from Steve Sakwa of Evercore ISI.

Steve, I'm just wondering if you're sort of thinking about the development pipeline and development starts kind of any differently today, just given all of the positive sort of backdrop and tailwinds that you talked about, are you kind of willing in sub markets to have a little bit more spec product? And is the tenancy changing given some of the, I guess, new entrants into the defense contracting business?

So we're not yet ready to start accumulating more inventory than we traditionally have. But we are certainly for the last year and increasingly so putting ourselves in a past year to move extremely quickly by predesigning and in some cases, addressing land conditions in advance of the opportunity to cut our delivery time frame. To the extent that demand ramps up, particularly in Huntsville, where we expect it to ramp up to support Golden Dome. We're prepared to move more aggressively, but we need to see that demand really materialized a little more formally than it has been.

Got it. And then I guess as you just think about vacancy leasing, maybe just talk about kind of where the I guess, focal points are? And I guess, what are the prospects for, I guess, driving occupancy even higher from kind of current levels?

Yes, this is Britt, Steve. So I think in terms of the prospects that we're seeing in Northern Virginia, if you look at some of the buildings and deals that we've done recently, we've been able to actually push some cash rents there, too. And so I think that's a good sign for the tenants that are in that market looking for at our buildings there. And I would also say, I mean, the growth in the cyber funding in the BW Corridor, I think, is an area that we're starting to see some more activity after , I would just say a little bit, I mean, a little bit quieter period, but all of a sudden, we're starting to see a lot more inquiries there. .

And if you really look at how the funding is being allocated, it's really for the missions that we support in our buildings and looking at the cyber emission force which is a key part of where the dollars are flowing for cyber. I think those are 2 areas, another Virginia and BW Corridor, where we're going to see heightened vacancy leasing. We've certainly seen it in Columbia Gateway as well at the beginning of this year.

And we don't have any vacancy the lease in a last week.

That's it for me. .

Thank you and our next question comes from Blaine Heck of Wells Fargo.

The 2027 budget request at roughly $1.5 trillion is clearly a major positive Steve, assuming that goes through, given that the increase is so substantial. Do you think your tenant base will need to start leasing a bit earlier and get out ahead of all of those funds coming in? Or do you think the normal kind of 12- to 18-month lag rule probably still holds steady?

Well, remember, you got to break that $1.5 trillion down into $350 billion, that's going to be a reconciliation appropriation. And if you break that down, that's really going for things that would not be -- that would not affect leases in our portfolio. So increased inventory munitions, shipbuilding, we've got a breakdown that could go through it with you off-line. .

The -- almost 30% increase in the base budget, that certainly should affect our tenant base and hypothetically could and would influence their need for space. But again, it's too early. It hasn't been passed yet nor appropriated. And then once it's appropriated, it's got to flow through to the contractors. So I think the 12 to 18 months is still going to hold that.

Got it. Very helpful. And then we noticed your potential future opportunities in the development pipeline team down by about 400,000 square feet from last quarter. Was there any specific driver behind that reduction? Any projects that might have fell out of that bucket? And any color you can provide around those situations?

Well, we harvested some with deals that we announced last quarter. And we made the decision on 1 particular mission to reduce the possibility of future demand because they look pretty committed to a mill can solution. .

Thank you. And our next question comes from Tom Catherwood of BTIG.

Maybe going back to Steve's question on the leasing. Britt, in the past, you've talked about dialing back on tenant improvements and free rent, and that's clearly shown up in the numbers for the last few quarters. So 2 questions around that. Kind of how much growth are you getting on a net effective basis now? And second, as availabilities get tighter in your portfolio, how much more do you think you can pull back on concessions?

Well, I think on the NER front, I mean, it's something that we're very focused on, on every deal we look at. And so I don't have the exact percentage about how we've grown that. But it certainly -- we have an enhanced focus on that, I would say, over the past couple of years. And then I think it's -- in certain markets, certainly, in Northern Virginia, in particular, we've been able to pull back on the concessions more so than we have in the past. So I mean, for the folks that need mission-critical space, they are willing to pony up more dollars to build out and upgrade their skills, whereas we're staying generally at the same level, if not pulling back, and certainly, in the free rent area is where we're really trying to pull back.

Do you think that's low single digits? Do you think it's high single digits on a net effective basis? I mean, just kind of general book ends, do you have a sense of what that might look like over the past year?

Yes, probably mid-single digits.

You're talking about the growth rate, Tom?

Yes.

Yes, that's about right. .

Perfect. Perfect. Perfect. And then, Steve, kind of going back to something that you alluded to in your response to Blaine's question, but like traditionally, we thought of CDP with a focus on defense intelligence markets and then you've shied away from markets that we're more focused on defense manufacturing or deployment. But with the push to modernize defense capabilities, it seems like those lines are blurring. Does that A, is that a fair comment? And if so, is that driving you to look at other markets that maybe you hadn't looked at before?

Well, if we're going to bridge into the realm of defense we've not traditionally served. It would be in conjunction with 1 of our tenants and a specific opportunity to support them with third-party capital to support their needs. We have had conversations in the past with some of our tenants to move to other markets. We've not yet made that decision. I can't say that's accelerating now. But on an individual basis, we consider it. .

And our next question comes from Richard Anderson of Cantor Fitzgerald.

So speaking of other markets, what about Des Moines, -- what's the latest and greatest there as you sort of look to build out data shells data center shells in that market?

It's going to be a great core craft this year. No real update. We're at an impasse on power. We're waiting for the power situation to materialize. I think we told you in prior calls that to move forward today, the economic terms were too burdensome.

We elected to step side, let others lead in that market and away for the power company to adjust to the new elevated demand for power for the data in the market. So we continue to 3 to 4 years out.

So for now, no corn on the comp, is that what you're saying?

Sorry, Corn on the comp, that is impressive Rich.

So as far as Huntsville, you mentioned 99.6% leased, 10,000,000 square feet available, excuse me, in a single suite. That campus has the potential to be twice the size in terms of your buildings? I assume I have that correct. When you talk about all the golden dome initiatives that are going on, what's the chance that you could have a very high-class problem of just not having enough space there when it's all said and done?

Well, that's a long runway away. So we have at least 2.5 million, really more like 3 million square feet of capacity. And to the extent that we have that great news, and we're gobbling it up, you recall that our partner in essence, is the U.S. government released land from them. It's an extraordinarily large parcel of property in the U.S., the Redstone Arco and certainly believe in light of that kind of success, we can find a way to expand our enhanced used lease and continue to support the growth of the missions on the Aircel.

So that's the least of my concerns when I go to bed at night.

Okay. And then finally for me, on the vacancy leasing, I know you're tracking to $400,000, but you've -- you're guilty of your own past success on that topic. In the past couple of years, you kind of blew away your vacancy leasing targets over the course of the year. You're sort of tracking in line now. Is that a vestige of just the more you get occupy, the harder it is to execute on vacancy leasing. So we should probably not expect the $400,000 target to go up meaningfully from here over the course of the year. Is that a fair way to think about it?

Yes. I think generally, that's fair. As our properties get as full as they are, it becomes more difficult to have inventory that matches the exact demand that's emerging. We've done a really good job of continuing to attack it. And of course, we get some space back even with our extraordinary real retention that we can bring to market. And then the wildcard is can we make some hay with our other assets where we have more vacancy? We like to set a target and beat it. So we fully plan to do our best to beat this $400,000 square foot gold, but we're comfortable we're going to make it. .

Sorry, 1 that's great. One quick last 1 for me. On the defense budget yet to be appropriate, given its sheer size, is it not reasonable to assume that it will take longer for that to pass just because it's such a big commitment? Or is it because it's bipartisan, you might actually get to a final budget pretty soon after October 1.

Well, that's a tough question to indicate. We seem to find ourselves in new circumstances continually trying to get things appropriated and funded. So I would think it's going to be difficult, not because it doesn't have bipartisan support but because we have -- let's face some adversarial objectives in the overall direction of country. And it seems like anything is a potential for a bargaining chip as we're seeing right now with Farman Homeland Security unfunded and a point in time where we absolutely need the funding for so many reasons. .

Anyway, I won't editorialize. Anything is possible.

Our next question comes from Dylan Burzinski of Green Street.

Most of my questions have been asked. But I guess since you guys called out sort of activity picking up or maybe not picking up, but potential for vacancy leasing to accelerate in BW corridor and Northern Virginia. I mean just curious, it looks like Navy Support still remain sort of the most underleased within the portfolio, albeit still at a high level. So just sort of curious what vacancy leasing prospects are there for this part of the portfolio?

Yes. I mean it has a lot to do with the cyber prospects, i think we were seeing them pop up again after, like I said, a little bit of a quiet period, smaller cyber-related companies.

Really thank you looking for Navy support.

Navy support., I'm sorry. Yes. Navy support actually -- it's a small -- much smaller portfolio for us, but Navy Support, we are actually seeing some improvements down in especially the Pax River area. There's a lot of autonomous vehicle and drone work happening down there. So as you might imagine, there's been some pickup there. And then certainly with our buildings next to the D.C. Navy Yard at Maritime Plaza. Those have also seen quite a bit of activity and pretty significant increases in occupancy over the past year. There's a lot of activity going on the D.C. Navy Yard and the contractor support there is critical. So yes, I would say Pax River and the DC Maritime Plaza are 2 areas where we're seeing real prospect activity increase. .

Great. And then I know this question gets asked every so often, and I know it's tough because acquisitions are tough to pencil. But sort of just curious what you're seeing in terms of the acquisition pipeline today. I mean any notice will pick up at all? Or is it still sort of one-off opportunities that you guys are looking at?

So we're currently not looking at anything and it continues to be one off. Remember, we've got a very, very focused investment strategy. So in the broader market, I'm sure there's more activity that we're paying attention to. So within the small set of assets we would invest in, there's nothing currently that we're tracking. .

Great.

[Operator Instructions]

And our next question comes from Anthony Paolone of JPMorgan.

I know you touched on this a little bit, but that 1 million square foot of these development leasing pipeline for what's basically about 180,000 square feet that you have? Like how much of that pipeline is for that specific space versus requirements that you might consider for incremental starts? And to the extent like you don't accommodate them, where do these folks tend to go?

So many of the things in that development pipeline anticipate new projects. I'd say 25% to 30% are for things that were actually building currently. Some is overflow for the next set of buildings that would follow what comes behind it. It's where is the demand, where is the market? And we're in the business to make sure we have inventory when it's ready to move forward.

Okay. And then just a second question on the regional office portfolio. I know it's small when there's not much expiring this year, but so look out the next couple of years, the exploration starts to get heavier. I mean any updated thoughts on how to mitigate that or the risk of that getting in the way of what's otherwise been just a lot of growth in the core?

I think the team is already starting to address some of those -- those expirations that are in the next several years with the tenants and they're working on transactions to try and pull those forward and get those done early. So in order to mitigate that risk. So I think what we're trying to do is to make sure that our headline remains where it belongs, which is in our Defense/IT portfolio and not on any blips within the other portfolio. .

Thank you.

And our next question comes from Steve Sakwa of Evercore ISI..

Yes. Just 1 quick follow-up. Steve, I know you've talked about selling some of those noncore office assets at sort of the right time. And I realize office -- traditional office has been a little bit of a dirty word -- but we have seen some, I think, successful new developments take place in Washington, D.C., what are, I think, considered exceptionally high rents. And I'm just curious, does that make 2100 L Street kind of a more viable disposition candidate today? I realize Baltimore might be a different story, but where does the Washington, D.C. asset fall?

Well, I think those benchmark trends certainly support an increased expectation of value for the asset. Those have really been driven by a relatively small component of the demand that's very well-funded tenants, that want true trophy space in a market that doesn't have any available. I don't think the investment cash flow is quite picked up enough where it would make sense to market that. I don't think we're that far away. Certainly, I think that opportunity comes quicker than we'll see Ballpark Tysons quarter.

I will now turn the call back to Mr. Budorick for closing remarks.

So thanks for joining our call today. We are in the office. So please coordinate with then get if you've got a follow-up question you'd like to discuss. Thanks again. .

Thank you for your participation today in the COPT Defense Properties First Quarter 2026 Results Conference Call. This concludes the presentation, and you may now disconnect. Good day.

Okay. Folks, thanks for joining us for our last session for the day. My name is Mark Streeter. And in addition to being the high-grade and high-yield transportation analyst, which is most of the -- which is I've been wearing, I think, for the last 2 days, I get to put on my REIT hat because I'm also our REIT credit analyst and very pleased to, in partnership with my colleague who's on the road, Tony Paolone, who covers COPT Defense Properties. Very pleased to have with us Stephen Budorick, President and Chief Executive Officer, joined by Venkat and Britt on his team. So Steve, thanks for joining us, making it all the way down from the home office or the corporate office and the home office. I guess you have a long commute home tonight, but we were just talking about not that far, but -- it's a little bit of track.

It's 20 miles, 25 miles.

25 miles. So just sort of thinking about maybe because there's some folks here in the room that might not know a lot about the story. Hopefully, the folks on the webcast is probably a little bit more familiar. But maybe sort of just talk a little bit about your focus, and then we'll jump into some questions on how -- especially how events over the recent weeks are sort of impacting your business. But maybe just sort of lay the groundwork with the basics before we jump in.

Okay. So COPT Defense Properties. We're a specialized real estate investment trust or REIT, and we're deeply concentrated in mission-critical assets to support national defense activity in the United States. The vast majority of our 207 properties are located adjacent to or occupied by priority defense missions, generally involving knowledge-based defense activities. The missions we support include intelligence surveillance and reconnaissance, cybersecurity and network activities, naval, sea and air technology development, missile attack and defense systems, drone aviation technology development, cloud computing, among others.

Our property locations are not typical for an office company. They are approximate to United States defense installations that have permanence in Maryland, Virginia, Alabama and Texas. Our properties are improved for top secret mission work. 80% of our portfolio contains high security operations. That includes 9 U.S. government secured campuses, representing over 4 million square feet that are built to anti-terrorism force protection standards and developed with SCIF improvements. We have another 1 million square feet with the U.S. government in non-full building properties or leases, 6 million square feet of defense contractor leases with SCIF, and we have 15 cloud computing campuses representing over 6 million square feet. So how is that for intro.

That's great. That's great. So first off, occupancy right now in the portfolio because certainly, there's a lot of struggling office REITs. And I think that's probably the best sort of testament to your resiliency when I cover certainly on the office side, some companies that have fallen below 80%. Where are you now? And where have you been sort of at the lows?

So right now, we're 94.5% occupied. We are 95.5% leased overall and 96.5% leased in our defense assets. Our lows, when I first joined the company and we were more of a diversified REIT with a suburban office presence, our low was probably about 87%. We spent 7 years repositioning the company to be a pure defense play. During that period of time, we sold 11 million square feet of property and replaced it with high-value new developments in the defense space. And since then, we've never been below 93%.

Yes. I mean it's amazing testament to, especially with a low now increasingly mid-BBB credit rating, some of your peers in the pure office space, if we ever want to call them peers, obviously, like I said, dipped below 80%, right? So it's -- maybe you can talk a little bit about sort of your lease structure versus a typical sort of government lease, how are they different?

So the leases that we do with the United States government are with the missions that we support. They're not GSA structured leases. So there are a couple of differences that we're able to achieve. On the one hand, we get annual escalators on our rent. It's on a flat rent structure. On the other hand, we've learned to be very accommodating to our government customers by basically doing 1-year leases. When we sign a lease with the U.S. government for a new building, it will be a 1-year lease with 9 automatic renewals or 14 automatic renewals.

And we have the confidence to accept that structure, one, because we don't have property level debt, we don't have to deal with lenders. But secondly, we know that the government will co-invest in those buildings as much money as we do. And not just an improvement, the whole structure. And so with that confidence, we accept that structure because it allows them to score 1 year's rent at a time instead of scoring all the rent of the lease in 1 year.

And what has your retention rate been running with your government tenants direct rather than separating that from sort of adjacency tenants?

Government approximates 100%. In 34 years of leasing to the U.S. government, we've never had a full building non-renew.

An amazing statistic. Can we talk...

I'd like to point out, we have a building. Show me any other one in the country that's been leased every square foot, every day for 34 years.

Yes. It's amazing. So maybe can you talk a little bit about -- it's funny, we were talking about moats around the airline businesses at this conference earlier today, as you can think about like loyalty for the big airlines, et cetera. Maybe talk about the moats around your building. Why can't someone else buy land next to one of your campuses and sort of throw a building up? Maybe I'm sort of thinking about like you have cables underground, right, that tie into critical facilities and so forth. So maybe just sort of describe how high your barrier to entry is.

So I'll give you what we call our 4 pillars of strength. One is we have a 30-plus year track record with defense contractors in the U.S. government. The second is in those 34 years, we've developed a specialized workforce. 45% of our employees carry the highest credentials available to a contractor to support top secret.

Including yourself, right?

I'm not supposed to tell -- you're not supposed to ask.

I thought that was public knowledge.

It is now. Also, we've committed to this business early. We have advantaged land positions in our operating excellence, our top 15 tenants average 6 leases in 4 or 5 locations or more. So we're tightly aligned with the industry, and we know how to support it.

So you made a big bet on Huntsville and the Redstone Arsenal a number of years ago, right? Maybe you can talk about why, how has that played out? What's the growth opportunity there outside of sort of your original core D.C. properties?

Yes. So in 2010, we entered into a joint venture relationship with a local developer that had won an enhanced use lease. We created a structure that gives them a preferred return, all the incremental capital we invested in it was baron land. We invested in infrastructure to create a business park. And in 2011, we built our first building on spec. We had 0 pre-leasing. And -- it took us about 6 months to convert that to a lease with Boeing, and it was actually a 3-building lease. So we did 2 build-to-suits. That represented about 360,000 square feet. Today, that park is over 2.5 million square feet. It's virtually 100% leased or about to be leased. We're actively developing 150,000 square foot inventory building that we have great demand for, and we have significant runway with about 3 million to 3.5 million square feet of additional development capacity.

So there's a lot of talk even before the hostilities in Iran about the Golden Dome. So how does that something -- for those that don't understand the real estate business, don't understand your company, they read a lot about Trump's focus on a Golden Dome initiative. How does that impact your business?

Well, Golden Dome or the current activities?

Well, the Golden Dome first.

Well, I'm going to do it back.

Okay, do it backwards.

The current activities personifies to America what it's like to live in a world where you can be under threat of multiple missiles inbound in the places where you live. And that's a threat that our President has identified as untolerable for this country. So Golden Dome envisions the kind of anti-missile defenses that Israel had to deploy with their Iron Dome distributed eventually across the entire United States of America. And it's aspirational in many respects. It's going to use a lot of the great technology you can now see on TV, but it also aspires to bring some of that technology into space with space-based interceptors and eventually weaponry to deter.

So that activity is really centered around the Redstone Arsenal, where the Missile Defense Agency and the Defense Intelligence Agency for space are centered and as a matter of fact, NASA and other space-oriented functions. So we anticipate it's going to be a big growth opportunity for our development outside the base. We've already signed one -- remember, it just got funded in July. We've already signed one lease with defense contractors specifically.

What was the funding for it on that.

It was in the One Big Beautiful Bill Act. It was $175 billion.

Dedicated just to Golden Dome.

To Golden Dome. And if you think about that, it's roughly 20% of the prior year defense budget for one program over a 3- to 4-year period. The down payment that's in FY 2026 budget is $25 billion.

Interesting. And it sounds like a great opportunity. So can you talk about at your heart, you're a developer, right? So you have a land bank. So when you think about how much inventory to have in land and that pace of building -- knowing now we can call it spec or whatever or inventory building, but knowing that the government is likely going to be on the back end, how are you managing? How size is that land? How big is that land bank? How much are you doing annually in terms of trying to turn that raw inventory into new leasing?

So I think in total, we've got development capacity for around 8 million square feet additional property, and that's centered around priority defense locations like Huntsville, Alabama and I would say, Fort Meade, Maryland. We don't force production. We've just built it into our cost structure. We've achieved a point in time where we can self-fund $250 million to $300 million a year in new development without any external equity or capital source on a leverage-neutral basis. We acquired this land to defend our franchise and to support our customers. And so we develop to known demand.

So speaking on the development side, you were early on in the data center shell business with Amazon Web Services, right? So...

I can neither confirm nor deny our tenant.

Okay. So -- but that's who it is. But okay, we're going to pretend, we don't know.

I repeat. I neither confirmed nor denied.

So how much of your NOI comes from data centers? How has the shell business worked out? We can't admit that you have data center shells, right? So maybe you could just talk about sort of the data center contribution. And I want to dig into as those leases come due, how are rents rolling over? Maybe just whatever you can tell us about that side of the business.

Sure. So in total, we've developed about 4.6 million square feet of data center shells for a very impressive customer. They were all pre-leased build-to-suits on a negotiated yield basis. One of the prices we had to pay to get ourselves to a point where we are able to self-fund our development is we entered into joint ventures with quite a few of those with Blackstone ultimately as our joint venture partner. So we still own 10% of, let's say, 2/3 of that.

So currently, our data center shell exposure is really only about 8%. We have several that we've just completed the development of. And as rents kick in, it will get up to 10% or 11%. But it's not as great. In a perfect world, I'd kept every one of them because as the leases have matured, the net rents have increased by a minimum of 100% and as high as about 130%.

And how much of those -- what's the cadence of -- I know it's a smaller part of the portfolio, but how much is rolling over this year, next year? What's that churn?

I think it's like 2 to 3 a year.

Okay. So all right. Interesting. So is there any concern about the Department of Defense sort of taking its eyes off the ball of leasing space because they're so distracted with a war? Does it impact the day-to-day? I mean we've got a government shutdown that we're dealing with partially. There's noise at the airports with TSA, et cetera. Does any of this noise either with the war or the government funding impact your ability to do sort of your regular way relationship with all the government agencies that you work with?

No, it doesn't. First of all, during the shutdown, we do get paid rent. Government regulations require the contracts to get paid. So it's never been an issue. The war fighting part of our customer base is not who we negotiate with for leasing space or renewing leases. So it really has no material effect. It's more headline risk. And I'd like to say when the headlines hit, it's a great opportunity to get an entry point in our stock because we usually trade off a few dollars and you can make a quick gain pretty quickly.

Yes. It's right? So that kind of brings me to one of the points I want to mention is just when we look at the catalysts for the stock, right, you hate to like boil it down to like war is good for you or conflict is good for you and so forth. But I mean, if we try to separate what's going on with Iran and the Middle East and maybe -- I mean, we had Venezuela, we have potentially Cuba coming and so forth. How do you think about sort of the catalyst for the stock outside of the conflicts and what you think could propel the stock higher?

So I really don't believe the conflicts are the catalysts that drive our stock price or our company. When the conflict occurs, the missions we support, the technology that's been developed, they apply that to the situation. The leases we have are with a variety of groups that are heavily engaged in executing that. But that's not really what drives our stock. We're not selling missiles or weapons. We're providing facilities for knowledge-based defense installations long term.

I think a great catalyst for our stock is peace through strength. The recognition that the United States government has underinvested in defense that at least before this most recent conflict, we've run the risk that we no longer have uncontested dominance in every theater of war and that peace through strength demands that we invest to make sure that we have the most lethal fighting force in the world.

So we talked a little bit about Golden Dome, but specifically on Space Command, are there different drivers there or opportunities for you there?

Yes. So Space Command is one of the 11 combatant commands, which are formed to integrate the activities of Army, Navy, Air Force, Space Force, Coast Guard into a single command structure for a theater. So current events, Central Command is executing oversight on all activities that involve the current conflict. Space Command is going to concentrate all the capabilities of the armed services for space activities. It had been stood up temporarily in Colorado Springs. When Space Force was created, Space Command was structured Under the first Trump administration, they went through a process to pick the best location where it would be, should be. They came up with Huntsville, Alabama, Redstone Gateway or Redstone Arsenal.

That was challenged and re-adjudicated twice in all 3 competitions. Redstone Arsenal won the competition. The prior President used the executive order to freeze it in Colorado Springs. The current President has overruled that order, allowed the Air Force to make its own decision, and it was once again selected for Redstone Arsenal. And so it will be moving in these next 3 years to the Redstone Arsenal. The opportunity for us initially is we have a high confidence we're going to provide an initial building to accept the early relocations because we can develop much quicker than the government can.

There could potentially be opportunity to house the command itself beyond that, but we don't have clarity into that at this point in time. But ultimately, as the command relocates, the defense contractor community that supports that command is roughly 800,000 to 1.2 million square feet of future demand that's going to want to be co-located with the command in Alabama. So we think over the next 2 to 4 years, there'll be a really nice runway of growth for us in our Redstone Gateway.

Right. That's helpful. When -- if we take a step back, if you look at your total rental income, total NOI pie chart, how much right now is direct government leases versus government contractors versus something outside of that ecosystem, if we were to split it in those 3 ways.

So roughly 35%, 36% U.S. government, 55% defense contractors, 10% nondefense.

And we know on the government direct related, that's where the retention is highest, right? I mean with the government contractors or the nondefense related, how different are the characteristics of those -- of tenant retention rollover in those 2 subsets?

So government -- just throw government and defense contractors in, they're very comparable. Over the last 10 years, we've averaged 80% retention, and that includes part of the portfolio that was nondefense. Our government tends to approximate one defense contractors, any given year, there's some flux as contractors win or lose business and make adjustments. I'd like to point out if we measured our renewal statistics as binary events, do we keep them or lose them. We'd be at almost with defense contractors. But they have to manage their portfolio to the current business needs.

So you sort of mentioned that you can self-fund the development without raising equity capital. Can you just update us on where leverage is versus your target? Let's start there.

So our target is approximately 6x debt to EBITDA. We finished the year at 5.9x debt to EBITDA. Our credit rating and our benchmark of peers would suggest we could get up to 6.4 or 6.5x debt to EBITDA. And we like to manage to a lower level. So we have embedded capacity to accept excess opportunity in the future. So in a year where our development opportunity set were to exceed the $250 million to $300 million, we have that capacity to go out and grab those developments, complete them. They will, of course, be pre-leased. The predominant portion of our development is pre-leased development. When that income comes online, it will naturally return to the 6.0 debt to EBITDA.

So when I'm sure you do your own benchmarking. I'm sure your finance team has done this with you going in to see the rating agencies. When you compare 6x leverage on your portfolio, which is mid-90s leased and so forth or occupied and show the stability of that cash flow, I mean, you have some, what I would call more of the commodity office peers or even if we call it premium workspaces and so forth. The bottom line is we can look at the volatility of that cash flow. And there, the leverage is often higher, much higher than your leverage and the credit rating is often a notch or 2 higher. Now you've made some progress with the rating agencies recently. Maybe you could talk about that. And why do they still apply sort of a penalty to you? I mean, are they so fixated on size?

No, it's actually worse than that. First of all, shameless plug. We just got upgraded by Moody's to Baa2 from Baa3. So we're very...

That was a layup for you. I was leading you to that.

All right. Did I slam it like Jordan? Yes, got it. The argument for delaying or not upgrading through both of the major rating agencies is highly theoretical. They say we have a very tight concentration of customers and a very tight concentration of assets. Now I would flip it and say, that's why we should be higher rated. We have the best credit tenants in the country in the best locations where demand has proven to be high in any cycle you want to refer to, but they kind of get that backwards.

And so my smart ask comment is, would we be a better risk if we had law firms across the country? I don't think we would. We have the United States government and defense contractors -- and by the way, defense contractors have to be in good financial standing to do business with the United States government.

So what do you really think drove Moody's? What changed in their mind? Was it just a recognition of the stability of your cash flow and occupancy in light of what's happened with the broader office peer set?

They've always recognized the argument. But on several occasions, they'd say, well, let's see how you do in this environment. So when COVID hit, they said, let's see what happens through COVID. Well, we sail through COVID without any problem. And then it was higher interest rates, it was higher inflation and our durability, our 7-year track record of FFO growth, high occupancy, we've really demonstrated to them that we are far more resilient than their theoretical arguments might suggest.

How should investors that might be new to your story think about which party is in control in Washington, D.C. We have the midterm elections coming up. I think the expectation is that the Republicans won't hold everything and that the pendulum will shift a little bit to the left. Is there -- you've obviously done all the tracking between the correlation between the elections and DoD budget and so forth. What are some of the misconceptions regarding that? Is it something anyone should be worried about if that political pendulum does shift come November?

So the misconception is that throughout all parts of government, we have a disagreement between the parties. But in defense, we have very strong alignment. So over the last 3 presidential terms, it's a question of is it good or great. But in each -- through each one of those presidencies, there is a common recognition in the House Armed Services, Senate Committee and the Senate Armed Services Committee that we need to invest in defense to keep America strong. So we've -- since sequestration, we have a graph, if you look at our reference material, defense budget has increased every year.

Yes. By an average of what? I think you know the status.

Probably 7%.

Yes, 7%, pretty good CAGR when that's driving your business. I want to give our audience here in the room a chance to ask any questions. Anyone have one? Please. Mic is coming.

Can you talk about -- there's a lot of energy as evidenced by this conference and just what's going on in the world around new entrants into the defense space. Can you talk about the kind of interactions you're having with some of those new entrants and the kind of services or opportunities you can deliver to them with your business?

So you're talking about the new start-up companies.

New start-up companies who might not be familiar with this world and maybe say, "Oh, let's SCIF...

So one, some of them have developed technology in other parts of the country. and need now that they've proven it out to relocate to be near the commands they're going to support. So to that point, Golden Dome, 3 or 4 start-up technology companies are looking at leasing in our business park right now because they'll be adjacent to the Golden Dome command structure.

Another area of great demand that we've enjoyed is cybersecurity because we have significant holdings outside Fort Meade, where U.S. Cyber Command is out. And we've been able to attract the good idea start-up company put them into the space that they can't afford, support them as they grow their business, relocate them to other buildings and support them as they get the contract that allows them to have SCIF with our deep experience in constructing SCIF and guide them through the process and help get them up to speed. We have a concept that we call life cycle landlord. We're constantly looking for that small guy who's breaking out, and we tell them, I want to be your landlord when you need a full building.

One more in the room. Yilma Abebe.

Can you talk about the 35% of your business that's direct to government. Why would the government choose to lease and then own real estate outright?

Well, the fact of the matter is the government never has enough money for the facilities that they require. The missions we support generally are funded out of the DoD. And there's a line item in the DoD budget called MILCON or Military Construction. For them to get a facility that they own, they have to compete with all the missions worldwide in the DoD from Okinawa to Europe to get that priority funding to build the building, and there's just never enough money. We are -- we don't get all of their business, but I'd like to say we fill the gaps. When there's not enough money for the missions we support, then they can move forward to lease space, and we've been a go-to source of that leasing for over 30 years.

By the way, we can also build the anti-terrorism force protected building in half the time for half the money that it takes the U.S. government. So we're also a speed-to-market kind of solution as well.

Last question for me, Steve, is there any opportunity to recreate what you did in Huntsville in another market? Is there like a list of -- does the government say, "Hey, not they're going to just tell you, but that we'd like to work with you on -- here's a new area of the country that we think we might be building up a bigger presence.

We have several active dialogues where we've identified parts of the DoD that need the same kind of help we've given to the missions we support. But I will never tell you where they are, and I will never tell you when we expect them to occur.

I don't expect you to tell me where they are, but I am curious if you think that if we look 5 or 10 years from now, will your geographic footprint look different?

I think 5 years from now, we should be able to add at least 1, if not 2 more locations.

Okay. Interesting. All right. I think we'll end it on that with a minute to spare. So Stephen, thank you very much. Thanks to Britt and Venkat for coming. We appreciate you joining us at the Industrials Conference for a different twist on some of the opportunities in the defense-related industry. So good to have you.

Thank you for having us. Appreciate it.

Thank you.

[Audio Gap]

and COPT, Steve. This session is for Citi clients only and disclosures have been made available to corporate access desk. [Operator Instructions] Steve, we'll turn it over to you to introduce your company and team, provide any opening remarks and tell the audience the top reasons and investors should buy your stock today, and then we can jump into Q&A.

Yes. And just tap the mic to turn it on. Tap the mic to turn it on, the green -- yes. Here you go.

Yes, we are good. To my left is Anthony Mifsud. He's our Chief Financial Officer. To my right, Brett Snyder, our Chief Operating Officer; and I'm Stephen Budorick, CEO.

So thank you, Seth. COPT Defense Properties is a specialized REIT, deeply concentrated in mission critical assets to support national defense activity of the United States government. The vast majority of our 207 properties are located adjacent to or in some cases, occupied by priority defense missions generally involving knowledge-based defense activities. The missions we support are intelligence, surveillance and reconnaissance, cybersecurity and network activities. They will see an air technology development, missile tech and defense systems, general aviation technology development, cloud computing and others. Our property locations are not typical for an office company. They're approximate to the United States defense installations that have permanence in Maryland, Virginia, Alabama and Texas. Our properties are approved for top secret mission work. 80% of our Defense/IT portfolio contains high security operations. That includes 9 U.S. government secured campuses, representing over 4 million square feet. Those campuses are antiterrorism force protection constructed and include SCIF, which is secured compartmentalized information facility improvements.

We have another 1 million square feet of U.S. government high-security leases outside of campuses that are CCIF and access control. We have 6 million square feet with defense contractor leases that contain CCIF. And we own 15 cloud computing campuses with over 6 million square feet that are fenced and have limited access. Additionally, an important distinction as these defense tenants must work in their offices due to the security requirements. They're executing classified missions, which must be performed in a secure space. If you take your work home, you go to jail. It's called espionage. Today, over 90% of our annualized rental revenue, or ARR, is derived from our Defense/IT properties.

Our pre-leased developments will increase that figure in the coming years. Our Defense/IT segment was 96.5% leased at year-end, which is well above peer averages. The U.S. government is our largest tenant by revenue. We have 99 separate leases at 70 different properties, totaling 5.7 million square feet and producing 35% of our ARR.

Our defense contractor tenants lease over 15 million square feet, which includes 3 million square feet of cyber defense contractor tenants. Defense contractors contributed 52% of our annualized rental revenue and 16 of our top 20 tenants are defense contractors. Nondefense locations provide just 10% of our ARR. And this consists of 5 regional office assets located in the Baltimore Waterfront, Tysons Corner and Washington, D.C. in the CBD area.

Our tenants in these assets have excellent credit pass-throughs as well, and we plan to recycle these assets as markets support a reasonable sale value.

Our strategy is very straightforward. We allocate capital to durable demand locations that are adjacent to priority defense installation emissions. Our playbook is also straightforward. We execute low-risk, highly pre-leased development, redevelopment and in some cases, repositioning. We maintain a strong investment-grade balance sheet.

Our competitive advantage really falls into 4 pillars. One is our operating platform. We have a unique platform where we're deeply experienced and we have credentials, over 35% of our company is credentialed to work in and create high security environments. We have deep development expertise, including secured compartmentalized information facilities, antiterrorism force protection, data center and mission-critical facilities.

We have a 30-plus year track record of providing space and then operating that space for the U.S. government in some of the most highly secure missions of our country. And we have advantaged land positions proximate to these mission-critical knowledge-based defense installations. So in summary, we're a specialized REITs, not really correlated with the broader economy. Our assets have strategic features and locations. There's little risk of work from home, and there's strong demand for new development and vacancy leasing.

So with that, I'll turn it back to you.

Great. Maybe just starting with some of the leasing activity. The defense budget exceeds $950 billion. Historically, there's been a 12- to kind of 18-month lag between the appropriations and leasing activity. Just some of the kind of administration's urgency behind Golden Dome, shorten not time line? Or is that still kind of the right time line we should be thinking about from that impact?

So in the broader budget, I'd say the time line would hold 12 to 18 months for the time funding that's created until we see the demand for our portfolio. And the reason for that is money tends to be allocated to a program, and the program has to be defined, competed, awarded to a contractor and then they can lease space. Golden Dome, on the other hand, is very different. It's a fast-track program. The notional initial value of the program is $175 billion. And the intent is to have the Golden Dome functional by 2028. To put that in context, $135 billion is like 20% of 1 year's defense contract for 1 program. The $25 billion that was allocated to fiscal year '26 is the fast track down payment and the general who commands the program has been given uniquely strong authority to commit money quickly.

And so we have -- even though that program just got funded in July, on July 4, we've already signed 1 lease for about 32,000 square feet with a contractor specifically related to Golden Dome. And our development that is active at the Redstone Arsenal, we have about a 400% demand to supply relationship, and almost all of that has driven over Golden Dome. So it's pretty exciting. It's early, but we think, through this year, there'll be quite a bit of leasing driven off of that, which is much quicker than normal.

And then maybe following up on that. For the 400,000 square feet of prospects at 8,500 Advanced Gateway, how much of that is tied to hard-funded Golden Dome mandates versus contractors just positioning kind of ahead of awards in anticipation of funding?

So right now, and at that about 50-50. Many contractors have received an award, very few have received funding yet, but they've been given what's called an IDIQ, indefinite delivery, indefinite quantity contract vehicle that allows the money to flow through a specific program quickly. Some of them have real work objectives that they are pursuing. And the one lease we signed has work objective, the 2 there were pretty advanced negotiations clearly have a work objective in mind. There are others that are handicapping the market for more of a long-term play, So about 50-50.

Great. And then with Space Command moving to Huntsville, are you seeing any preemptive leasing from contractors or is the market waiting for that kind of formally happen? And can you remind us just kind of the process and not moving to Huntsville?

So the Space Command is a relocation from Colorado Springs to the Redstone Arsenal. The command itself is going through its planning process. We believe we'll be the beneficiary of 1 build-to-suit lease for the command, if not more in the future. The contractor tail is defined by the government is about 2 jobs for every 1 job that will move. But that command or that contractor tail is supporting the active command. So you won't see that relocation occur until the command starts to phase its occupancy into the Redstone Arsenal, which is probably 24 months away, 18 to 24 for the first elements relocate.

And then you kind of have talked about on the development side, just not really starting kind of the next red zone building until the 8500 Advanced Gateway hits around that 60% kind of lease threshold. Just given the urgency of Golden Dome, would you kind of consider accelerating some of that development activity just in anticipation of that demand, or how do you think about that?

Yes. Just to be clear, that's actually committing to putting investment in the ground is what you're referring to. We've already preplanned 3 different sized buildings, and we are permit ready on all 3 of those. So we've taken quite a bit of the development time line and shorten that measurably. And as we see the demand for 8500 start to commit, we don't necessarily need signed leases. But when we see that demand filling that building, we will start the next one. We have 3 alternative kind of structures that we can build depending what demand looks like.

Maybe just kind of turning attention to kind of the expiration schedule for 2026. Can you just kind of update us on the delayed renewals from 2025 that got pushed from the government shutdown and and kind of walk us through how the rest of the year's expirations are shaping up?

Yes. So we've got about 2.8 million square feet that expires this year. The vast majority of that is U.S. government leases. The specific delays that you're referring to is about 1 million square feet located in one of -- in our Texas location that was because of approval processes just flipped into this year. Our large lease projection for a 30-month period as we'll renew 95% of our large leases are better. And this year, on our overall retention, we expect it to be -- we guided to 80%, and we like to be in our guidance.

And then just on some of the expirations, can you remind us how that works? Is there incremental TIs that kind of go into the space upon renewal or most renewals kind of adds as renewals?

So yes, routinely, we do give some TI and renewals. But I think if you do a good comprehensive look at our tenant improvement allowances relative to other companies in our segment, they're a fraction of theirs. So typically about $3 a square foot a year on a renewal would be a healthy renewal tenant improvement.

And then with some of the kind of the geopolitical changes with Venezuela and more recently, Iran, kind of how does that change the way that the way you think about the government's need for space?

So the missions we support, those 2 particular situations or deployment of weapon systems and troops, Certainly, the missions we support, support those and some of them develop those systems. But our business is not one that's going to flex up with the activity in Iran per se. That's more consumption of established weapon systems and deployment of troops a hotspot in the United States. This is more knowledge-based defense activities. Certainly, many of the activities we support are clearly supporting that, but it's not going to be an inflection point for our business. Our business is more long term and methodical.

Maybe switching some capital allocation topics. With your blended kind of development yield at 8.5% and where the hyperscale shelves kind of trade at like a 6% to 7% yield, does that kind of require you to have the office kind of above 9% to kind of maintain that blended yield or -- and that's where you're kind of underwriting hurdles for development spend?

So we're very comfortable with our office. Our defense IT generally at 8.5% or north. Sometimes, we exceed that 8.5% threshold, but that's our target. Certainly, the work we've done in data center shelves, we can be a little more aggressive on the rate because of the deep spread between value and cost. That's been a very profitable development realm for us, we'd welcome more, but the 2 are kind of related.

And then just you've kind of discussed kind of self-funding the equity that you need for development. Just -- does the renewals and potential kind of TIs, does that require you to hit the ATM? Or can you fully fund your anticipated development spend with free cash flow?

Yes. Since really 2023, we've been in a position to fund $275 million to $300 million a year on a leverage-neutral basis because of the free cash flow we generate after our capital use for the portfolio and payment of our dividend. And we don't see that changing. We've projected out through our 5-year forecast. We're solidly able to self-fund.

And then...

And, by the way, raised our dividend this year in the last 3.

Yes. With the pipeline kind of 86% pre-leased and there have been some stabilization with construction costs, would you start to kind of do any development that's more SPAC development? Or are you primarily sticking towards built a suite or kind of waiting until you hit certain kind of leasing thresholds to start new development activity?

So we primarily build-to-suit for our tenants, but in a couple of our locations in particular, we need to have inventory. So we just announced the full building lease for a building that we started at the National Business Park. When we started that building, we were 99.7% leased, and our largest vacant space was 7,000 square feet. To defend our franchise in that development, we need to have inventory to support growth. So we built a 140,000 square foot building, which we just leased. Similarly in Redstone Arsenal, we have 2 vacant suites and 2.5 million square feet, one's 10,000 feet, one's 25,000 feet. They are both actively -- we're negotiating leases for both of those at this time. So we started RG 8500, 150,000 square foot building. So we have inventory available.

And so we don't call it spec, we call it inventory development when we're so heavily leased. We just have to have space to work with. And we anticipate shortly proceeding with the next building in Redstone Gateway.

And then with what being able to kind of develop that 8.5% yields with the credit primarily being the U.S. government or kind of contractors that work closely with the U.S. government, how is the competitive landscape for those development projects, especially just kind of given the backdrop of an increasing defense spending budget? Who do you compete against? How do you win kind of those mandates?

So to the extent that we have competition, it's really market to market, and I have to walk you through the portfolio. But generally, when we're developing, we're not really competing. We've got such a deep relationship with the contractors in the U.S. government. And remember, I talked about the 4 legs of our stool. We have advantaged land positions. And so there are companies that could develop in Huntsville, but they can't develop into the ecosystem of contractors we've built on our development, and they can't develop on the front door to the Redstone Arsenal with immediate access and interface with their government customer.

And then in some of our locations, we have connectivity that they could not possibly compete with, which is a distinct advantage of having access to priority networks. So we tend to negotiate those build-to-suits with the long-term relationships we have with the contractors and rarely are we head to head with another developer.

And then you mentioned kind of the noncore buildings in DC and Baltimore and elsewhere. Can you just walk through maybe the timing and pricing expectations for those? And what kind of pricing expectations would you have before you're looking to sell those?

Well, I'm never going to talk about pricing. I appreciate your question. But let's just put it this way. Timing will be dependent on the financial markets. So -- and the interest rates that are available to investors to invest in real estate. Currently, for office, private user office borrowing, and they're pretty high interest rates. Anybody who wants to buy those buildings is going to look for a return spread above the cost of their debt. And those are cap rates we're not willing to sell it. 4 of those 5 buildings are very stable. And in particular, the 1 in D.C. is an absolute trophy. We've got 12 years of walk on that Class AA development, and we'll be patient to let the capital markets pick back up.

Is there any sense of -- are those kind of assets being marketed? And is there any kind of sense of increased interest that would suggest that it's more near term? Or is it more of kind of a long-term play at this point?

So we're not actively marketing any of them because we don't see the financial backdrop that we're looking for. And we're constantly working those assets to create value. So we'll just be very patient.

And then you recently kind of raised the dividend 4.9%, which is kind of above, I think, what your guidance implies for FFO growth. How do you kind of view the dividend and capital return? Or are you expecting kind of an acceleration in FFO growth kind of beyond where you're at now?

Well, to be clear, the Board makes decisions on our dividend. But our raises are tied to our projection of taxable income growth. So you can kind of put 2 and 2 together from there.

One of the questions we've kind of been asking all the companies is on AI. Obviously, your product is very specialized. But just for -- how do you use AI at the company? What AI tools do you use, is the first part of the question? And then how do you determine whether or not to develop something either internally or to use a third-party application?

So from an AI standpoint, we're very conservative. We do not -- we would not, do not and will not allow any AI application inside of our network. We just won't take the risk. We have a couple of uses through our economy and the reporting group, where they are procuring data from AI located somewhere else to simplify their world. But we're not by design a leader in AI applications inside our company.

And then how do you think AI changes? Obviously, your space is very specialized to support government missions. How do you think AI changes the way government kind of use space? Does it change anything at all from your perspective?

I think there's a lot of room for the government to get a boost out of AI, but I think about the IRS and administrative functions, I don't see it in the DoD in the near term.

And then maybe flipping to kind of the data center business that you guys have. Obviously, AI has been a driver for development in that sector. Has it changed kind of any views on how much you would like to kind of do there? You have the Iowa site. Can you give us an update there? And then just how you think overall about kind of the data center platform that you have?

So let me just address Iowa, and then I'll bridge back. That was a long-term investment, a very modest amount of money we're able to control significant anchorage in a market that an existing customer finds attractive. It will probably take us 4 years to get the power to develop there. So it's more of a long-term investment play. We put a very mass amount of money into that land, $32 million. And the entirety of that development will be build-to-suit for an existing customer when we get to the point where we can develop. With respect to AI, we have not done any AI data center development that we know of. We've developed on a build-to-suit basis only for a large cloud computing and government contractor.

And then would you kind of -- as you think about deploying capital, would you look to do kind of any additional land sites or additional data center development? Or how often do you kind of look at your land bank and see if there is a higher and better use for any land you have if it's possible to develop data centers?

So with the client in hand, we'd be willing to go to other markets and develop -- acquire land and develop. The challenge right now nationally is there's not enough power. It's just not available and almost any market. And I don't see us making any incremental land investment until there's access to power. And then with regard to redeploying our current land bank, I don't see us using that for AI data centers.

Okay. Speaking of kind of the land bank, you have I think at National Business Park around 1.5 million square feet of future development. How are you thinking about kind of the scoping like a dollar amount of that future development? And kind of time line at which that could be developed?

So the 1.5 million square feet you're referring to, I think, is the NBP.

Yes.

We've held land in inventory supporting the missions for me for the 15 years I've been with the company. And we'll continue to hold that land because it's very valuable not only to our company and our shareholders international security generally to have the capacity to provide the support to the missions that we support. And so we don't have a time line. We've built it into our cost structure. The land is valuable. And we just announced the development that will go there on that land that's important to our country, and that's kind of the way we view it. We have significantly more development capacity in Huntsville. We've developed a 2.5 million square feet. We -- the land we control, we have 3.5 million square feet of incremental capacity, surface park generally, and we're very happy to just hold that position for the long term and develop into the mission growth.

I guess as you think about kind of the demand drivers and the increased government spending, what would kind of drive you to accelerate some of that development of the land bank to the near term? Is there just not enough demand from tenants or leasing activity yet to warrant kind of shovels in the ground? Or just can you talk a little bit more about that?

Yes. I think I can already have. So we -- at the National Business Park, we built the building to create inventory. We have that lease that actually is going to give us a little more room because some of that occupancy will move out of existing buildings we have. But when we get to a point where the accommodating the growth in mission is limited, then we'll deploy capital and build another building. And that's why I think that pace is much quicker. You could expect with what I think is going to happen over the next 2 years, maybe 2 buildings a year just to keep the inventory up.

Great. And then maybe just kind of moving into our rapid fire within the last minute here. What will that effective rent growth be for the office sector overall in 2027, not your specific company?

Nationally?

Nationally.

Minus 2%.

Minus 2%. And then will the office sector have more or fewer of the same number of pump companies a year from now?

Fewer.

Great. Thank you so much.

Great. Thank you.

Welcome to the COPT Defense Properties Fourth Quarter and Full Year 2025 Results Conference Call. As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Venkat Kommineni COPT Defense's Vice President of Investor Relations. Mr. Kommineni, please go ahead.

Thank you, Jonathan. Good afternoon, and welcome to COPT Defense's conference call to discuss fourth quarter and full year results. With me today are Steve Budorick, President and CEO; Britt Snider, Executive Vice President and COO; and Anthony Mifsud, Executive Vice President and CFO. Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website, in the results, press release and presentation and in our supplemental information package.

As a reminder, forward-looking statements made during today's call are subject to risks and uncertainties, which are discussed in our SEC filings. Actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them. Steve?

Good afternoon, and thank you for joining us. 2025 was another great year for the company as we outperformed on virtually all of our operating and financial metrics. FFO per share was $2.72, which is $0.06 above the midpoint of our initial guidance and represents an increase of 5.8% over 2024 results and marks our seventh consecutive year of FFO per share growth. Same-property cash NOI increased 4.1% year-over-year, driven by a 40 basis point increase in our average occupancy.

We executed 557,000 square feet of vacancy leasing, which represented 47% of the space we had vacant at the beginning of the year. We also executed 477,000 square feet of investment leasing at a weighted average lease term of 13 years. We committed $278 million of capital to new investments, which consisted of 5 projects in 4 different markets, and these projects are 81% pre-leased. Importantly, 4 of 5 projects represent expansions with existing tenants.

In late December, we committed roughly $155 million to 2 build-to-suit projects in our Fort Meade/BW Corridor and San Antonio markets. First, we committed $66 million to a fully pre-leased development with Arles, which is the University of Maryland, applied research laboratory for intelligence and security to expand their footprint in our park. This 110,000 square foot project will expand our Discovery District campus, which currently totals 415,000 square feet and is 98.4% leased.

This new Arles facility will serve as the Capital Quantum benchmarking hub to test and evaluate quantum computing prototypes for national security. In a partnership between the state of Maryland and DARPA, the Defense Advanced Research Projects Agency. In 2024, the University of Maryland, received a $500 million contract from the DoD to support and their mission of addressing complex national security problems.

Second, we committed $88 million to 132,000 square foot fully preleased development project in San Antonio within existing defense IT tenant. Our team did a tremendous job of adding incremental density to our already fully leased high-security 1.1 million square foot campus to create this additional development opportunity.

In aggregate, our active developments along with those projects placed in service are acquired in 2025, we'll generate an incremental $52 million of cash NOI on a stabilized annual basis. which will be realized as projects are completed and placed into service. The incremental NOI will phase in between 2026 and 2029 and which will be the first full year benefiting from the total amount. $48 million of this is contractual, and the balance is from leasing up the remaining availability at 8,500 Advanced Gateway.

Britt will discuss the very strong pipeline of activity we have for RG 8500. For 2026, we're establishing the midpoint of FFO per share guidance at $2.75, which implies $0.03 or 1.1% growth over 2025's outstanding results. Our guidance absorbs a $0.09 increase in financing costs. Excluding this impact, 2026 FFO per share would have totaled $2.84 and 4.4% year-over-year growth.

Anthony will provide details on the specific assumptions included in our guidance, but we're already off to a great start to the year with capital commitments and investment leasing. In January, we committed $146 million to yet another fully pre-leased development project at the National Business Park once again with the existing Defense/IT tenant. This is another high security specialized facility that will total 236,000 square feet.

And earlier this week, we executed a full building lease for MVP 400 with an existing tenant that is a top 10 U.S. French contractor for 148,000 square feet and a lease term of nearly 11 years.

Turning to the defense budget. 3 days ago, President signed the FY 2026 Defense Appropriations Act.This base budget is $841 billion, which is an $8 billion increase over the President's initial request. Adding the $113 billion in allocated DoD funding that was in the big beautiful build. This amounts to a defense budget of over $950 billion which is the largest defense-based budget in our nation's history and is a 15% year-over-year increase.

The President's fiscal year 2027 budget request is expected to be submitted in the coming weeks, but he publicly announced the need for a $1.5 trillion defense budget, regardless of where the final number ends up. His comments sent a strong policy signal of the President's commitment to increase investment in defense, and we expect the overall size of the defense budget to continue to increase throughout the next 3 years.

Importantly, the initial FY 2026 Defense Appropriations Act enjoyed very strong bipartisan support, recognizing the increasingly complex global threat environment. A recent editorial published in Wall Street Journal was titled a Series Defense budget at last. And it highlighted the new technologies that are proliferating in ways that threaten the U.S. Homeland, which include hypersonic missiles, space and cyber weapons, drones and the weaponization of AI.

The inventorial conclusions are perfectly aligned with the administration's piece through strength philosophy and recognizes that investment in defense is definitely less costly than a harm. Given this backdrop, we continue to expect that the priority missions our portfolio of sports will be well funded in the near and medium term to Safeguard national security. And these missions include intelligence, surveillance and reconnaissance, cybersecurity, missile defense space activities, among others. Space is the newest war-fighting domain and achieving uncontested dominance in this theater is the paramount importance of the country's defense.

In support of this objective, we expect $175 billion multiyear Goldman Dome initiative and the relocation of Space Command headquarters to Onsville, to drive growth and demand for both government and contractors at thereto gateway for the foreseeable future.

Before I turn the call over to Britt, let me reflect on our performance over the past few years. In 2019, we entered our era of growth as we have largely completed our strategic reallocation plan and our FFO per share for that year was $2.3. I Seven years later, the midpoint of our 2026 guidance is $2.75, a 35% increase and represents a compound annual growth rate of 4.4%. between the initial midpoint of 2023 and 2026 guidance ranges, FFO per share is expected to grow at a compounded rate of 4.9%, which is over 20% higher than what we had projected back in 2022.

And with that, I'll turn the call over to Britt for some details.

Thank you, Steve. We finished the quarter with strong occupancy at 94% in the total portfolio and 95% in the Defense/IT portfolio. Year-over-year occupancy increased 40 basis points in the total portfolio and 10 basis points in the defense IT portfolio. Our buildings remain highly leased with our total portfolio at 95.3% and our Defense/IT portfolio at 96.5%.

The lease percentage for the total portfolio increased 20 basis points from the end of last year driven by our incredibly strong vacancy leasing performance. And I want to give special recognition to our entire team who contributed to these outstanding results in terms of both vacancy and investment leasing. In fact, we executed 557,000 square feet of vacancy leasing during the year, which exceeded our initial target by 40% or over 150,000 square feet.

In our Defense/IT portfolio, we executed 424,000 square feet which alone exceeded our 400,000 square foot initial goal for our entire portfolio. The vacancy leasing achieved represented 47% of our available inventory at the beginning of the year for the total portfolio and 58% within our Defense/IT portfolio. Half of this leasing was tied to either secure space, cyber activity or a combination of both.

In our Defense/IT portfolio, over half of our vacancy leasing and 90% of our investment leasing was executed with existing tenants. We enjoyed broad-based leasing activity across our markets. And notably, we executed roughly 110,000 square feet in our Navy support market, which represented 73% of our available inventory in that group at the beginning of the year. Many of you have asked about this market over the past few quarters, and we delivered.

The lease rate in this portfolio increased nearly 200 basis points over the year and the occupancy rate increased over 400 basis points. We also executed over 130,000 square feet in our Other segment which is the highest level in over a decade and represented 29% of our available inventory at the beginning of the year. This is important as this segment holds the largest amount of vacancy in the portfolio.

Leasing achievement in the Other segment included over 40,000 square feet at our property in Tysons Corner and nearly 90,000 square feet in Baltimore. Year-over-year, the lease rate in our other segment increased nearly 300 basis points and the occupancy rate increased nearly 400 basis points. For 2026, we have again set a vacancy leasing target of 400,000 square feet, which represents 1/3 of total available inventory at the beginning of the year. Our leasing activity ratio is 74%, which equates to 870,000 square feet of prospects on 1.2 million square feet of availability and 10% of this activity is in advanced negotiations.

Turning to renewal leasing. We executed 2 million square feet for the year with tenant retention of 78% and cash rent spreads up 1.1%. In our Defense/IT portfolio, we executed 1.9 million square feet for the year, with tenant retention of 79% and cash rent spreads up 2.7%. The government had an administrative delay in processing lease renewals that were expected in the fourth quarter which included 700,000 square feet of secure full building leases in San Antonio. This delay negatively impacted our tenant retention and cash rent spreads relative to our guidance and to quantify the impact of these delayed renewals tenant retention would have been 84% or over 600 basis points higher and cash rent spreads on renewals would have been 2.4% or over 130 basis points higher.

Our 2026 guidance assumes a midpoint for tenant retention of 80% and cash rent spreads up 2% at the midpoint. In 2026, we have 2.2 million square feet of government leases expiring virtually all of which we expect to renew. Nearly 1 million square feet of this total is at our campus in San Antonio, which consists entirely of secure full building leases with the government that expire in the first quarter of 2026. This group of leases accounts for 1/3 of the expiring square feet in our Defense/IT portfolio this year and over 40% of the expiring annualized rental revenue.

We expect 100% retention on this nearly 1 million square feet as lease economics have already been finalized. And again, we're just waiting for the government to finish processing the paperwork. We believe this process will be completed, and this batch of leases will be renewed in the first quarter.

Turning to our large lease retention on Slide 20 of our flip book. We provide an update on leases in excess of 50,000 square feet that expire between mid-2024 and year-end 2026. Overall, we now expect tenant retention of over 95% on the entire 4 million square feet of these large lease renewals. As we expect 100% retention on the remaining 12 leases totaling 1.9 million square feet, all of which are with the U.S. government and half of which are at our campus in San Antonio.

Additionally, since we started providing this disclosure 3.5 years ago, we have renewed over 4 million square feet of large leases with a retention rate of over 97%. Moving on to development. We commenced 3 developments over the past few months, and our active development pipeline totals nearly $450 million of capital commitment. The active pipeline totals 880,000 square feet and is 86% preleased. 5 of our 6 development projects are 100% pre-leased now that we've executed the full building lease at MVP 400.

The only development with space available is our 8500 Advanced Gateway project in Huntsville, which was just constructed as an inventory building in one of our highest occupied parks. We commenced construction on 8,500 Advanced Gateway a year ago and the roughly 400,000 square feet of prospects on the remaining 125,000 square feet of availability speaks to the strength of tenant demand at Redstone Gateway.

The project is currently 20% pre-leased as we signed a 32,000 square foot lease in the fourth quarter with a defense IT tenant, whose technology is central to the Golden Dome initiative. We are in advanced negotiations on a 32,000 square foot lease with another defense contractor, which is also supporting Golden Dome and has been a tenant of ours for over 20 years. This lease will increase the pre-lease rate at 8,500 skewed or 40%.

We are already progressing planning and design for our next inventory building at Redstone Gateway. And once 8500 Advanced Gateway approached a 60% pre-leased we expect to commence the next inventory development. And finally, at 8,100 right out Road in Huntsville, which is an inventory development we delivered last year, we are in advanced negotiations with one of our top defense/IT tenants to expand into the remaining 27,000 square feet of availability.

Once executed, the only space available in our 2.4 million square Redstone Gateway operating portfolio will be a single 10,000 square foot suite, and we are in advanced negotiations with the defense contractor on that space.

Our development leasing pipeline, which we define as opportunities, we consider 50% likely to win or better within 2 years or less, currently stands at nearly 1 million square feet. Recall, the pipeline stood at 1.3 million square feet at the end of last quarter. Since then, we achieved over 650,000 square feet of investment leasing, and we added another 300,000 square feet of high probability prospects. Beyond that, we are tracking an additional 1 million square feet of potential development opportunities. This activity should allow us to maintain a solid development pipeline in the near and medium term.

And with that, I'll hand it over to Anthony.

Thank you, Britt. We reported 2025 FFO per share of $2.72 and which was $0.02 above the midpoint of our revised guidance and $0.06 above our initial guidance. The year benefited from earlier-than-expected lease commencements and success in flipping expected nonrenewals to renewals and lower-than-anticipated net operating expenses, including nonrecurring real estate tax refunds, the Stonegate acquisition in late October, additional interest and other income on investments and lower net interest expense from the timing of development funding, which was partially offset by higher interest expense from our October bond offering.

During 2025, same-property cash NOI increased 4.1%, which was well above the midpoint of our original guidance of 2.75% and and was driven by a 40 basis point increase in same-property average occupancy and operating expense savings, which also positively impacted FFO per share. Same-property occupancy ended the year at 94.2%, and which is right in line with the midpoint of updated guidance and 20 basis points higher than initial guidance. The 10 basis point decline over the quarter was driven by a few previously discussed nonrenewals in the Fort Meade/BW Corridor each of which were under 30,000 square feet.

In October, we issued $400 million of 5-year unsecured notes at a yield to maturity of 4.6%. The bonds priced at a credit spread of 95 basis points and are currently trading at spreads that are tighter than our higher-rated office peers. The proceeds from the offering will be used to repay our $400 million, 2.25% bond, which impacts 2026 FFO per share based on the higher interest rate between the new bond and the maturing bond.

Our decision in September to prefund this bond maturity was driven by our conservative nature and a tight execution window that exists for any issuer earlier in the first quarter. Our decision not only eliminated any execution risk but also removed any underlying treasury rate risk. The 5-year treasury at the time of our offering was 3.67%. And since our deal priced the year has traded at or above that rate in 90% of the trading days open for issuance. With respect to guidance, we expect another solid year of performance in 2026.

We are establishing FFO per share at a range of $2.71 to $2.79, implying 1.1% growth at the midpoint. The $2.75 per share midpoint takes into account a $0.17 increase in NOI from rent increases and lease commencements in the operating portfolio, partially offset by nonrecurring real estate tax refunds along with increases in NOI from developments and one acquisition placed into service during 2025 and 2026. This is partially offset by $0.09 from higher financing costs, $1.5 from the delivery of NBP 400 into the operational portfolio and $0.03 from the net effect of lower interest and other income on investments and higher G&A.

Same-property cash NOI is projected to increase 2.5% at the midpoint. This guidance is impacted by the nonrecurring real estate tax benefits in 2025, which reduced the 2026 growth rate by 100 basis points. We expect same property occupancy to end the year between 93.5% and 94.5% and be relatively flat throughout the year.

Regarding uses of capital in 2026, we expect to spend $200 million to $250 million on active and future projects and to commit $225 million to $275 million of capital to new investments. We take a conservative approach to our AFFO payout ratio, which has averaged roughly 60% over the past 2 years and is forecasted to be under 65% in 2026. At this level, the portfolio continues to generate sufficient cash to fund the equity component of our anticipated investments on a leverage-neutral basis.

Finally, I'd like to take a moment to discuss the impact of placing our development NBP 400 into service this year and our overall approach to capitalize costs as it relates to development. We will place NBP 400 into service on April 1, which marks 1 year from the completion of the core and shell of the building. At that point, as our long-standing policy compels us we will stop capitalizing interest and operating costs associated with the project. This results in a $0.015 impact to 2026 FFO per share, which is absorbed in our guidance.

Our policy is to capitalize interest and operating expenses, the largest component of which is real estate taxes associated with properties undergoing development or redevelopment. We continue to capitalize these costs until a property becomes operational, which we define as the earlier of 90% occupancy or 1 year from substantial completion of the core and shell.

Historically, we capitalized only a small fraction of our overall interest expense with capitalized interest averaging roughly 5% of our gross interest over the past 3 years. And in 2026, forecast we will capitalize less than 8% of our gross interest expense. While delivery of MVP-400 will temporarily reduce total portfolio occupancy by 60 basis points beginning in the second quarter, and FFO per share in the second and third quarters.

Our guidance assumes the lease we just executed with a defense contractor will commence in the fourth quarter. We believe our policy regarding capitalized costs related to development and redevelopment projects is illustrative of our conservative approach to adhering to GAAP standards and avoids accumulative success basis in our projects, which would deteriorate our expected yields.

With that, I'll turn the call back to Steve.

Thanks. I'll close by summarizing our key accomplishments and messages. 2025 was a year of outstanding achievements delivering strong performance across all segments of the portfolio and all departments of the business, resulting in FFO per share growth of 5.8% year-over-year and representing our third consecutive dividend increase resulting in a 10.9% increase over the last 3 years. For 2026, we expect this will be our eighth consecutive year of FFO per share growth. We again set a target for vacancy leasing at 400,000 square feet, which is an aggressive goal given the limited amount of unleased space in our portfolio.

We expect tenant retention will remain strong at 80% and we expect to commit $250 million of capital to new investments, of which we've already committed $146 million. Our liquidity remains very strong and we expect to continue self-funding the equity component of our capital investments.

We now anticipate compound annual FFO per share growth of nearly 5% between 2023 and in 2026, and we're already off to a great start. We expect to deliver another strong year of results. Before I wrap up, I want to make a comment about the passing of my good friend and former colleague, Roger Waesche. Sadly, Roger passed away suddenly on January 8. Much of the foundation that we have built on over the past decade is a result of the leadership and foresight of Roger Waesche. Roger worked for the company for over 3 decades, serving in a wide range of leadership roles culminating with being the company's third Chief Executive Officer from 2011 and 2016.

We have no need to idolize in beyond what it was because that was more than enough. I love Housman and father, the man of great faith and integrity, the first friend, a manner of great intelligence and kindness and a colleague and leader who cared deeply for all those encountered. Those of us who had the privilege to work with and alongside Roger, are better off because of it. He is greatly missed.

Operator, with that, please open up the call for questions.

Thank you, Mr. Budorick. [Operator Instructions]

Our first question comes from the line of Seth Bergey from Citi.

I guess just starting off with the development pipeline, are you starting to see opportunities from Golden Dome and the new kind of defense appropriations kind of trickle into that pipeline visibility? Or are projects kind of related to that, so on the come?

I think the answer is both. Britt talked about the big backlog of prospects we have for RG 8500 in the 400,000 square foot range, many, if not most, of those pertain to golden done I believe they represent kind of initial footprints, early moves to get into the action. And I think subsequent down the road, you'll see larger requirements as awards are made and the contractors ramp up to perform the actual creation of the Golden Dome.

I'll just add a couple of things to that, too. I mean they're really trying to move that process forward from contracting standpoint. And I mean the Missile Defense Agency's Shield contracts could afford DoD with quite a bit more flexibility to process orders more quickly. And then also, they're looking to fast track especially some of the space-based interceptor contractors through OTAs or other transactional authority.

So we actually we're saying it not just through the tours, but also how they're setting up for these contracts to be awarded. So expect some velocity this year.

Great. And then just a second 1 on kind of the leasing assumptions around tenant retention, 80% at the midpoint. I guess -- and for the 20% that would not be retained, given kind of the type of tenant that you have, where are those tenants going? Is there like a cited reason for move out? Or could that be conservative just kind of given where your retention has been in the past couple of years.

Well, when you look at our nonrenewals from year-to-year, it's typically smaller tenants that are vulnerable to a relocation because they need a little small -- a little less space or a little more space. Probably 70% of nonrenewals are just getting smaller tenants into the right-sized space. Some of those are nondefense tenants. And often is our asset managers managing their inventory to accommodate the growth of larger defense tenants.

So there's always a little friction in there. But I have to remind you, for a decade, we've delivered 80% retention. It's pretty astounding number.

And our next question comes from the line of Blaine Heck from Wells Fargo.

Just following up on potential additional investments, specifically the roughly $100 million of additional investments earmarked for guidance and in 2026. I guess what do you think the mix between acquisitions and developments will be in that total? And can you talk about the profile and yields that you're targeting on acquisitions? And outside the activity in Huntsville you described -- are there any additional near-term development projects that you're eyeing at the moment?

Well, we talked about our development pipeline, having roughly 1 million square feet. A big chunk of that are smaller contractors for 8,500. But there are some build-to-suit opportunities. Our yield targets haven't really changed for developments. We target $8.5 million cash on cash yield at the commencement of the lease.

Regarding acquisitions, when they occur, we consider them opportunistic. We don't have any built into our guidance, if you will. And typically, the yield on that acquisition has to exceed that, which we can do on our development opportunities for us to make the move.

Got it. That's helpful color. And then just switching gears. You guys have been pretty steadfast in your messaging around not needing equity as a source of funds to support your investment initiatives. But given that the stock performance has been very strong thus far this year, I'm wondering whether you'd be more open to issuance at these levels? I guess how equity you would rank in your options for funding sources -- and maybe alternatively, are there any assets that you would consider for dispositions if you were to add significant developments or acquisitions this year?

Well, many layers to that question it's nice to be in a position where we could consider issuing equity. But it's kind of a last alternative. We have -- as we have made very clear the ability to handle our expected development investments with the cash we generate internally. We actually have the building ability to flex up in a given year or 2 with a modest increase in our debt ratio, which on a pre-lease basis will only be temporary.

Regarding dispositions, there are a few assets that we've clearly indicated we'd like to sell. They're all in the other segment, not defense. Timing of those sales, is that so much trend on our development, our pace of development opportunities, but more market conditions in the markets where they exist, where we can get an efficient sale and preserve shareholder value.

So I guess just asked another way, I guess, you don't feel like your hesitation to issue equity has held you back at all from taking on more projects. Is that correct?

Not at all. If God forbid, we get so much that we have to issue equity. Well, that will be a happy day for our investors. So we'll let everyone know. -- well in advance, but we don't expect that to happen.

Our next question comes from the line of Anthony Paolone from JP Morgan.

So first one, just on the starts that you anticipate for 2026. It sounds like maybe the follow-up for 8500 and Huntsville or then, are there any others in the plan?

Well, we have our eye on a few, but we're not going to tell you where the area. We're working several other opportunities. And yes, you're right. We expect to start in inventory pretty quickly after 8500 gets committed.

Okay. And so I guess if we're kind of looking out even beyond '26, like your development -- your investment spending has been pretty consistent last couple of years in your guidance for '26. But if we look at like what's left to spend on the developments in place right now, it sounds like you'll still have a couple of hundred million to spend after 2026. And then if you start some things this year that will kind of add to that. So I guess, should we expect development spending or investment spending to maybe ramp a bit in the next couple of years?

From a spending standpoint, yes, because if you look at the development chart in our supplement, you'll notice that the 2 buildings that we committed to on in late December and 1 in early January. -- have placed in service dates that are in 2027 and late 2028. So you're correct. The spending for the significant spending for those isn't going to occur in 2026, it will occur in -- so there will be incremental funding for the commitments that we've made this year as well as the commitments we expect to make in 2026 and beyond.

Okay. And then I guess my follow-up then and all that because it seems like business is going well. And a few years ago, you had laid out your 4% kind of earnings CAGR as a intermediate or maybe even longer-term growth rate. Do you think that still stands? Is there a chance that could bump a bit higher given all the conditions surrounding the business or maybe how to think about that?

Well, this year is a transition year because of the impact of the refinancing costs. I think later in the year, we'll probably try to give you a little more of a view of what our future looks like, but we're very confident we're going to continue to produce solid growth as we have. And that's my message.

And our next question comes from the line of Manus Debeka from Evercore ISI.

Out of demand that you're seeing in your markets, how are just driven by existing tenants versus new tenants? And have you witnessed any like meaningful uptake in migration from maybe like tech defense tenants into your markets from other regions in the U.S.

You'd say it's about 50-50 existing and new bids. And then we are seeing some groups come in from other locations, including Colorado and California. So it's -- yes, we're encouraged by seeing some influx of people into our markets that have not had footprints there previously.

Got you. I appreciate the commentary about maybe getting another outlook later this year. So we're definitely looking forward to that one. But just maybe in your view, obviously, with now the manufacture looking really good, and you're certainly like being able to capitalize on that. like how do you expect your like tenant mix, maybe to change if we compare today's portfolio maybe to 1 potentially in like 5 years from now? Like where do you think like maybe the mix is shifting in your portfolio?

The mix of tenants or are you talking about concentration?

I'm specific tenants like Overman versus tech defense versus traditional contractors, like where do you think there's maybe outside growth? Who do you think is going to take bigger shares going forward?

Well, that's a hard one to answer. I think it will be roughly comparable to what it is -- 2 parts defense contractor for every one part government, and we'll see that growth in a variety of markets.

Our next question comes from the line of Rich Anderson from Canter Fitzgerald.

Yes Rich Anderson here. I call it off there. Steve, first, well said on Roger, 1 of the best that I can recall we're working with, soft-spoken unassuming, but probably a big part, as you mentioned, the architect of where you guys are today. So his legacy lives just now getting under the questions. In terms of Huntsville and kind of where it is in terms of the size of the portfolio, 2.5 million square feet or thereabouts MVP is 4.3 million square feet and growing from there.

When I think about all the forces at work moving to Huntsville, whether it's missile command, space command, golden dome. Do you feel like you could get to a point where you just kind of run out of opportunity to meet some of these demand forces coming at the area? Or do you see opportunities to expand to be able to build more in the area. I'm curious what your sort of 5-year outlook is on Huntsville in terms of how big it can become within the portfolio?

Well, I can't wait to be on a call to tell you how we're going to manage that growth. And it's going to happen. It's just going to take a year or too, Rich. Do recall, we're built to 2.4 million square foot feet right now. We've got a little bit under development. Our overall capacity and the land we control without structured parking is 5.5 million square feet. So we got 3 million square feet of development runway and the enhanced use land that we do currently control.

We believe there is a significant opportunity at the point where we have consumed that development that we can continue to expand our enhanced used lease presence on the base because there's ample land available. The existence of our contractor and government campus is a well-appreciated catalyst to the missions on the base. And in essence, we work in partnership with the U.S. Army overall commands to support their missions. So I don't think we're ever going to run out of runway there. There might be some processes we have to go through. But we've a long runway in Huntsville.

Okay. In terms of the organic growth of the company, you guys have been successful at improving upon whatever your guidance was to start the year. I think in the last 2 years, you've seen it steadily sort of improved from 1 quarter to the next. Maybe the calculus is a little bit different this year. I'm not sure. But would you say that you've left some opportunity on the table from a pure organic point of view? And what has to happen for same-store to sort of get a little boost up as the year progresses? And maybe you've left some conservatism on the table as well.

Well, same-store is a battle of benches. It's square feet renewed weeks of earlier or later commencements, pennies of rents, it's hard to say we're leaving anything on the table. Last year, our team executed extraordinarily well at getting the best outcome of probably 150 different transactions. And meanwhile, our operating teams have to keep the expenses in line contest taxes. It's hand-to-hand combat and same-store growth.

And I think we've put out a good solid forecast -- and we'd like to beat it, but I don't think we've sure coded it.

Okay. Last for me, the $950 billion defense budget with the OBB, I'm curious if you could sort of frame when that will start to matter from -- to the bottom line in terms of leasing and actual opportunities for the company. I mean it's great, obviously, as a setup for the long term, but is that like a 2- or 3-year type of process before you actually see it make its way to your FFO line?

Yes. We've traditionally conveyed that from a appropriation. -- our demand impact is 12 and sometimes 18 months down the road. And particularly with some of the big funding things that are occurring right now because they're the funding is going to new programs.

New programs have to be conceptualized then put into contract competitions defense contractors have to compete for the contract, get an award, survive protest finally get an adjudicated result and then they can lease space. So 12 to 18 months, it's really a very strong signal that our demand is going to remain very healthy if that prove over the next 2 years.

I'd just add that there's a couple -- like if you look at what I was referring to earlier, Golden Dome and even Golden fleet, which is less applicable to us. But those 2 initiatives they're working on ways to fast track those dollars in. So Golden Dome for us is certainly has the potential to achieve benefit from that tenor.

That was the genesis of my question, like it's somewhat political that all this is happening, although it is bipartisan, I get it in terms of the spending bills. But I just wondered if there was -- given the geopolitical climate of today, maybe you would see the benefits of this appropriations bill and so on sooner than 12 months, but I guess you're holding the line on that for now.

Well, I think what Rick conveyed is you're going to see a mix of both. But one thing that's crystal clear is this administration is a very high sense of urgency. So it could be quicker than we have traditionally seen, but it's hard to tell you it will be.

[Operator Instructions]

Our next question comes from the line of Dylan Burzinski, from Green Street.

Taking the question. I know the Iowa data center development plan has sort of been pushed back a little bit. But just sort of wondering if there are any other sort of markets that you're looking to sort of go out and gobble up some land parcels for future development opportunities on the data center side?

That currently, we're constantly evaluating opportunities -- but there's nothing that we're seriously considering.

And then I guess just 1 last 1 on sort of the office disposition plans. I think you've seen that we've heard over the last several months is that debt capital markets are improving, bidding sends are getting more full. Just sort of curious on your thoughts on sort of bringing 2100 market because I know that's sort of largely stabilized now.

Well, the D.C. market has not yet indicated pricing for assets that excites us. And so I don't expect that to happen for 12 months, but we have that building extremely well positioned -- it's a fantastic development with great tenants. And when we see capitalization rates approach to the level that makes sense for our shareholders, we can move on it.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Mr. Budorick for any further remarks.

Thank you all for joining our call today. We are in our offices so please feel free to coordinate through Banca if you'd like to talk to us further. Have a great day.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Welcome to the COP Defense Properties Third Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. At this time, I'd like to turn the call over to Venkat Kommineni, COPT's Defense Vice President of Investor Relations. Mr. Kommineni, please go ahead.

Thank you, Kevin. Good afternoon, and welcome to COP Defense's conference call to discuss third quarter results. With me today are Steve Budorick, President and CEO; Britt Snider, Executive Vice President and COO; and Anthony Mifsud, Executive Vice President and CFO. Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website in the results press release and presentation and in our supplemental information package.

As a reminder, forward-looking statements made during today's call are subject to risks and uncertainties, which are discussed in our SEC filings. Actual events and results can differ materially from these forward-looking statements, and the company does not undertake a duty to update them. Steve?

Good afternoon, and thank you for joining us. The company's strong performance during the first half of the year continued throughout the third quarter and has resulted in an increase to our guidance for the year across several financial and operating metrics. We've extended our streak of achieving or outperforming our FFO per share guidance to 31 consecutive quarters. And in October, we successfully closed on 3 important financings, which prefund our 2026 bond maturity and provide additional liquidity to fund our external growth.

Turning to results. FFO per share as adjusted for comparability was $0.69 in the quarter, $0.02 above the midpoint of guidance and $2.02 for the first 9 months. This is a 6.2% year-over-year increase for the quarter and a 5.2% increase for the first 9 months. Same-property cash NOI increased 4.6% year-over-year for both the quarter and the first 9 months. We continue to outperform on the leasing front. The portfolio ended the quarter at 95.7% leased. That's our highest level in 20 years. We signed 78,000 square feet of vacancy leasing in the quarter and 432,000 square feet during the first 9 months. This volume represents 36% of the unleased space we had at the beginning of the year.

Recall, our initial vacancy leasing target of 400,000 square feet was increased to 450,000 square feet at the end of the second quarter. So our achievement year-to-date already represents 96% of that elevated target. Tenant retention remains strong at 82%, both during the quarter and the first 9 months. We reduced our lease expiration exposure through year-end 2026 by 25% or 1 million square feet since last quarter, and we expect significant progress in the fourth quarter. In recent weeks, we committed $72 million of capital to 2 external growth investments, both of which enhance our relationships with existing Defense/IT tenants. First, we commenced construction of 7700 Advanced Gateway in our Redstone Gateway campus, 100% pre-leased $27 million development, which is our fourth build-to-suit project with this tenant at that location. Second, we acquired Stonegate I in Chantilly, Virginia, a $40 million purchase of a strategic property fully leased to a top 20 U.S. defense contractor, which represents this tenant's ninth location in our portfolio. Year-to-date, we have committed roughly $125 million of capital to 3 new investments against our original target of $225 million. We are in the advanced stages of negotiations on multiple build-to-suit opportunities, and we expect to exceed our original capital commitment target. Turning to guidance. First, based on our strong performance year-to-date, we are increasing the midpoint of 2025 guidance for the following 6 metrics. FFO per share increases by $0.03 to $2.70 a share, which equates to 5.1% growth over 2024's results and is $0.04 above our initial guidance. Same-property cash NOI growth increased to 75 basis points to 4%, which is 125 basis points above initial guidance. Same property year-end occupancy increases by 20 basis points to 94.2%. Cash rent spreads on renewals increases by 200 basis points to 2%. Our vacancy leasing target increases by another 50,000 square feet to 500,000 square feet, which is 25% or 100,000 square feet above our initial target. and capital committed to new investments increases by $25 million to $250 million. Britt and Anthony will provide more details on these increases. On September 2, President Trump announced the relocation of Space Command's headquarters from Peterson Space Force -- based in Colorado Springs to Redstone Arsenal in Huntsville. The Command is expected to relocate to our Redstone Gateway secured parcel. Since the announcement, we've been active dialogue with the leadership at both Space Command and Redstone Arsenal to optimize their programming and sequencing activities for their new facilities. We expect the Command to lease roughly 450,000 square feet in total, most likely in increments over time. Beyond the direct development opportunity with Space Command, we also expect defense contractor growth that supports the Command will emerge in the Huntsville market. The government estimates this could eventually drive a 2:1 contractor tail over time, but this won't start to significantly materialize until Space Command has completed its relocation expected in 2027. Of similar importance, the missions at Redstone Arsenal will play a key role in building the planned Golden Dome Missile Defense Shield and is driving contractor opportunities more quickly than the Space Command relocation.

In addition to the mission work our tenants already conduct to support missile defense in the park, we are in discussions with defense contractors seeking space to compete for the incremental opportunities arising from Golden Dome and one new lease has already been signed since the July funding and additional contract awards are expected as soon as year-end. Turning to the government shutdown. Since the end of September, the Senate has failed to pass a continuing resolution, putting the government into shutdown, which continues today. As a reminder, one, the government shutdowns do not materially impact our business as we still collect rent. And two, our buildings are well occupied because they are leased to essential missions. However, the shutdown does create some uncertainty around the timing of lease activities.

Given the significant volume of government lease renewals contemplated in the fourth quarter, an extended shutdown could modestly impact our full year guidance for tenant retention and cash rent spreads due to timing delays. To be clear, any delay as a result of the shutdown only impacts the when for these renewals, not the if. Looking forward, we expect that when the FY 2026 defense appropriation is approved, it will support additional demand for our portfolio as the priority missions our tenants support are expected to see increased funding to counter an increasingly complex national security environment. These missions include intelligence, surveillance and reconnaissance, cybersecurity and network activities, naval sea and air technology development, unmanned aerial vehicles and missile defense and space activities.

So with that, I'll turn the call over to Britt.

Thank you, Steve. Throughout the year, we have continued to see strong demand from defense contractors looking for new or incremental space to support mission programs and contracts, a significant amount of which requires SCIF. As we had anticipated, occupancy in our total portfolio declined 10 basis points sequentially, but the lease rate increased 10 basis points. More importantly, the lease rate in our Defense/IT portfolio increased 20 basis points to 97%. The short-term occupancy decline over the quarter was driven primarily by 2 known nonrenewals totaling less than 80,000 square feet. This expiring area has already been leased to defense contractors with occupancy commencing in the first half of next year. In the Fort Meade BW corridor, we leased the space related to 41,000 square foot -- 41,000 square foot nonrenewal by a financial services tenant in Columbia Gateway to RealmOne, a rapidly growing cybersecurity innovator. RealmOne is expanding its footprint in the park from a little over 10,000 square feet to over 50,000 square feet. This is a continuation of our successful effort to increase the concentration of defense and cyber tenants in our Columbia Gateway portfolio. And in Huntsville, we leased the space related to a 37,000 square foot nonrenewal resulting from M&A activity to Georgia Tech Research Institute or GTRI, for its expansion. GTRI is doubling its footprint to 75,000 square feet and will fully occupy 8800 Redstone Gateway.

GTRI is a DoD-sponsored university affiliated research center, which serves missions at the Redstone Arsenal, including Army Air Defense Systems and the Missile Defense Agency. We continue to outperform in terms of vacancy leasing as we leased 78,000 square feet during the quarter and 432,000 square feet during the first 9 months of the year. Our third quarter volume exceeded our plan as we anticipated activity in the back half of the year would moderate due to the delayed appropriation, which wasn't passed until July. Despite the late appropriation approval, we have seen some contractors move forward and execute leases.

Currently, we have another 110,000 square feet of deals in advanced negotiations, which led us to raise our full year target again to 500,000 square feet. Moving to renewal leasing. We executed nearly 800,000 square feet in the third quarter and achieved an exceptional tenant retention rate of 82%. During the first 9 months of the year, we executed 1.7 million square feet, also achieving a tenant retention rate of 82%, which is right in line with the midpoint of our full year guidance range of 82.5%.

On Slide 23 of the flip book, we provide an update on our lease expirations in the fourth quarter, which totaled 1.7 million square feet in our Defense/IT portfolio. All but 75,000 square feet of these expirations are U.S. government leases and nearly 1.4 million square feet or 80% of these expirations are in secure full building leases to the U.S. government.

We are working with the government on these renewals and expect 100% retention on these leases. Our retention rate guidance assumes that we renew roughly 700,000 square feet of this U.S. government space by year-end and the remaining 660,000 square feet in 2026.

Turning to large leases expiring between third quarter of 2024 and through year-end of 2026, as shown on Slide 24 of the flip book, we renewed 5 large leases in the quarter, totaling 640,000 square feet at a 100% retention rate. This included a secure full building lease with the U.S. government in Maryland, a lease with Boeing in Alabama in their defense, space and security business and 3 data center shell leases in Northern Virginia, of which we own 10%, where cash rent spreads increased 91%.

Over the last 5 quarters, we've renewed 1.9 million square feet of large leases at a 97% retention rate. We have 2 million square feet of large leases expiring over the next 5 quarters, and we continue to expect a 95% retention rate on the full set of large lease expirations. Cash rent spreads on renewals were up 7.5% during the quarter and up 2.4% during the first 9 months of the year.

The outperformance in cash rent spreads during the quarter was driven by the extension of a lease with the U.S. government on our secure parcel in Huntsville, which was not contemplated in our previous guidance. The 210,000 square foot lease was extended for another 10 years and will now expire in 2040. We are increasing the midpoint of full year guidance for cash rent spreads by 200 basis points, which takes into account this lease and some early renewals expected in the fourth quarter, which were not previously anticipated. With respect to capital commitments, during the quarter, we executed a 101,000 square foot lease with Yulista and commenced construction on 7700 Advance Gateway, a $27 million development project. The tenant serves DoD missions at the Redstone Arsenal, including the U.S. Army Aviation and Missile Center.

Our relationship with Yulista began in 2020 when we delivered their 3-building campus in Huntsville, totaling nearly 370,000 square feet. This expansion strengthens our relationship as Yulista is currently our 14th largest tenant and will occupy nearly 0.5 million square feet in our Redstone Gateway portfolio. Yesterday, we received more good news regarding Huntsville. We signed a 32,000 square foot lease with a defense contractor at 8500 Advance Gateway. This active development project, which we commenced only 2 quarters ago, is now 20% pre-leased. The tenant also serves DoD missions at the arsenal, including the Missile Defense Agency and its technology is central to the Golden Dome initiative. This is our first new lease tied to the Golden Dome, which was funded in July. We also have a strong pipeline of demand on the remaining availability in this building with over 300,000 square feet of prospects on 125,000 square feet of space, and we anticipate additional pre-leasing activity in the coming quarters.

On Slide 13 of the flip book, we provide an overview of the $40 million acquisition in the Westfield submarket in Chantilly, Virginia completed just yesterday, which meets all of our investment criteria. Stonegate I is a 142,000 square foot building that is 100% leased to the 16th largest U.S. defense contractor in terms of defense revenue with 10 years of lease term remaining. We acquired the building at a 9% initial cash NOI yield, which exceeds our development yield threshold.

The tenant's mission group serves defense demand drivers in the Westfield submarket, and the mission set has been executed out of this space for the last 25 years, and the property contains significant security enhancements. This building is a natural extension of our deep concentration in this important submarket.

We own 10 buildings totaling over 1.5 million square feet that are over 94% leased, all within a 1-mile radius of Stonegate. We are the dominant landlord in this supply-constrained submarket as we now own roughly 1/3 of the 4 million square feet of office inventory. And the bulk of our current tenants serve the same demand drivers as the tenant in this building. In addition, Cushman & Wakefield identifies the Westfield submarket as the tightest submarket in Northern Virginia at 94% leased with Class A office rents increasing 25% over the past 5 years.

Moving to our development pipeline. We have 1.3 million square feet of opportunities, which we consider 50% likely to win or better within 2 years or less. Beyond that, we are tracking another 1 million square feet of potential development opportunities. 100% of this 2.3 million square feet of development demand is at our Defense/IT locations. Overall, our leasing results continue to surpass our expectations and our recent accretive capital deployment initiatives serve to further expand our dominant footprint in 2 of our highly leased and supply-constrained submarkets strategically expand our relationships with our top defense tenants and above all, drive FFO per share growth and create shareholder value.

With that, I'll hand it over to Anthony.

Thank you, Britt. We reported third quarter FFO per share as adjusted for comparability of $0.69, which was $0.02 above the midpoint of guidance and represents a year-over-year increase of 6.2%. The outperformance versus the midpoint of our guidance was a combination of higher-than-anticipated same-property cash NOI, lower-than-anticipated interest expense as well as a $0.01 gain on an alternative investment.

During the quarter, our same-property cash NOI increased 4.6%. The growth was driven primarily by the benefit from a 40 basis point increase in average occupancy in the same-property portfolio, lower-than-anticipated net operating expenses, including receipt of a nonrecurring real estate tax refunds and the burn off of free rent on development leases placed into service in 2023 and on leases that commenced later in 2024. The outperformance for the quarter was driven primarily by the net operating expense savings.

Based on our achievement year-to-date, we are increasing the midpoint of our full year guidance for same-property cash NOI by 75 basis points to 4% with 4.6% growth during the first 9 months of the year, there are 2 offsetting factors to note in the fourth quarter. The first is $1 million of real estate tax refunds in the fourth quarter of last year that will not recur this year. And the second is the impact to NOI from a few previously discussed nonrenewals in the Fort Meade BW corridor, each of which are under 30,000 square feet. Despite these nonrenewals, we are increasing the midpoint of our year-end same-property occupancy by 20 basis points to 94.2% due to a few earlier-than-anticipated lease commencements now expected late in the fourth quarter. We've been very active in the capital markets over the past few months.

When we established 2025 guidance in February, our forecast assumed we would prefund the capital required to repay our $400 million 2.25% bond in the fourth quarter. We are very pleased to report that we've had great success on this front, along with 2 other financings, all of which demonstrate the tremendous support we have from both fixed income investors and the banking community.

On the bond issuance, in late September, we announced a $300 million 5-year unsecured bond offering at an initial credit spread of 125 to 130 basis points. The order book surpassed $3 billion, more than 10x oversubscribed. As a result of this tremendous investor demand, we upsized the offering to $400 million and priced the offering at a credit spread of 95 basis points and a yield to maturity of 4.6%. The credit spread achieved was tighter than the trading levels of all of our equal and higher-rated office peers, and these bonds continue to trade at levels that are tighter than those peers.

We sincerely appreciate the support from the fixed income investor base and strongly believe this execution and the credit spread achieved is a testament to their appreciation of the resiliency of our cash flows and the strength of our strategy, portfolio, operations and balance sheet. In October, we recast our revolving credit facility. The last time we recast this facility was in the fall of 2022, a period when the debt capital markets were particularly constrained for office companies, which resulted in a downsized facility from $800 million to $600 million. With this new facility, we upsized the capacity by $200 million back to $800 million, extended the maturity by 3 years to 2030, expanded our bank group and most importantly, attained pricing at BBB flat, Baa2 spread levels as opposed to our current BBB- Baa3 rating.

As a result, the SOFR spread on the credit facility declined by 20 basis points to 85 basis points. The SOFR spread on the term loan declined by 25 basis points to 105 basis points, and we eliminated the 10 basis point SOFR transition charge on both loans. Also in October, we closed on a $200 million 4-year secured revolving credit facility. This facility can be used to fund any investment or for general corporate purposes.

However, we plan on using the capital to fund the construction of our development projects. Needless to say, we are very pleased with the $400 million of additional capital capacity from the line of credit and a new development facility and thankful for the commitment and support from existing and new lenders to the company. With respect to guidance, we are increasing the midpoint of 2025 FFO per share by $0.03 to $2.70, while narrowing the overall range. This increase is a result of our $0.02 of outperformance in the quarter and $0.01 from better-than-anticipated rate on the bond offering and the acquisition of Stonegate I.

We are establishing fourth quarter guidance for FFO per share as adjusted for comparability in a range of $0.67 to $0.69, which is a $0.01 sequential decline based on the $0.01 nonrecurring gain in the third quarter and a $0.01 drag from the bond offering in the fourth quarter as the proceeds will be held as cash until maturity.

These items are partially offset by the impact of Stonegate I. In 2026, prefunding the March maturity will result in a $0.01 drag in the first quarter until the repayment on March 15 and a $0.07 refinancing drag over the remainder of the year based on the roughly 235 basis point negative spread between the new bond and the maturing bond. This refinancing headwind is partially offset by the acquisition of Stonegate I, which is expected to be accretive to FFO per share by nearly $0.05 in 2025 and nearly $0.02 in 2026. The successful financing activities over the past few weeks generated the capital to repay our March 2026 bond maturity and puts us in an even stronger position to capitalize on external growth opportunities and deliver shareholder value.

With that, I'll turn the call back to Steve.

So we achieved great results, highlighted by our strong leasing and recent capital deployment. We delivered FFO per share growth of 6.2% year-over-year, marking our 21st consecutive quarter of year-over-year growth. We expect 2025 to be our seventh consecutive year of FFO growth per share, and our revised guidance implies an annual increase of 5.1%. We increased the midpoint of 2025 guidance for 6 key metrics.

We committed $72 million of capital to 2 new investments, both of which are fully leased, and we expect additional activity in the fourth quarter. And notably, we had great success on 3 financings, increasing our liquidity by $400 million and achieving a sector-leading credit spread on our bond offering.

Finally, we continue to anticipate self-funding the equity capital invested in development and acquisitions on a leverage-neutral basis and compound annual FFO per share growth of over 4% between 2023 and 2026. So we are well on track to deliver another successful full year. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Blaine Heck with Wells Fargo.

Steve, can you give us an update on how you're thinking about how long of a lag there could be before we start to see the increased budget once approved and other positive policy decisions to really start impacting leasing decisions and activity mainly outside of Huntsville, which I think has its own demand driver dynamics.

Yes. So kind of pick up on your last point. Remember, the Golden Dome activities are already funded for the initial down payment through the One Big Beautiful Bill Act, and we see demand building right away. I wish I had a more specific answer for the first part of the question, which is when will the appropriation get approved. Clearly, the shutdown is not helping things. And before the shutdown, it was expected to do a continuing resolution into the end of November and then appropriate the 9 budgets in December. I'm not exactly sure it's not clear to us how that might be affected by the extended shutdown.

That's helpful. I guess once approved, would you expect kind of a 6-month lag, a 9-month lag? How do you think this cycle compares with others that you've been through? And what was the lag that you've experienced in the past?

I got it. I would say this one, you'll start to see activity, I would think no later than 6 months. And I only say that, which is in contrast to our usual comments that demand arises 9 to 12 and sometimes 18 months after appropriation because we've had so many discussions with tenants that are contract contingent. They're planning for an expected win of a contract, and they need that appropriation for contract awards flow. So I would think it would be quicker this time around. There is pent-up need and expectation.

Great. That's really helpful. Second question with respect to the acquisition of Stonegate I. I guess when I look at the aerial view in your presentation, this property seems to be just a little bit outside of the cluster that you've historically owned in that market. So without asking details on the seller, I'm just wondering if this acquisition might lead to more opportunities to acquire in that market and whether you'd be interested in growing -- continuing to grow your market share there?

Well, first, I'll take a little exception to your analysis. We have 2 buildings immediately across the street from this building and a secure campus kitty corner on that intersection. And it fits quite nicely into the geographical footprint of our portfolio in that market. And you'll come on a tour, and I'll show you that in person. With regard to expanding our concentration in that market, I've been interested in doing that for a long period of time. It's a -- we have key demand drivers in the market. It's one of the markets where although we have -- we're now up to about 1/3 of the inventory, that's relatively low for our deep concentration in the submarkets that we tend to have. So there are other good assets and there are a significant amount of defense contractors in buildings we don't own. And if the opportunity arose to acquire them with the kind of returns we achieved on this one, I would strongly look to do so.

Our next question comes from Steve Sakwa with Evercore ISI.

Yes, just on that Stonegate, I guess, Steve, given the location, the tenant, kind of the work they put in, I guess I'm a little surprised at how good the yield is for you. Obviously, that's a great outcome for you guys. But I guess why is the yield so high on this? It just strikes me as kind of an above-market return for what seems like little risk. So is there something we're missing here?

There are 3 factors that really play into it. One, the seller had a specific time line to sell this asset, and they were delayed in getting their renewal done. We started looking at this building, I think, late 2024. So there was a pressured time frame to execute. We were by no means the lowest bidder, but the strength of our bid was clearly superior in terms of surety of capital and time to execute a transaction. So that was the second major factor. The third is the tenant was involved in influencing the outcome because they had a very strong preference that the asset be transferred to us because of our deep relationship with them. As I mentioned in our remarks, this is the ninth lease we have with the tenant in the building. And so all those 3 factors worked in our favor.

Okay. And I know I can't remember if it was Britt or Anthony talked about Page 23 where you have the 1.7 million square feet of space rolling. And I know you're highly confident that basically all the space is going to get renewed. But you do have this one purple box where you're basically, I guess, expecting about 660,000 feet to effectively get pushed into the first quarter of '26, which is understandable. Just from an accounting standpoint, what happens if that lease expires but doesn't get renewed? Does that go into holdover rent? Does it just stay at the same rent? What sort of happens from, I guess, your financials on that space?

So on our financials, Steve, we execute holdover agreements or standstill agreements with the government. In the term of the expiration through the expected renewal date. So based on those standstill agreements, they continue to pay us rent at the expiring cash rent level. And that's what we will recognize as NOI during that standstill period. And then once the renewal is executed, we will catch up in that quarter for the impact on the straight-line rent of the term of the renewal.

Got it. So basically, there's -- you're just teated a little bit in terms of the uplift, you'll get that in the first quarter, but there's no negative impact in the fourth quarter from that holdover. That's correct.

Our next question comes from Seth Bergey with Citi.

With the Missile Defense Agency or Redstone Arsenal, do you kind of view the Golden Dome property as creating any near-term development opportunities? Or does this -- do you kind of currently view that as just driving leasing demand for that real estate?

Well, the answer is yes. Our portfolio is so well occupied now. An additional lease has got to go into a new development. We literally have no operating or minimal operating square footage to lease. The lease that we did execute yesterday, that's in a new development. And certainly, there are conversations with several contractors that contemplate much bigger commitments that would require build-to-suit or significant pre-leases to accommodate. So in essence, I think all of that Golden Dome incremental opportunity will be manifested in new developments.

And is that kind of contemplated in the potential development square footage bucket? Or is that further out where that would be kind of incremental to what you've kind of outlined?

So the way we develop that pipeline, those are known opportunities where we've had conversations with specific tenants. There is no speculative kind of allowance put into that. So yes, there's quite a few of them in the active -- those prospects, we expect 50% likely to win in 2 years or less as well as some in the next 1 million square feet.

Our next question comes from Rich Anderson with Cantor Fitzgerald.

So Steve, can you talk a little bit about the process with Space Command moving from Peterson to Huntsville? I mean its worst kept secret perhaps, but was that a lobbying effort by you, by the government because they liked Huntsville? Like who drove the initial thought about moving it there? And what did you have to do as an organization to push that through to the point where we're at now where you've kind of gotten it to happen? Can you just talk about that?

Sure. The process is really quite protracted. Under Trump's first term, he created Space Force and then that kind of led to the natural creation of an integrated combatant command, Space Command. We're talking about Space Command relocating to Redstone Arsenal, not Space Force, to be clear. At that point in time, the Air Force was charged with determining the best location for the combatant command. And they went through a very comprehensive process. Many states and other facilities were competing to be the awardee. And that process determined Redstone Arsenal was the optimal location for the command. Subsequent to that decision, Other locations filed protests. It was reviewed by oversight in the DoD.

It was readjudicated as properly awarded one time, then it was challenged again based on changes in criteria. We went through that process. It came out first again. It was readjudicated a second time. These last 2 events occurred during the Biden administration to Redstone Arsenal. And then President Joe Biden signed an executive order freezing it in Colorado. In the current administration, the executive order was overturned and the proper decision is determined by the DoD process. was allowed to be awarded to Redstone Arsenal. So I'd love to think I have influence to make that kind of stuff happening. But the reality is I'm rather -- or we are rather inconsequential. Now with regard to the opportunity coming to us, we're an integrated value proposition with the command on Redstone Arsenal. Remember, the Army is our indirect joint venture partner because we lease the space from them. And our purpose is to serve our shareholders, of course, but we're also there to help the missions on Redstone Arsenal succeed. So we're part of that value proposition, and we actually represent the quickest way to establish the proper mission operability for the United States government and taxpayer, and that's why we're getting the opportunity.

And Rich, this is Britt. I mean just one extra thing on that. I mean they really need to be behind the fence, and they can't wait for Milon. So the ability for us to control that secured parcel through an enhanced use lease behind the fence, that's really -- and there's really no other option that could meet their speed requirements and achieve the security they need.

So it sounds like 450,000 directly 2x contract or tail, so call it 1.5 million square feet eventually associated with this effort. Is that Chapter 1? Or is there like a kind of a big growth story behind that in your mind?

So in my mind, I think that's the buck. Chapter 1 is the command, Chapter 2 is growth in the support of the command. Certainly, the command's importance and challenges are going to increase over time as the progression of defense activities further moves into space. And certainly, Golden Dome is going to be a huge component of developing new capabilities that, that command will have to coordinate. So that's one of the reasons why it makes so much sense to put the command here are the agencies that are building the systems that command is going to rely upon.

That's my next question. The interplay between Golden Dome missile command and Space Command, I guess, is an obvious part of the selling point as well. Is that fair to say?

That's very fair. And remember, there's also NASA in a 50-year history of missile rocket and space activities and a deep, deep pool of PhD level workers that support those activities in Huntsville, Alabama.

Okay. And my second question is perhaps not as cool and exciting, but just as equally as important. You had some really great success in terms of your debt issuance, interplay with the banks a 10x oversupplied that you talked about, Anthony. What do you think is driving -- what is -- what are the fixed income investor communities getting that the equity investor community is not getting? Because oftentimes, we see this -- we do a lot of work on fixed income investing and how that might foreshadow fortunes for the stock. Why is the fixed income community so sort of willing to be so supportive of you, whereas not that you've been -- your people aren't turned their back on the story, but you still haven't had the same type of performance in the equity markets that you had in the fixed income markets. Anything you can sort of talk about in terms of your conversations?

Well, the fixed income investor community and the conversations we've had leading up to the offering as well as interactions that we have with them throughout the year, focus on really the things that we mentioned for the reasons for the success of the transaction. They look a little bit backward more than forward. They look at how the company has performed during the cycles, and they look at how the company performed during COVID, how we performed during the high inflationary environment of the last several years during the higher interest rate environment. And they -- from that, they see that the strategy that has been executed has created an incredibly resilient cash flow base and that the when you think about fixed income investors, typically, they would look at development and sort of turn their noses to it. Our -- the fixed income investors actually have a deep appreciation for the development pipeline that we execute because they see it in terms of the high level of pre-leasing and build-to-suit as incremental EBITDA in the future that's contractual that will continue to support the unsecured bonds. So how that then translates into how an equity investor might view the company, I'm not quite sure. But the fixed income community absolutely appreciates the strength of the strategy and the performance of the company over the past several years.

Our next question comes from Dylan Burzinski with Green Street.

Great to hear that the leasing story continues to play out. I guess just one thing that we were curious about, I think it was last week or maybe a week before the Trump administration or there was an article that the Trump administration has been making cuts to cyber defense and U.S. Cyber Command. So just sort of curious if that's having any sort of impact on the leasing demand prospects in the Fort Meade area given the prominence of the cyber demand there.

Well, I'm not familiar with the article you're looking at. So I can't really address that question specifically. But Cyber Command got a huge step-up funding in the one Big Beautiful Bill and the expected increase is significant for FY '26. I'm kind of shocked at the tone of the article as you describe it. I don't know if he's looking at some overhead in cyber activities outside of the DoD, but I can't really answer the question. Dylan.

I've seen some of that, too, and it's -- I've seen it more on the CISA side and less on -- not really on Cyber Command. In fact, there's a number of -- yes, I mean, there's a number of different efforts going on from a leasing perspective here that we're actually very encouraged about from Cyber Command and some of the related contractors. So I have heard some of that with CISA, but not Cyber Command. But...

Remember, Cyber Command is DoD activity. CISA is the rest of the government, and we don't serve CIS.

Okay. That makes sense. And as I just look at it, sometimes these headlines just only talk about the high-level stuff rather than get into the details. So those comments are appreciated.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Budorick for closing remarks.

Thank you all for joining our call today. We are in our offices this afternoon, so please coordinate to Venkat if you'd like a follow-up call and enjoy your Halloween.

Thank you for participating in today's COPT Defense Properties Third Quarter 2025 Results Conference Call. This concludes the presentation. You may now disconnect. Good day.

Thank you all for joining us for the final roundtable of the Bank of America's 2025 Global Real Estate Conference. I'm Jana Galan, and I cover the office REITs at BofA. We're very pleased to have with us COPT Defense Properties CEO and President, Steve Budorick here today.

Steve will introduce his team and provide some opening remarks, and then we'll open it up for questions.

So with me is our Chief Operating Officer, Britt Snider; and our Chief Financial Officer, Anthony Mifsud and we're pleased to be here. So thank you.

So COPT Defense Properties is a specialized REIT, deeply concentrated mission-critical assets that support the national defense activity in the United States government. The vast majority of our 204 properties are located adjacent to are sometimes occupied by priority defense missions generally involving knowledge-based defense activities.

Missions that we support include intelligence, surveillance, reconnaissance, cybersecurity and network activity, naval sea and air technology development, missile attack and defense systems, drone aviation technology, development cloud computing and others.

Our property locations are not typical for an office company because they are proximate to important United States defense installations in Virginia, Maryland, Washington, D.C., Alabama and Texas. Our properties are unique in that they are approved for top secret mission work. 80% of our defense portfolio contains high security operations and that 80% includes 8 U.S. government secured campuses, representing over 4 million square feet that are built to antiterrorism force protection and SCIF standards. SCIF is an acronym for secured compartmentalized information facility.

We have another 1 million square feet of U.S. government leases that our SCIF and access controlled outside campuses. We have over 6 million square feet of defense contractor leases that contains SCIF in them. And we have 15 cloud computing campuses representing over 6 million square feet that's fenced and has limited access.

An additional nuance of our business is our defense tenants have to work from their office. And they did so throughout the pandemic environment because if they take their work home, it's [ SBNage ] and they go to jail. So it's a big differentiator.

Today, over 90% of our annualized rental revenue is derived from our defense IT properties. Our pre-leased developments that are available in our supplement, we'll increase that figure in coming years. And our Defense/IT segment was 96.8% leased at quarter end, well above our peer average. The U.S. government is our largest tenant by revenue. We have over 100 separate leases and 70 different properties. That totals 5.6 million square feet and produces 36% of our annualized rental revenue.

Defence contractor tenants lease 15 million square free for us. This includes 3 million square feet of cyber defense contractor tenants and defense contractors contribute 51% of our annualized rental revenue, 15 of our 20 top tenants are defense tenants. Our nondefense locations provide just 10% of annualized rental revenue. And they consists of 5 properties, 3 in downtown Baltimore on the waterfront, one in Downtown D.C. and one in Tysons Corner.

Our tenants and these assets also have excellent credit, but we do plan to recycle these assets as market opportunities support reasonable sale values. Our strategy is straightforward and pretty simple. We allocate capital to durable demand locations adjacent to priority defense missions and we do that primarily through low-risk, highly pre-leased development.

Occasionally, we get an opportunity to redevelop an asset or reposition, but development is our major strategy. And of course, we maintain a strong investment-grade rated balance sheet. So our competitive advantage really falls in 4 pillars. We have an operating platform with experience and credential workforce. We've been serving the U.S. government has a landlord for over 30 years. And over that 30-year period, over 40%, we've reached the point where over 40% of our employees are cleared to design, build and operate the highest security level assets in the U.S. DoD.

Over those years, we've also accumulated immense development experience, that includes SCIFs, antiterrism force protection, data center and other specialized mission-critical facilities for the U.S. government.

As I mentioned, we have a 30-year track record of not only designing, building, but the important distinction is we actually operate the properties. So our teams are embedded with their secure customers as part of the delivery vehicle for the mission. And this is all built upon advantaged land positions that we identified years ago, made investments in land and we continue to develop on land we primarily own.

So to wrap it up, we are a specialized REIT. We're not correlated with the broader economy because we're deeply correlated with the defense industry. Our assets have strategic features and locations. There's little risk of work from home across our portfolio, and we've enjoyed strong demand for new development and vacancy and leasing for years.

There's 4 main points. I'd like you to leave with today. First, we have strong underlying tailwinds from the growth in the defense budget, the funding for the Golden Dome, defense shield for the United States and the relocation recently announced relocation of Space Command headquarters from Colorado Springs to Huntsville. I might add, it will go on the land that we control and we will develop the properties.

Second point is growth. In 2025, we're forecasting nearly 4% FFO per share growth at the midpoint of our guidance, and that would mark our seventh consecutive year of FFO growth. And we've increased the dividend nearly 11% over the last 3 years. And we are the only office REIT to raise the dividend in both '23 and '24, and we did it again in '25.

Third key point is leasing. We're very confident we'll meet or exceed our leasing targets, we set an initial goal of 400,000 square feet of vacancy leasing. We achieved over 350,000 in the first half. We elevated our guidance modestly, and we're very confident we'll deliver that.

And then fourth, we set a guidance of committing $225 million to new developments over the year. At midyear, we're at $50 million. We are in advanced negotiations with 6 different tenants for build-to-suit solutions, 3 of which we think will secure during the remaining part of the year, and that will achieve our objective.

And finally, I'd like to point out we're still a great value at $30.44, trading at a mere 11.4x FFO and only 2 turns above our 10-year low. We have a 4% dividend yield, and we trade at a 9% discount to our NAV. It's a good time to buy our shares.

With that, back to you, Jana.

Thank you, Steve. So following up on the correlation with the defense industry, if you could help us with your defense budget outlook and what's -- what are the key takeaways from big beautiful bill and then the President's budget request for fiscal '26?

So big beautiful bill is really unusual in that the Congress preappropriate at $150 billion for the next 5 years. But within that pre-appropriated amount, $113 billion will occur in fiscal year '26, which starts on October 1.

So that adds $150 billion to the current base defense budget of, call it, $833 billion. So it represents a 13% increase, the largest nominal increase in defense spending in a single year over the last 25 years and the second biggest percentage increase. So it sets a strong backdrop for our ability to generate business out of that funding.

We guide investors to expect incremental leasing and development opportunities from defense budget increases trailing 12 to 18 months as that money has to get matriculate its way through the government program of procuring new contracts, issuing those contracts to contractors, finalizing awards and then we lease space.

So it's a pretty exciting thing.

And on the President's budget?

So the President's initial budget is right on top of last year's budget. So it's $831 billion. That's what's been submitted to Congress. It's not unusual. It's almost common that by the time it makes its way through the House and Senate, it actually grows. So base case is flat base budget from last year, it wouldn't surprise me at all if it increases by a couple of percent.

And this morning, we had a policy panel, and they kind of talked to the potential risks of a government shutdown. Does that in any way potentially impact or delay rent payments or...

No. But it usually represents a good time to time our stock. Because people think it's going to hurt us and it doesn't. And if we lose a little bit on our price, you should time your buy to that.

So our leases are covered -- I forget the act, but the government is required to pay our leases. The missions we support are all essential missions. And so they will work through any shutdown that does occur. The last time we had a shutdown, at one of our locations, the only impact that occurred is the line of cars waiting to get on base got longer because they deem the security access point is not essential and reduce it by half. But government shutdowns are not a factor for our company.

And there was some big, exciting news last week with the relocation of Space Command HQ to Huntsville, you mentioned this could be a great opportunity. If maybe you can give us some more color and details around this?

Yes. So to give you some history, Space Force was initiated by President Trump. By the end of his term, there was competition that occurred to identify the best place for the unified combatant command for space called Space Command and it was determined that Huntsville was the best location on the Redstone Arsenal.

When President Biden came into office, it was contested several times by locations that didn't win the contest. In each case, it was readjudicated for Huntsville and Redstone Arsenal. And then through a presidential order it was maintained in Colorado Springs, but it was never funded properly to create facilities they need. That decision was reversed last Tuesday. Appropriations have been set aside to build a new command for Space Command.

It's been publicly announced that it will be on the enhanced used lease that COPT defense properties has on Redstone Arsenal land and we will be the developer. It looks like that development will represent three buildings, 450,000 square feet to 480,000 square feet to move the entirety of the command to the Arsenal in 2 years or less.

We're the only solution that can get them the facilities they so badly need have been politicized for 5 years and get the mission in its proper form. Beyond the command, the command has led us to expect that the contractor support tail that they currently expect to follow them, could be twice as big as the area required for the command. So it would apply another 1 million square feet of development opportunity over the coming years as the new facility is constructed. The SCIFs are completed and certified, the commands relocated and the contractors file.

And can you let us know maybe the time line around that initial 3 buildings?

Well, we're ready to start. We've been planning these buildings for a long time. We had developed this plan over 5 years ago. We are -- we've prepared the land with utilities and we're ready to commence. We'll start one building very shortly, be willing to start that building without a signed lease and then as we get a lease document formulated, we sequentially developed the next 2 right behind it.

Great, any questions in the room?

I mean when you personally leave the company, what kind of knowledge do they take [indiscernible]

Our company?

Yes

[indiscernible].

You got to have a little fun, is the last conference here. No. We've got an amazing history of long-term service of the company through retirement. It's staggering. Over 1/3 of our employees have been with us for like 20 years or more. Those that tend to retire, they stay pretty involved with us. We maintain very good relationships with them and rarely do we see anybody leave to go to a competitive company. Not that there is one that's directly compatible.

The 1 million square feet of contractor [indiscernible]. What's your thought about how much of that you will directly see [indiscernible]

So it's a little less clear, Jordan. First of all, how much will we see? To the extent it comes is a guidance from the government for our expectations. We started our Redstone development with our first building in 2011. And we've grown that to 24 buildings and 2.5 million square feet not quite half the capacity that we can develop.

We have rarely lost a new tenant to another location in Huntsville because the advantages of being on our development. So my expectation is we will get the lion's share. And by that, it wasn't over 90%, I'd be surprised. When it comes, this is -- these are contractors supporting the mission. And so until the mission is ready to move, I don't think they're going to relocate.

Now certainly, if they're going to require SCIF, they're going to have to build in a lot of time to have that SCIF created and provisioned and that's a very time-consuming, very technical process. So my guess is we'd start to see firm commitments to relocate lease space and start SCIF process in roughly a year.

[indiscernible]

It's too early for me to know that. I don't think it will -- we expect our delivery from building 1 to 3 to be a matter of a month or so, not longer periods of time. And what their actual strategy is to populate, I can't speak to that.

[indiscernible] Is there any [indiscernible] cost for that development?

So we've routinely developed our defense contractor buildings over the last 3 years at 8.5% cash on cash and often by the time we punch out the project, it accretes up.

Is that a cash [indiscernible]

No, it's just cash on cash, initial, not average, not GAAP cash.

[indiscernible] open to change the economics given the patent [indiscernible] was strong side and [indiscernible] is pretty high.

Well, we're always looking to do better than I say we do. But I'd now like to make statements. I can't back up.

Great. Maybe turning over to the Golden Dome, the opportunity and kind of just overview what exactly that entails?

So the Golden Dome is a fascinating initiative, maybe 1 of the biggest DoD has committed to in 30 years. But it represents creating an anti-missile defense shield for the United States of America, the entire country.

Currently, we're protected by what's called GMD ground missile defense and ground-based missile defense. And that program is run out of the Redstone Arsenal and the contractors in our buildings at Redstone Gateway. But this is elevating that from just a defends against intercontinental ballistic to any missile of any form.

So initially, we're advised that it will be an enumeration of disparate technologies from a wide variety of contractors, combined and integrated into a cohesive defense structure distributed across the country. But then eventually, new technology will have to be advanced and created to both improve identification of threats and potentially target them from space.

The initial budget is estimated to be $175 billion, and they would like it to be operational by 2029 or 2030. The one big beautiful bill Act appropriated $25 billion for a down payment on system, and that is in the fiscal year '26 spend. And that implies $150 billion of incremental investment over, call it, the next 4 years to integrate current technology, advance improve our new solutions and deploy it.

So it's pretty exciting. The Missile Defense Agency is at Redstone Arsenal and that will be the primary vehicle for coordinating all this activity. So beyond Space Command, this development of a new system will be paralleled to it. So we expect that will be a strong driver of leasing demand as well.

So over the last, I'm not sure what the right time frame is 10 years, whatever you've done a very good job of transitioning from a company that describes itself as a defense provider of defense space to an actual company that provides defense largely predominant defense contractors.

Do you have any -- what's the amount of space left that would be considered either government less mission-critical or not defense related? And is any of that subject to the kind of review -- overall review that's gone on relative to real estate space used by the government?

So first of all, a point of clarification. I did join the company 14 years ago, and we were more than 50% defense tenancy, we were less disciplined in concentrating into defense. And in the 9 years I've been CEO, every incremental investment has been into the Defense/IT space, and we're now at 90%.

So it went from roughly to 50% to 90%. What's left is that in our Defense/IT portfolio. It was just 5 buildings, their legacy assets that we were unable to recycle when the market would support that efficiently and we've identified them as recycling targets as interest rates provide a more attractive way to do that.

Within our Defense/IT portfolio, I made this comment in our remarks, 80% of the space has high security improvements. So there is some defense contractor space that is not SCIF, but it's a very small fraction. I think I answered the question.

Did I miss any?

So you're saying, essentially, there's nothing at risk relative to the quarter review of government?

Yes, I missed that nuance. Yes. Those really had no impact on our company at all. And if you really go back and read Pete Hisut's comments. He wanted to find 15% savings in administrative and overhead costs. He didn't want to cut spending. He wanted to reallocate that money to support mission.

The one thing we've been extraordinarily disciplined at is when we build and lease or buy a building and what we elected to sell is corollary, we want mission work.

We don't want headquarters work. We don't want back office. We don't want executives. We want the mission work in our buildings. And so the movement in this efficiency environment is to get more money to the mission, and that plays right to our portfolio.

You touched on the strength in leasing and you almost met your full year target at the half point of the year. Maybe if you could just kind of give an overview now of the demand out there in the market, what you're seeing, how the leasing pipeline is shaping up?

Yes. So we maintain every week, a leasing pipeline that probability ranks all our prospects, and then it measures that as a percentage of vacant space left in our portfolio. So that pipeline currently is just over 70%.

So that means we have prospects for over 70% of the space that we have vacant. So that's a very strong level. From a timing standpoint, we expect second half volume to be a little less strong as our first half because of the timing of the appropriation of the fiscal year 2025 defense budget.

With the change in the presidency that budget, we experienced the longest continuing resolution in the history of the government. It was appropriated on July 4, and much of the demand we're working with is anticipating new contract awards that will allow them to expand their footprint. And so the timing of that will be more '26 oriented because it takes a long to get to the one big beautiful act and that appropriation done.

But we will hit our full year elevated guidance of 450,000 square feet, which, by the way, represents more than 1/3 of the vacancy we had on January 1.

And how do you think about pushing [indiscernible]

Well, I like occupancy, and I love retention. That's a better question. We like to think -- when we get defense tenants in our buildings. They typically co-invest to create SCIF and specialize and that drives our just uniquely immensely high retention rate.

So we're always looking for occupancy rate, we have to be sensitive of what the market rate is. And as a strategy, we want to be a business partner to our tenants, and we never want to be in a position where they feel like we've taken advantage of them because they need to be in our portfolio.

So we get premiums, but we don't push them to outrageous levels and our simple comment is pigs get fat and hogs get slaughtered and we never want to be a hog and if you look at our tenancy, you take out our biggest 2 tenants, we average 4 to 6 leases with defense contractors in multiple locations. And it's that partnership that we're really driving for.

So I think I kind of ducked it, but I talked about.

Could you give an update on [indiscernible]?

Sure. So I forgot the number, we have over 6 million square feet of data centers. A significant portion of those are in a joint venture, that we use to create -- to recycle capital and support our development in prior years where we need more capital to fulfill our development opportunities. Those were developed over a longer period of time. I can say this much. Many of them have mark-to-market on renewal and those mark-to-markets have been 100% or more increases in the rent. And although we extracted great development profit from those, their value has more than doubled since we joint venture them. And we continue to have about 2 million square feet that we've developed and retained full ownership of, including 2 that are going to develop this year.

In terms of future development, we did acquire 365 acres outside of Des Moines, Iowa is a long-term investment in land for a new location to reenergize that development component of our business, but we expect it will be roughly 4 years before we start break ground. Because of the power constraints nationally and in particular, in that particular service area.

I'm sure you answered the question [indiscernible]

Well, it's the fifth biggest hyperscale market in the country, believe it or not. You got to get on a plane and fly there Jordan and drive around. I'd identify all the tenants that are there, but then by omission, I might imply what -- who our customer is.

So I won't, but all the bigs are there. There's a significant amount of really impressive data center facilities in the area. And it was a place for us to bring a new idea and execution capability to a long-term customer that was compatible with their own objectives. So it's just a good fit for us, they do some quite a bit.

It seems a little outside of your [indiscernible]

Well, we're looking long term. The opportunity set in Virginia has become extraordinarily low. We spent $32 million on 366 acres. If we have bought that land, if we could find it, and buy it in Northern Virginia. It would have been $1.2 billion at the then current market value that existed last year when we made the investment. The communities in Northern Virginia, they become decidedly anti-development for data centers.

They've kind of had their fill of it. One of the counties that is an opportunity, they're contemplating a new law that says for every acre you develop into a data center you have to set aside 5 acres for farmland, which suggests you'd have to -- for every acre you develop, you have to own 6 and the price per foot is now lower. So its becoming very difficult.

[indiscernible]

It will, but it's still -- it's an expensive game of poker. So we look long term. How do we set up a win-win for us and our customer in a new market that will allow us to support their business and thereby benefit our shareholders.

[indiscernible] market you're offering a [indiscernible]

So in our core defense world, competition tends to be local or fragmented ownership are probably most competitive market is Northern Virginia. It's a very big office market and we don't dominate the square footage in that market. We certainly have a dominating franchise where we tend to win more opportunities because of what we can offer those defense tenants. But in most of our locations is that strong competition.

There's theoretical competition, and there's no company that touches as many markets as we touch.

What's the [indiscernible]

Yes. So the government buildings. They talked about 8 campuses. Those are in secure locations where they're clustered and they're fenced, and we've never -- in over 30 years of developing and leasing to the government, we've never had a full building not renew.

Hypothetically be awkward if that building was behind the fense and it did not renew, but it's ever happened.

In terms of non-fense buildings, their office buildings. So if we had to lease them to an non-fenced tenant, it's no different than any other building. The trend is really the contrary, one of our -- where our headquarters is Columbia Gateway. Traditionally, our tenancy has been roughly half defense tenants, half not.

Over the last 4 years, that has really trended to the point where 75% of the same building set is defense tenants and almost all of that growth was cyber or we'll call it signals intelligence related and required SCIF facilities.

Unfortunately, we're out of time, but I'd like to conclude with a rapid fire questions. We've been asking all the REITs presenting at the conference. When the Fed starts to cut, do you expect rates for long-term debt to decline, stay flat or rise?

They will decline. We expect them to decline, but it's going to take 6 to 9 months.

Last year, the majority of companies stated they're ramping up spending on AI initiatives. How would you characterize your plans for the next year, spend more, flat or less?

Flat, which is virtually nothing.

And do you believe same-store NOI for your sector will be higher or lower or the same next year?

It will be lower. But ours will be higher.

Thank you very much.

Welcome to the COPT Defense Properties Second Quarter 2025 Results Conference Call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Venkat Kommineni, COPT Defense's Vice President of Investor Relations. Mr. Kommineni, please go ahead.

Thank you, Lisa. Good afternoon, and welcome to COPT Defense's conference call to discuss second quarter results. With me today are Steve Budorick, President and CEO; Britt Snider, Executive Vice President and COO; and Anthony Mifsud, Executive Vice President and CFO. Reconciliations of GAAP and non-GAAP financial measures that management discusses are available on our website in the results, press release and presentation and in our supplemental information package. As a reminder, forward-looking statements made during today's call are subject to risks and uncertainties we should discuss in our SEC filings. Actual events and results can differ materially from these forward-looking statements and the company does not undertake a duty to update them. Steve?

Hello. Thanks for joining us. The company delivered another strong performance in the second quarter, continuing our 30 quarter streak of achieving or outperforming our FFO per share guidance and allowing us to increase our outlook on several performance metrics. Moreover, the recent defense budget appropriation sets forth a record increase in defense spending, which provides a strong backdrop for future strength in our business.

Turning to results for the quarter. FFO per share as adjusted for comparability was $0.68, $0.02 above the midpoint of guidance and a 6.3% increase year-over-year. Same property cash NOI for the quarter increased 2.2% year-over-year and 4.6% during the first half of the year. We've generated excellent results on the leasing front. We signed 353,000 square feet of vacancy leasing during the first half of the year, which is 88% of our initial full year target and represents 30% of the unleased space we had at the beginning of the year. Tenant retention was incredibly strong, 90% during the quarter and 82% year-to-date. The key metric that illustrates the strength of our strategy and performance is that our total portfolio is 95.6% leased, which is the highest level in nearly 20 years.

Turning to guidance. Based on our strong performance during the first half of the year, we increased the midpoint of FFO per share by $0.01. We increased the midpoint of same-property cash NOI growth by 50 basis points. We increased the midpoint for tenant retention to 82.5% and we increased the full year target for vacancy leasing by 50,000 square feet. Britt and Anthony will provide more details on these increases.

Now I'd like to discuss the defense budget outlook. The one big beautiful Bill Act, which was signed in the law on July 4, appropriates an additional $150 billion to defense spending over 4 years. The majority of which are $113 billion is allocated to 2026. The President's 2026 budget request plus the appropriated funding in the big beautiful bill amounts to a defense budget of nearly $950 billion or a 13% year-over-year increase. This is equivalent on a percentage basis to the restorative increase we experienced in 2018, and it's the largest nominal increase in at least 25 years. The 2026 budget request allocates $116 billion to intelligence. That's a $14 billion or a 14% increase year-over-year. As a reminder, intelligence, surveillance and reconnaissance are key demand drivers for our Northern Virginia Fort Meade and BWI portfolios.

The request also includes over $16 billion for cybersecurity. That's a $2 billion increase or 14%. And recall, cybersecurity is a key demand driver for our Fort Meade BWI subsegment. A new priority for the Trump administration is the development of Golden Dome, a next-generation missile defense shield for the United States. The total projected cost is $175 billion with a $25 billion down payment appropriated for 2026 in the big beautiful bill, and the system is expected to be operational by 2029. The $150 billion of remaining costs to complete the project implies a significant ramp up in funding over the next 3 years. Redstone Arsenal in Huntsville, is the center of excellence of our country's missile and defense technology development, and we expect a significant increase in activity at the arsenal to development deploy Golden Dome.

Recall that Redstone Arsenal has a 75-year history of rocket missile research, development, testing and evaluation and is supported by a well-established defense contractor equal system and the arsenal is home to the Missile Defense Agency, the Missile and Space Intelligence Center, Army Aviation and Missile Command and the NASA Marshall Space Flight Center. These missions, among others, service and demand drivers for our Redstone Gateway portfolio and the expected activity to create Golden Dome should present strong incremental opportunities. During the prior administration, our portfolio performed well, given bipartisan sport for defense spending as we produced FFO per share growth of 21% between 2020 and 2024. Looking forward, the current administration is significantly increasing defense investment to strengthen capability, capacity and lethality to realize its foreign policy objective of peace through strength. We view this as an inflection point for defense spending overall, but more importantly, for the priority missions we support, which include intelligence surveillance and reconnaissance, cybersecurity, missile defense, naval fleet and aviation activity and unmanned autonomous vehicles, among others.

The administration's massive recommitment to defense investment should provide opportunities for us to create facility solutions for new and expand emissions in the near to medium term, following appropriations to contract awards, providing a runway to continue our highly successful record of creating shareholder value. And with that, I'll turn the call over to Britt.

Thank you, Steve. Overall, the company is executing its strategy and current year plan at very high levels, which is evidenced by the incredibly strong leasing performance in the first half of the year as well as our sector leading retention. We finished the quarter with continued strong occupancy at 94% in our total portfolio, which increased 40 basis points over last quarter and 95.6% in our Defense/IT portfolio, which increased 30 basis points over last quarter. Our Northern Virginia Defense/IT properties were a standout at 94% leased and 93% occupied, the highest levels for that portfolio in over a decade. And importantly, over 80% of the vacancy leasing over the past 5 years in Northern Virginia, has been with the defense IT tenants, many of which have invested in the construction of SCIF facilities for priority missions, strengthening the retention posture of this portfolio. We outpaced our expected timing for vacancy leasing as we leased 233,000 square feet during the second quarter and 353,000 square feet during the first half of the year. Looking forward, we have another 120,000 square feet of deals in advanced negotiations, which led us to raise our full year target from 400,000 square feet to 450,000 square feet. We do expect volume to moderate in the back half of the year as the 2025 defense budget was just appropriated a few weeks ago, which has delayed the contract award process and many of our -- the opportunities we're working on are waiting those contract awards.

Now that the 2025 budget has been appropriated, we expect enhanced leasing activity will resume in 2026. For context, since the appropriation of the 2024 defense budget, in March of 2024. We've executed nearly 750,000 square feet of vacancy and investment leasing in our Defense/IT portfolio, over $0.5 million of which was vacancy leasing.

Our leasing activity was distributed throughout our defense IT markets, and we had notable success in our other segment, in which we leased 94,000 square feet of vacancy during the quarter and 105,000 square feet during the first half of the year. This activity is important as this segment accounted for over 35% of the unleased space in our total portfolio at the beginning of the year and represents a significant rent growth opportunity. Over the past year at these properties, we have increased the occupancy rate by over 300 basis points to 76% and increased the lease rate by nearly 450 basis points to 81%. Following this success, the bulk of our other segment vacancy is concentrated in a single property 100 Light Street in Baltimore with nearly 170,000 square feet.

Excluding 100 Light, this segment is 86% leased and 100 Light accounts for 15% of the unleased space in our entire 24 million square foot portfolio. We still have wood to chop in this segment, but we are laser focused on continuing this momentum to drive occupancy and eventually position these assets for sale.

Moving on to renewal leasing. We executed 477,000 square feet in the second quarter, achieving a phenomenal tenant retention rate of 90%. We narrowed the range and increased the midpoint of full year retention by 250 basis points to 82.5%.

On Slide 18 of the foot book, we provided additional detail on our lease expirations for the remainder of 2025. We have 2.2 million square feet expiring in our Defense/IT portfolio over the next 2 quarters, 1.5 million square feet or nearly 70% of these expirations are in secure full building leases to the U.S. government and we expect 100% retention on these leases. Our retention rate guidance assumes that we renewed 735,000 square feet of this U.S. government space by year-end and renew the remaining 750,000 square feet in 2026.

As a reminder, each year, we have a certain number of U.S. government leases where the renewal process is delayed. And when this occurs, we signed a standstill agreement with the government, which requires rent payments to continue at the current rate, until a formal lease renewal is signed and rents are reconciled for the delay.

Turning to large leases expiring through 2026, as shown on Slide 19 of the foot book, we renewed 4 large leases in the quarter, totaling 270,000 square feet at a 91% retention rate caused by a small contraction by Leidos, which I'll touch on in just a moment. Over the last 4 quarters, we've renewed 1.3 million square feet of large leases at a 96% retention rate. That leaves 2.6 million square feet of large leases expiring over the next 6 quarters, and we continue to expect a 95% retention rate on the full set of large lease expirations. Now stepping back over the past 3 years, we've renewed 34 large leases, totaling 3.4 million square feet at a 98% retention rate. And importantly, we have renewed every single tenant with only 3 small downsizes totaling 75,000 square feet. And now I want to address our cash rent spreads during the quarter and illustrate how this statistic is not the best indicator of an economic outcome in our business.

Cash rent spreads on renewal leasing were down 3.1% during the quarter, influenced primarily by just 2 leases. First, we executed an early renewal and small downsize with Leidos at Franklin Center. We acquired the building last spring, and it was generating an 11.2% initial cash NOI yield from a 110,000 square foot lease to Leidos, which was nearing the end of its 10-year term. We underwrote a rent roll-down and contraction upon expiration of the single lease in the property.

This quarter, we executed an early renewal of 84,000 square feet and extended the lease term to 2033, with Brent rolling down by nearly 8%. But the rent achieved is still one of the strongest rental rates attained in this market. And importantly, both the roll down and the 26,000 square foot contraction were more favorable than our underwriting. Since the acquisition, we have invested capital to reposition the building and executed a 48,000 square foot lease with a top 20 defense contractor. Following this activity, the cash NOI yield still remains at a very strong 11% with 45,000 square feet still left to lease. So we have a great opportunity to drive that yield even higher as we fill the building.

Second, our initial forecast assumed that Pandora, which moved its U.S. headquarters to New York, would vacate the last 18,000 square feet at 250 West Pratt in Baltimore in our Other segment upon expiration of their 11-year lease. We were able to early renew the lease for 2 years with cash rent rolling down 25%. This was also a better-than-expected outcome as we ended up with 75% of the rent instead of 0 and reflecting almost $1 million of rent over the renewal period, which we had not anticipated. Excluding these 2 leases, cash rent spreads were only down 40 basis points during the quarter and 70 basis points during the first half of the year. We expect cash rent spreads will improve in the back half of the year and are maintaining our full year guidance range of down 1% to up 1%.

Turning to new opportunities. We're maintaining our full year guidance for capital commitment to new investments at $200 million to $250 million. In the first quarter, we commenced development of 8500 Advanced Gateway, which is a $52 million project in Huntsville. Additionally, we are in the advanced stages of negotiations on multiple build-to-suit opportunities, and we expect to execute several leases over the next 12 months.

Supporting this capital commitment guidance is our 1.3 million square foot development leasing pipeline which we define as opportunities we consider 50% likely to win or better within 2 years or less. Beyond that, we're tracking another 1.1 million square feet of potential development opportunities. 100% of this 2.4 million square foot -- square feet of development demand is at our Defense/IT locations. Looking forward, we are well positioned to capture additional leasing demand and capitalize on external growth opportunities given the strong growth outlook for defense spending, which Steve outlined. And with that, I'll turn it over to Anthony.

Thank you, Britt. We reported second quarter FFO per share as adjusted for comparability of $0.68, which was $0.02 above the midpoint of guidance and represents a year-over-year increase of 6.3%. The outperformance versus the midpoint of our guidance was driven by the commencement of rent earlier than forecasted on several leases and the benefit from lower than anticipated net operating expenses. During the quarter, our same-property cash NOI increased 2.2%. This growth was driven primarily by the benefit from the 50 basis point increase in average occupancy in the same property portfolio, the impact of the items that resulted in the outperformance in FFO per share, combined with the burn off of free rent on development leases placed into service in 2023 and on leases that commenced later in 2024.

These favorable items were partially offset by the net impact of over $1 million of nonrecurring real estate tax refunds in the second quarter of 2024. We are increasing the midpoint of our full year guidance for same-property cash NOI by 50 basis points to 3.25%. This is based on our achievement year-to-date with 4.6% growth during the first half of the year and our expectation that growth will moderate during the back half of the year due to 2 factors. The first relates to the nonrecurring receipt of nearly $2 million of real estate tax refunds in the second half of last year. For the full year, the refunds from successful appeals will approximate the amount received in 2024 and therefore, have no impact on full year growth, but does impact quarterly noise from timing differences.

The second relates to a decline in NOI from a few known nonrenewals in the fourth quarter in the fourth Mead BW corridor, all of which are under 30,000 square feet. These nonrenewals will also slightly impact same-property occupancy at year-end. Same-property occupancy ended the quarter at 94.5% and is expected to stay relatively flat during the third quarter, but then ticked down during the fourth quarter as a result of these expected nonrenewals.

Our line of sight on year-end occupancy is pretty clear at this point, which led us to narrow the guidance range for year-end same-property occupancy by 25 basis points at the low and high end and maintain the midpoint at 94%. Our balance sheet remains strong and well positioned to take advantage of investment opportunities and at quarter end, 97% of our debt remained at fixed rates.

We have been funding and expect to continue to fund the equity component of our investments with cash flow from operations after the dividend on a leverage-neutral basis and we'll continue to draw on the line of credit to fund the debt component. With respect to debt maturities, we continue to plan on prefunding the capital required to refinance our $400 million, 2.25% bond, which matures in March of 2026. Our guidance continues to assume a $400 million bond issuance in the fourth quarter in the public fixed income market, where our bonds continue to trade at 1 of the tightest spreads to treasuries of any equal or higher rated office peer. We plan on using the proceeds to temporarily pay down the outstanding balance on our line of credit and hold the excess proceeds as cash until the March maturity.

With respect to guidance, we are increasing the midpoint of 2025 FFO per share by $0.01 to $2.67 while narrowing the overall range. This increase is the result of our improved same-property cash NOI growth outlook partially offset by the expected delay in the commencement of one of our preleased data center shells from Q3 to Q4. We are establishing third quarter guidance for FFO per share as adjusted for comparability in a range of $0.66 to $0.68. With that, I'll turn the call back to Steve.

Thanks. I'll close by summarizing our key accomplishments and messages. We achieved excellent results in the second quarter, highlighted by our strong leasing. We delivered FFO per share growth of 6.3% year-over-year, marking our 20th consecutive quarter of year-over-year growth. We expect 2025 to be our seventh consecutive year of FFO per share growth and our revised guidance implies an annual increase of 3.9%. We increased the midpoint of 2025 guidance for 4 key metrics: we completed 103,000 square feet of investment leasing year-to-date, and we expect strong activity during the second half of the year. We continue to anticipate compound annual FFO per share growth of 4% between 2023 and 2026.

And lastly, the President's 2026 defense budget request. Combined with the appropriated funding in the one big beautiful bill represents the largest year-over-year increase in recent history and demonstrates the substantial recommitment by this administration to achieve peace through strength. Our demand typically [ lacks appropriation ] by up to 12 to 18 months, which sets up a strong tailwind for our business in the years ahead. So we're well on track to deliver another successful year. And with that, operator, please open the call for questions.

[Operator Instructions]

And our first question today will be coming from the line of Manus Ebbecke of Evercore.

You talked about multiple build-to-suits that you're in negotiations with tenants that are ongoing. Can you talk maybe a little bit more on which type of submarkets maybe are contemplated? What kind of like returns you're solving for there? And just kind of like how those discussions are trending with tenants right now that would be super helpful.

Well, we have multiple discussions that are ongoing. They are in 3 separate submarkets. The or subsegments, they include Alabama and several locations in the BWI corridor, and 1 more that I won't mention. Discussions are going very well. Returns are targeted in our usual range, which is at this point in time, 8.5% cash yield on initial development costs. And we expect to have some good news in the second half of the year.

Awesome. That's great. And could you talk maybe about like immediate, like on the ground impact that you felt already maybe from the new legislation passing. So like after that bill has passed, have you seen more like optimism from your tenant side in terms of wanting to expand the footprint? Or is it still too early for that? Just trying to size up. Like how much of an immediate impact you've already fell with the tenants and discussions that you're having and just maybe like share the sentiment that the tenants had as a reaction to the legislation being passed.

Well, we -- frankly, we felt an increase in optimism and activity after the election. And it's remained pretty strong through the first half of the year. I can't honestly say there's been an inflection in the 2 weeks since the -- or 3 weeks since the big beautiful bill passed, but I would say our outlook is very positive.

And the next question will be coming from the line of Seth Bergey of Citi.

I guess just following up on the big beautiful Bill comments. How do you expect that to translate kind of directly to you? Is that -- do you expect to make more progress on the vacancy leasing or that to translate into additional investment opportunities? And can you kind of provide us some context around how much the bill increases in the past have translated into fast opportunities?

Yes. So always hard to answer that question. In particular, as we've pointed out in our written comments, the big beautiful bill puts a down payment on the Golden Dome program, which contemplates developing the next-generation defense shield over the full United States. And with the Center of Excellence for missile and defense technology being at Redstone Gateway, we have very high expectations that there will be mission expansions, both in research and development and program creation and administration in Huntsville. We mentioned that the big beautiful bill as well as the budget request for the significant increase in the intelligence budget -- I believe it was 14% and many components of our portfolio serve contractors indirectly the activities in the intelligence community. And then beyond that, just more money flying to programs to enhance capability, capacity and lethality and that should flow through throughout our portfolio.

There's no particular algebra we can give you that says an increase in spending generates x amount of square footage of leasing. But we gave you a hand after the 2024 bill was passed with a modest 3% increase. We generated about 750,000 square feet of new leasing and over $0.5 million of that was in our vacancy. So the trend in the pattern is pretty clear there's no particular math. I can share with you that is predictive.

That's helpful. And just on the $400 million bond issuance you have contemplating guidance, where do you think you could issue that today?

Anthony?

Today, our spreads are on a 10-year deal. It was trading at about 140 basis points over the 10-year on a 5-year, it's about 115 to 120. So we're still looking at the term of that bond issuance and the alternatives there because we have openings in our debt maturity ladder, but in 5-, 7- and 10-year windows.

And the next question will be coming from the line of Anthony Paolone of JPMorgan.

Steve, you mentioned several build-to-suit opportunities that you're evaluating right now. Are any of those tied to golden dome or perhaps space command moving to Huntsville? Or would Golden Domes basically be incremental to those conversations.

None of those involve either one of those programs. So cyber, the market expects the announcement of Space Command to be imminent. So that will be exciting. We've provided a variety of solutions to the authorities at Redstone Gateway and how we can serve them if we're needed. So that could be an additive opportunity. It's too early for Golden Dome. There's a lot of activity in Redstone or Huntsville with agencies having symposiums with the defense contractors to envision and start to formulate their plan to create it. But the ones that we're talking to now are not part of either program.

Okay. And then, I mean, if we take all that together, I know you're not going to give guidance for 2026, but I mean it just seems like the arrows are pointing to having a bigger year for spending and potential starts. Is that the way things are shaping up at this point, a fair way to start thinking about it?

Yes. I would say my expectations are high for '26.

Okay. And then just last one, if I could just sneak it in. You guys had called out the MP3 getting pushed out a quarter. Anything to think about more broadly on that? Or is that just more specific to the project, something happened?

It's just getting permits in a county that's become very cumbersome. Our team is -- they are really, really well prepared to bang this thing up when they get the final permit, which I think we're supposed to get this [indiscernible].

Yes, we can see everything on the website that everything is approved. It's literally just getting the piece of paper.

And the next question will be coming from the line of Blaine Heck of Wells Fargo.

Can you just talk a little bit more about the current leasing environment and where you're seeing stronger or softer demand in any specific markets or tenant industries across the portfolio today?

Blaine, it's Britt. Yes, I mean, I think it's still very strong and very optimistic. I think the contractors have a lot of clarity now, especially after the budget passing. So I think there's a little bit of waiting on that. But for now, I mean, I think we're seeing -- and I think a good example is NBP 400, which we have 420,000 square feet of demand on that 138,000 square foot building, and that's an increase of 60,000 square feet with a new defense contractor taking a look at that. We had a tour of people on Friday with our primary customer. So I think we're very optimistic about what we're seeing. There might have been a brief pause there, but no one's holding back at this point. I think it's -- we're very optimistic, and that goes for all of our submarkets.

Okay. Great. That's helpful. Sorry if I missed this, but I wanted to touch on the Des Moines land parcel. Any update on the power procurement for the initial phases of that project? And what that might mean with respect to the timing of construction?

We're still engaged with the power company in the region. We're working through alternative scenarios to see if we can find an optimal fit between initial capacity, total capacity and timing. It's not clear, but I will say, given the backlog of demand for expanded power around the world, we're led to believe it will be plus or minus 4 years before we get new capacity that we can tap into. And so I think you have to look at that project as a future. It's an investment in our future development opportunity set, and I think it will be a couple of years before we start actually building infrastructure.

I guess would that ever potentially be a candidate for disposition if you have other opportunities that might be a little bit more near term?

Well, in the big picture of things, it's about -- we bought the land for $32 million. It's hard for me to believe that we'll be in a position where we need to sell that $32 million piece of land to grab the incremental opportunities we expect. We got a very favorable land price on a per square foot basis. We believe it's a great opportunity for the shareholders long term. It's just not that much money that we feel like we've constrained the company.

And Blaine, just for some context, the land on our balance sheet for future development, excluding Iowa, we've owned on average for 17 years. So when we invest in land, it's for the long-term investment opportunities for those -- at those parcels. So it's not unlike any other things that we've done within our portfolio.

And the next question will be coming from the line of Tom Catherwood of BTIG.

Maybe Steve or Britt, with vacancy leasing continuing to improve and higher retention rates, at what point does space availability become a challenge for your tenants? And how would you address that issue if it arises?

Well, to some extent, you can see it in our overall volumes. As our portfolio occupancies increase, our objective for the year was $400,000 because we don't have that much space to lease. But what that has done is allowed us to sequentially develop inventory buildings in Redstone. We just started RG-8500 after finishing RG-8100 and and the NBP -- with NBP 400 being constructed. At the time we started that, we were 99.7% leased across our 4.3 million square feet. And so continued demand opportunities at the priority missions we serve will translate into new development.

Got it. And then for the higher retention specifically, is that the result of an improved outlook for certain tenants so they're not downsizing? Or is this tenants that might have gone elsewhere but aren't finding the space they need in the market?

Well, first of all, our locations are the best in these markets. I think it's also a recognition of the kind of co-investment that our tenants have made into the space that they occupy. Once you create a skip, it's very expensive and time-consuming to build one. They can't be moved. So that helps contribute to our kind of market-leading retention. And I think it's also over the longer analysis, a reflection of how we have reduced the demand defense part of the company to just 5 buildings. And so the true strength of the defense investment strategy is manifesting it in the better statistics.

And consistent with that, I would say other landlords do have some secure space, but they're burdened with heavy traditional office in their portfolio. They're having a really tough time funding these deals. And so they know they can stick with us, and they're not going to go anywhere because they know we can help fund their deals and co-invest with them. So it's a really important point.

[Operator Instructions]

And our next question will be coming from the line of Peter Abramowitz of Jefferies.

Yes. Just a follow-up on Steve's comments about Space Command and that announcement should be coming soon here. Just curious, what would be sort of the timing and potential magnitude of development leasing there? I know you talked in the past think about up to 400,000 square feet of potential development leasing. Is that sort of still something that you have the potential for? And then would that be 2026 development leasing or could it take longer than that.

So I can't answer the question with any specificity. What I can tell you is we have space available immediately for the advanced groups, if needed, in our operating portfolio. We've delivered development solutions ranging from 150,000 square feet of single building to 450,000 square feet of 3-building campus. Beyond that campus, we can literally double that capacity if needed. But the needs and decisions as space command are unknown to us. We just stand ready to step into the breach and serve the command if needed.

Okay. That's helpful. And apologies if I missed this, but could you just provide a little bit more color on the expense savings in the quarter, kind of where that came from and if any of that will be recurring?

So about half of the expense savings came from a variety of different kinds of utilities. The other half was some timing of repairs and maintenance projects that the cost of which were not incurred in the second quarter, but will shift into the third quarter.

And the next question is coming from the line of Dylan Burzinski of Green Street.

Just one quick one for me. Steve, I think you mentioned that excluding 100 Light, the office portfolio or I guess the traditional office portfolio is 86% leased. Any appetite to start testing the capital markets in terms of bringing some assets to market? Or are you guys still waiting for the interest rate environment to improve?

Well, we're anxious to bring them to market, but we are waiting for the interest rate to improve. The likelihood of a sale capturing good, strong shareholder value in this current financing environment is low.

Thank you. And now I would like to turn the call back to Mr. Budorick for closing remarks. Please go ahead.

So thank you all for joining our call today. We are in our offices this afternoon, so please coordinate any follow-up questions through Venkat, if you're interested. Thank you again.

Thank you for your participation today in COPT Defense's Properties Second Quarter 2025 Results Conference Call. This concludes this presentation. You may now disconnect. Good day.