COPT Defense Reports Full Year 2023 Results

Rhea-AI Summary

COPT Defense Properties (NYSE: CDP) reported a full-year EPS of ($0.67) and a 2.5% increase in FFO per share. The Defense/IT portfolio occupancy and leasing rates were the highest reported since 2015. The company achieved several key operating and financial performance milestones in 2023, exceeding leasing goals and tenant retention targets. However, the 3rd quarter impairment of assets in the Other segment affected the financial results, leading to a negative EPS for the year.

Positive

• None.

Negative

• The negative EPS for the full year due to impairment of assets in the Other segment

Insights

Financial Analyst

Examining the financial performance of COPT Defense, several key figures stand out. The reported EPS of ($0.67) for the full year reflects a significant impairment charge, indicating a downward adjustment in the value of certain assets. This is a critical metric for investors, as it affects the company's net income and, consequently, the valuation of the company. The impairment suggests a reassessment of asset values, which could be due to market conditions or changes in the use of the assets. The FFOPS of $2.41, however, presents a more stable picture of operational efficiency, as this measure excludes non-cash charges like impairments and provides a clearer view of the company's cash-generating ability. The slight increase in FFOPS year-over-year indicates a resilient operational performance despite the impairment.

Another aspect of interest is the increase in same property cash NOI by 5.7%, which is a strong indicator of the company's ability to grow its income from existing properties. This is the highest increase reported in over 15 years, which could signal a robust demand for the company's properties, particularly in the Defense/IT sector. The high occupancy and leasing rates, with the Defense/IT Portfolio at 96.2% occupied and 97.2% leased, are indicative of solid market demand and effective asset management. These factors can contribute to a stable revenue stream and potentially attract investors looking for companies with strong fundamentals in niche markets.

Real Estate Market Analyst

From a real estate perspective, COPT Defense's focus on properties near U.S. defense installations appears to be a strategic advantage. The tenant retention rate of approximately 80% is particularly noteworthy, as it underscores the company's ability to maintain long-term relationships with tenants, which is crucial in the commercial real estate sector. High retention rates reduce turnover costs and vacancy periods, contributing to a more predictable revenue stream. The leasing activity, with 2.9 million square feet leased during the year, surpassing the annual target, indicates a strong market position and effective leasing strategy.

The development pipeline, with 817,000 square feet that are 91% leased, represents future growth potential. The pre-leasing of development projects is a positive sign, reducing the risk associated with new developments and providing visibility into future earnings. The company's ability to place 848,000 square feet of developments into service, which are 98% leased, is a testament to their strategic planning and market demand anticipation. These factors are critical for investors assessing the company's growth prospects and the potential for value appreciation in the real estate portfolio.

Economist

The defense spending outlook mentioned by COPT Defense's CEO is a macroeconomic factor that can have significant implications for the company's future performance. The anticipation of a 3.3% year-over-year growth in defense spending, as per the FY24 National Defense Authorization Act, suggests a favorable economic environment for COPT Defense's niche market. The correlation between defense spending and the demand for COPT Defense's portfolio implies that the company may benefit from increased government budgets in this sector.

However, investors should also be aware of the broader economic context. The company's net debt to in-place adjusted EBITDA ratio of 6.1x warrants attention, as it reflects the company's leverage and ability to service its debt. While the fixed charge coverage ratio of 4.4x indicates a comfortable position in covering interest expenses, the leverage ratio is still a key factor to monitor, especially in an environment where interest rates may fluctuate. It is also essential to consider the potential impact of macroeconomic shifts, such as changes in fiscal policy or geopolitical events, which could affect defense budgets and, by extension, COPT Defense's operations.

EPS of ($0.67) for Full Year

Impacted by 3Q23 Impairment of Assets in Other Segment

FFO per Share, as Adjusted for Comparability, of $2.42

Increased 2.5% Over 2022 Results

Defense/IT Portfolio 96.2% Occupied and 97.2% Leased

Same Property Cash NOI Increased 5.7%

Highest Reported Year-over-Year Annual Increase in Over 15 Years

Placed 848,000 SF of Developments into Service that are 98% Leased

817,000 SF of Active Developments are 91% Leased

Exceeded Leasing Goals in 2023

Total Leasing of 2.9 million SF

452,000 SF of Vacancy Leasing

Exceeded Annual Target of 400,000 SF

Tenant Retention of 80%

3rd Highest Annual Retention Rate Over Last 20 Years

747,000 SF of Development Leasing

Exceeded Annual Guidance of 700,000 SF

COLUMBIA, Md.--(BUSINESS WIRE)-- COPT Defense Properties (“COPT Defense” or the “Company”) (NYSE: CDP) announced results for the fourth quarter and full year ended December 31, 2023.

Management Comments

Stephen E. Budorick, COPT Defense’s President & Chief Executive Officer, commented, “The performance of our Defense/IT investment strategy, which concentrates our portfolio near priority U.S. defense installations, continues to demonstrate operating strength, resulting in a solid earnings growth profile.

We achieved several key operating and financial performance milestones in 2023. Our Defense/IT Portfolio was 96.2% occupied and 97.2% leased at year end, which are the highest rates reported since we began disclosing the segment in 2015. Our sector leading tenant retention rate of 79.4% was the third highest figure in the last 20 years. Same property cash NOI increased 5.7%, the highest reported level in over 15 years, while cash rent spreads on renewals were the highest since 2008.

We attribute our continued strong performance to the strength in defense spending over the past few years, which has resulted in growing tenant demand in our Defense/IT Portfolio to support mission-critical national defense activities.

The outlook for defense spending remains favorable as the FY24 National Defense Authorization Act, which was passed in December and is awaiting Appropriation, calls for 3.3% year-over-year growth, which we believe will fuel demand for space in our portfolio through 2025.

We have generated FFO per share growth in each of the past 5 years, which amounts to a compound annual growth rate of 4.5% between 2019 to 2023. Looking forward, we expect FFO per share to increase 3.7% at the midpoint in 2024 and continue to anticipate compound annual growth of roughly 4% between 2023 to 2026.”

Financial Highlights

4th Quarter Financial Results:

• Diluted earnings per share (“EPS”) was $0.30 for the quarter ended December 31, 2023 as compared to $0.45 for the quarter ended December 31, 2022.
• Diluted funds from operations per share (“FFOPS”), as calculated in accordance with Nareit’s definition and as adjusted for comparability, was $0.62 for the quarter ended December 31, 2023 compared to $0.60 for the quarter ended December 31, 2022.

Full Year 2023 Financial Results:

• EPS for the year ended December 31, 2023 was $(0.67), which included a $252.8 million impairment charge for six operating properties in the Other segment and a parcel of land, located in Baltimore, Maryland, Northern Virginia and Washington, D.C., resulting from the Company’s quarterly portfolio review, as compared to $1.53 for 2022.
• Per Nareit’s definition, FFOPS for 2023 was $2.41 as compared to $2.35 for 2022.
• FFOPS, as adjusted for comparability, for 2023 was $2.42 as compared to $2.36 for 2022.

Operating Performance Highlights

Operating Portfolio Summary:

• At December 31, 2023, the Company’s 23.9 million square foot Total Portfolio was 94.2% occupied and 95.3% leased, which includes the 21.7 million square foot Defense/IT Portfolio that was 96.2% occupied and 97.2% leased.
• During the quarter and year ended December 31, 2023, the Company placed into service 379,000 and 848,000 square feet, respectively, of developments that were 100% and 98% leased, respectively, as of year end.

Same Property Performance:

• At December 31, 2023, the Company’s 20.6 million square foot same property portfolio was 93.4% occupied and 94.7% leased.
• The Company’s same property cash NOI increased 4.5% and 5.7% for the three months and year ended December 31, 2023, respectively, compared to the same periods in 2022.

Leasing:

• Total Square Feet Leased: For the quarter ended December 31, 2023, the Company leased 668,000 square feet, including 301,000 square feet of renewals, 115,000 square feet of vacancy leasing, and 252,000 square feet in development projects. For the year ended December 31, 2023, the Company executed 2.9 million square feet of total leasing, including 1.7 million square feet of renewals, 452,000 square feet of vacancy leasing, and 747,000 square feet in development projects.
• Tenant Retention Rates: During the quarter and year ended December 31, 2023, the Company renewed 68.9% and 79.7% in its Total Portfolio, respectively, of expiring square feet. During the quarter and year ended December 31, 2023, the Company renewed 77.6% and 85.7% in its Defense/IT Portfolio, respectively, of expiring square feet.
• Rent Spreads & Average Escalations on Renewing Leases: For the quarter and year ended December 31, 2023, straight-line rents on renewals increased 20.5% and 9.3%, respectively, and cash rents on renewed space increased 3.1% and 1.5%, respectively. For the same time periods, annual escalations on renewing leases averaged 2.5% and 2.6%, respectively.
• Lease Terms: In the quarter ended December 31, 2023, lease terms averaged 6.3 years on renewing leases, 9.3 years on vacancy leasing, and 14.6 years on development projects. For the year ended December 31, 2023, lease terms averaged 4.8 years on renewing leases, 8.2 years on vacancy leasing, and 14.4 years on development leasing.

Investment Activity Highlights

• Development Pipeline: The Company’s development pipeline consists of five properties totaling 817,000 square feet that were 91% leased as of December 31, 2023. These projects represent a total estimated investment of $323.8 million, of which $84.4 million has been spent.

Balance Sheet and Capital Transaction Highlights

• For the quarter ended December 31, 2023, the Company’s adjusted EBITDA fixed charge coverage ratio was 4.4x.
• At December 31, 2023, the Company’s net debt to in-place adjusted EBITDA ratio was 6.1x and its net debt adjusted for fully-leased development to in-place adjusted EBITDA ratio was 6.0x.
• At December 31, 2023, and including the effect of interest rate swaps, the Company’s weighted average effective interest rate on its consolidated debt portfolio was 3.3% with a weighted average maturity of 5.7 years and, 100% of the Company’s debt was subject to fixed interest rates.

Associated Supplemental Presentation

Prior to the call, the Company will post a slide presentation to accompany management’s prepared remarks for its fourth quarter and full year 2023 conference call; the presentation can be viewed and downloaded from the ‘Financial Info – Financial Results’ section of COPT Defense’s Investors website: https://investors.copt.com/financial-information/financial-results

2024 Guidance

The Company details its initial full year and first quarter guidance, with supporting assumptions, in a separate press release issued concurrently with this press release; that release can be found in the ‘News & Events – Press Releases’ section of COPT Defense’s Investors website: https://investors.copt.com/news-events/press-releases

Conference Call Information

Management will discuss fourth quarter and full year 2023 results on its conference call tomorrow at 12:00 p.m. Eastern Time, details of which are listed below:

Conference Call Date:		Friday, February 09, 2024
Time:		12:00 p.m. Eastern Time

Participants must register for the conference call at the link below to receive the dial-in number and personal pin. Registering only takes a few moments and provides direct access to the conference call without waiting for an operator. You may register at any time, including up to and after the call start time: https://register.vevent.com/register/BIec6f0e6112cd459ab4eda8f3c55c2d22

The conference call will also be available via live webcast in the ‘News & Events – IR Calendar’ section of COPT Defense’s Investors website: https://investors.copt.com/news-events/ir-calendar

Replay Information

A replay of the conference call will be immediately available via webcast only on COPT Defense’s Investors website and will be maintained on the website for approximately 90 days after the conference call.

Definitions

For definitions of certain terms used in this press release, please refer to the information furnished in the Company’s Supplemental Information Package furnished on a Form 8-K which can be found on its website (www.copt.com). Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in the attached tables.

About COPT Defense

COPT Defense, an S&P MidCap 400 Company, is a self-managed REIT focused on owning, operating and developing properties in locations proximate to, or sometimes containing, key U.S. Government (“USG”) defense installations and missions (referred to as its Defense/IT Portfolio). The Company’s tenants include the USG and their defense contractors, who are primarily engaged in priority national security activities, and who generally require mission-critical and high security property enhancements. As of December 31, 2023, the Company’s Defense/IT Portfolio of 190 properties, including 24 owned through unconsolidated joint ventures, encompassed 21.7 million square feet and was 97.2% leased.

Forward-Looking Information

This press release may contain “forward-looking” statements, as defined in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that are based on the Company’s current expectations, estimates and projections about future events and financial trends affecting the Company. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which the Company cannot predict with accuracy and some of which the Company might not even anticipate. Although the Company believes that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, the Company can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements and the Company undertakes no obligation to update or supplement any forward-looking statements.

The areas of risk that may affect these expectations, estimates and projections include, but are not limited to, those risks described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Source: COPT Defense Properties

COPT Defense Properties Summary Financial Data (unaudited) (dollars and shares in thousands, except per share data)
	For the Three Months Ended December 31,								For the Years Ended December 31,
	2023				2022				2023				2022
Revenues
Lease revenue	$	160,337			$	150,022			$	619,847			$	580,169
Other property revenue		1,225				1,163				4,956				4,229
Construction contract and other service revenues		18,167				24,062				60,179				154,632
Total revenues		179,729				175,247				684,982				739,030
Operating expenses
Property operating expenses		64,577				58,470				247,385				227,430
Depreciation and amortization associated with real estate operations		36,735				36,907				148,950				141,230
Construction contract and other service expenses		17,167				23,454				57,416				149,963
Impairment losses		—				—				252,797				—
General and administrative expenses		8,240				7,766				31,105				27,461
Leasing expenses		2,308				2,235				8,932				8,337
Business development expenses and land carry costs		797				1,157				2,732				3,193
Total operating expenses		129,824				129,989				749,317				557,614
Interest expense		(20,383	)			(16,819	)			(71,142	)			(61,174	)
Interest and other income, net		5,659				4,671				12,587				9,070
Gain on sales of real estate		—				19,238				49,392				19,250
Loss on early extinguishment of debt		—				(267	)			—				(609	)
Income (loss) from continuing operations before equity in (loss) income of unconsolidated entities and income taxes		35,181				52,081				(73,498	)			147,953
Equity in (loss) income of unconsolidated entities		(240	)			229				(261	)			1,743
Income tax expense		(121	)			(223	)			(588	)			(447	)
Income (loss) from continuing operations		34,820				52,087				(74,347	)			149,249
Discontinued operations		—				—				—				29,573
Net income (loss)		34,820				52,087				(74,347	)			178,822
Net (income) loss attributable to noncontrolling interests:
Common units in the Operating Partnership (“OP”)		(576	)			(775	)			1,306				(2,603	)
Other consolidated entities		(592	)			(833	)			(428	)			(3,190	)
Net income (loss) attributable to common shareholders	$	33,652			$	50,479			$	(73,469	)		$	173,029
Earnings per share (“EPS”) computation:
Numerator for diluted EPS:
Net income (loss) attributable to common shareholders	$	33,652			$	50,479			$	(73,469	)		$	173,029
Amount allocable to share-based compensation awards		(100	)			(129	)			(1,199	)			(463	)
Redeemable noncontrolling interests		—				(60	)			—				(169	)
Numerator for diluted EPS	$	33,552			$	50,290			$	(74,668	)		$	172,397
Denominator:
Weighted average common shares - basic		112,199				112,096				112,178				112,073
Dilutive effect of share-based compensation awards		432				435				—				431
Dilutive effect of redeemable noncontrolling interests		—				102				—				116
Weighted average common shares - diluted		112,631				112,633				112,178				112,620
Diluted EPS	$	0.30			$	0.45			$	(0.67	)		$	1.53

COPT Defense Properties Summary Financial Data (unaudited) (in thousands, except per share data)
	For the Three Months Ended December 31,								For the Years Ended December 31,
	2023				2022				2023				2022
Net income (loss)	$	34,820			$	52,087			$	(74,347	)		$	178,822
Real estate-related depreciation and amortization		36,735				36,907				148,950				141,230
Impairment losses on real estate		—				—				252,797				—
Gain on sales of real estate from continuing and discontinued operations		—				(19,238	)			(49,392	)			(47,814	)
Depreciation and amortization on unconsolidated real estate JVs		805				526				3,217				2,101
Funds from operations (“FFO”)		72,360				70,282				281,225				274,339
FFO allocable to other noncontrolling interests		(972	)			(1,227	)			(3,978	)			(4,795	)
Basic FFO allocable to share-based compensation awards		(513	)			(360	)			(1,940	)			(1,433	)
Basic FFO available to common share and common unit holders (“Basic FFO”)		70,875				68,695				275,307				268,111
Redeemable noncontrolling interests		—				(27	)			(58	)			(34	)
Diluted FFO adjustments allocable to share-based compensation awards		38				28				150				109
Diluted FFO available to common share and common unit holders (“Diluted FFO”)		70,913				68,696				275,399				268,186
Loss on early extinguishment of debt		—				267				—				609
Gain on early extinguishment of debt on unconsolidated real estate JVs		—				(168	)			—				(168	)
Executive transition costs		188				—				518				343
Diluted FFO comparability adjustments allocable to share-based compensation awards		(1	)			(1	)			(4	)			(5	)
Diluted FFO available to common share and common unit holders, as adjusted for comparability		71,100				68,794				275,913				268,965
Straight line rent adjustments and lease incentive amortization		313				(3,043	)			6,518				(8,825	)
Amortization of intangibles and other assets included in net operating income (“NOI”)		26				15				50				(258	)
Share-based compensation, net of amounts capitalized		2,318				2,247				8,544				8,700
Amortization of deferred financing costs		681				619				2,580				2,297
Amortization of net debt discounts, net of amounts capitalized		1,004				615				2,994				2,440
Replacement capital expenditures		(21,498	)			(43,283	)			(93,494	)			(95,886	)
Other		336				158				(84	)			980
Diluted adjusted funds from operations available to common share and common unit holders (“Diluted AFFO”)	$	54,280			$	26,122			$	203,021			$	178,413
Diluted FFO per share	$	0.62			$	0.60			$	2.41			$	2.35
Diluted FFO per share, as adjusted for comparability	$	0.62			$	0.60			$	2.42			$	2.36
Dividends/distributions per common share/unit	$	0.285			$	0.275			$	1.140			$	1.100

COPT Defense Properties Summary Financial Data (unaudited) (Dollars and shares in thousands, except per share data)
							December 31, 2023				December 31, 2022
Balance Sheet Data
Properties, net of accumulated depreciation							$	3,503,678			$	3,556,398
Total assets							$	4,246,966			$	4,257,275
Debt per balance sheet							$	2,416,287			$	2,231,794
Total liabilities							$	2,699,631			$	2,509,527
Redeemable noncontrolling interests							$	23,580			$	26,293
Total equity							$	1,523,755			$	1,721,455
Debt to assets								56.9	%			52.4	%
Net debt to adjusted book								40.6	%			39.8	%
Defense/IT Portfolio Data (as of period end)
Number of operating properties								190				186
Total operational square feet (in thousands)								21,719				20,869
% Occupied								96.2	%			94.1	%
% Leased								97.2	%			96.7	%
	For the Three Months Ended December 31,						For the Years Ended December 31,
	2023			2022			2023				2022
GAAP
Payout ratio:
Net income	93.7	%		60.3	%			N/A				70.2	%
Debt ratios:
Net income to interest expense ratio	1.7x			3.1x				N/A				2.9x
Debt to net income ratio	17.3x			10.7x				N/A				N/A
Non-GAAP
Payout ratios:
Diluted FFO	45.7	%		45.5	%			47.1	%			46.6	%
Diluted FFO, as adjusted for comparability	45.6	%		45.4	%			47.0	%			46.5	%
Diluted AFFO	59.7	%		119.7	%			63.9	%			70.1	%
Debt ratios:
Adjusted EBITDA fixed charge coverage ratio	4.4x			4.7x				4.7x				5.1x
Net debt to in-place adjusted EBITDA ratio	6.1x			6.3x				N/A				N/A
Pro forma net debt to in-place adjusted EBITDA ratio (1)	N/A			6.0x				N/A				N/A
Net debt adj. for fully-leased development to in-place adj. EBITDA ratio	6.0x			6.1x				N/A				N/A
Pro forma net debt adj. for fully-leased development to in-place adj. EBITDA ratio (1)	N/A			5.7x				N/A				N/A
Reconciliation of denominators for per share measures
Denominator for diluted EPS	112,631			112,633				112,178				112,620
Weighted average common units	1,514			1,476				1,509				1,454
Dilutive effect of additional share-based compensation awards	—			—				424				—
Redeemable noncontrolling interests	—			—				38				—
Denominator for diluted FFO per share and as adjusted for comparability	114,145			114,109				114,149				114,074

(1)

Includes, for the 12/31/22 period, adjustments associated with our sale on 1/10/23 of a 90% interest in three data center shell properties.

COPT Defense Properties Summary Financial Data (unaudited) (in thousands)
	For the Three Months Ended December 31,								For the Years Ended December 31,
	2023				2022				2023				2022
Numerators for Payout Ratios
Dividends on unrestricted common and deferred shares	$	31,998			$	30,844			$	127,978			$	123,367
Distributions on unrestricted common units		430				406				1,725				1,623
Dividends and distributions on restricted shares and units		209				134				828				567
Total dividends and distributions for GAAP payout ratio		32,637				31,384				130,531				125,557
Dividends and distributions on antidilutive shares and units		(212	)			(121	)			(835	)			(516	)
Dividends and distributions for non-GAAP payout ratios	$	32,425			$	31,263			$	129,696			$	125,041
Reconciliation of net income (loss) to earnings before interest, income taxes, depreciation and amortization for real estate (“EBITDAre”), adjusted EBITDA and in-place adjusted EBITDA
Net income (loss)	$	34,820			$	52,087			$	(74,347	)		$	178,822
Interest expense		20,383				16,819				71,142				61,174
Income tax expense		121				223				588				447
Real estate-related depreciation and amortization		36,735				36,907				148,950				141,230
Other depreciation and amortization		619				602				2,445				2,363
Impairment losses on real estate		—				—				252,797				—
Gain on sales of real estate from continuing and discontinued operations		—				(19,238	)			(49,392	)			(47,814	)
Adjustments from unconsolidated real estate JVs		1,911				1,033				6,917				3,313
EBITDAre		94,589				88,433				359,100				339,535
Credit loss (recoveries) expense		(1,288	)			(1,331	)			(611	)			271
Business development expenses		445				794				1,393				1,891
Executive transition costs		188				387				824				730
Loss on early extinguishment of debt		—				267				—				609
Gain on early extinguishment of debt on unconsolidated real estate JVs		—				(168	)			—				(168	)
Net gain on other investments		—				(595	)			(25	)			(1,159	)
Adjusted EBITDA		93,934				87,787			$	360,681			$	341,709
Pro forma NOI adjustment for property changes within period		1,341				2,704
Change in collectability of deferred rental revenue		(198	)			—
In-place adjusted EBITDA	$	95,077			$	90,491
Pro forma NOI adjustment from subsequent event transactions		N/A				(2,903	)
Pro forma in-place adjusted EBITDA	$	95,077			$	87,588
Reconciliations of tenant improvements and incentives, building improvements and leasing costs for operating properties to replacement capital expenditures
Tenant improvements and incentives	$	7,850			$	33,439			$	74,912			$	62,952
Building improvements		14,762				8,468				25,976				29,528
Leasing costs		2,440				4,389				9,634				11,480
Net (exclusions from) additions to tenant improvements and incentives		(189	)			(75	)			(12,170	)			2,150
Excluded building improvements and leasing costs		(3,365	)			(2,938	)			(4,858	)			(10,224	)
Replacement capital expenditures	$	21,498			$	43,283			$	93,494			$	95,886

COPT Defense Properties Summary Financial Data (unaudited) (in thousands)
	For the Three Months Ended December 31,								For the Years Ended December 31,
	2023				2022				2023				2022
Reconciliation of interest expense to the denominator for fixed charge coverage-Adjusted EBITDA
Interest expense	$	20,383			$	16,819			$	71,142			$	61,174
Less: Amortization of deferred financing costs		(681	)			(619	)			(2,580	)			(2,297	)
Less: Amortization of net debt discounts, net of amounts capitalized		(1,004	)			(615	)			(2,994	)			(2,440	)
COPT Defense’s share of interest expense of unconsolidated real estate JVs, excluding amortization of deferred financing costs and net debt premium and loss on interest rate derivatives		819				423				3,188				1,123
Scheduled principal amortization		763				864				3,052				3,333
Capitalized interest		1,028				1,835				4,479				6,709
Denominator for fixed charge coverage-Adjusted EBITDA	$	21,308			$	18,707			$	76,287			$	67,602
Reconciliation of net income (loss) to NOI from real estate operations, same property NOI from real estate operations and same property cash NOI from real estate operations
Net income (loss)	$	34,820			$	52,087			$	(74,347	)		$	178,822
Construction contract and other service revenues		(18,167	)			(24,062	)			(60,179	)			(154,632	)
Depreciation and other amortization associated with real estate operations		36,735				36,907				148,950				141,230
Construction contract and other service expenses		17,167				23,454				57,416				149,963
Impairment losses		—				—				252,797				—
General and administrative expenses		8,240				7,766				31,105				27,461
Leasing expenses		2,308				2,235				8,932				8,337
Business development expenses and land carry costs		797				1,157				2,732				3,193
Interest expense		20,383				16,819				71,142				61,174
Interest and other income, net		(5,659	)			(4,671	)			(12,587	)			(9,070	)
Gain on sales of real estate from continuing operations		—				(19,238	)			(49,392	)			(19,250	)
Loss on early extinguishment of debt		—				267				—				609
Equity in loss (income) of unconsolidated entities		240				(229	)			261				(1,743	)
Unconsolidated real estate JVs NOI allocable to COPT Defense included in equity in (loss) income of unconsolidated entities		1,671				1,095				6,659				4,327
Income tax expense		121				223				588				447
Discontinued operations		—				—				—				(29,573	)
Revenues from real estate operations from discontinued operations		—				—				—				1,980
Property operating expenses from discontinued operations		—				—				—				(971	)
NOI from real estate operations		98,656				93,810				384,077				362,304
Non-Same Property NOI from real estate operations		(11,705	)			(9,015	)			(39,244	)			(27,991	)
Same Property NOI from real estate operations		86,951				84,795				344,833				334,313
Straight line rent adjustments and lease incentive amortization		7,947				319				25,631				(2,729	)
Amortization of acquired above- and below-market rents		(121	)			(131	)			(536	)			(844	)
Lease termination fees, net		(717	)			(1,026	)			(3,745	)			(2,237	)
Tenant funded landlord assets and lease incentives		(7,501	)			(1,068	)			(25,244	)			(5,915	)
Cash NOI adjustments in unconsolidated real estate JVs		(58	)			(81	)			(267	)			(358	)
Same Property Cash NOI from real estate operations	$	86,501			$	82,808			$	340,672			$	322,230

COPT Defense Properties Summary Financial Data (unaudited) (in thousands)
		December 31, 2023				December 31, 2022
Reconciliation of total assets to adjusted book
Total assets		$	4,246,966			$	4,257,275
Accumulated depreciation			1,400,162				1,267,434
Accumulated depreciation included in assets held for sale			—				6,014
Accumulated amortization of intangibles on property acquisitions and deferred leasing costs			228,484				222,779
COPT Defense’s share of liabilities of unconsolidated real estate JVs			60,583				52,404
COPT Defense’s share of accumulated depreciation and amortization of unconsolidated real estate JVs			9,528				6,078
Less: Property - operating lease liabilities			(33,931	)			(28,759	)
Less: Property - finance lease liabilities			(415	)			—
Less: Cash and cash equivalents			(167,820	)			(12,337	)
Less: COPT Defense’s share of cash of unconsolidated real estate JVs			(852	)			(456	)
Adjusted book		$	5,742,705			$	5,770,432
		December 31, 2023				December 31, 2022
Reconciliation of debt to net debt, net debt adjusted for fully-leased development and pro forma net debt adjusted for fully-leased development
Debt per balance sheet		$	2,416,287			$	2,231,794
Net discounts and deferred financing costs			28,713				23,160
COPT Defense’s share of unconsolidated JV gross debt			52,613				52,100
Gross debt			2,497,613				2,307,054
Less: Cash and cash equivalents			(167,820	)			(12,337	)
Less: COPT Defense’s share of cash of unconsolidated real estate JVs			(852	)			(456	)
Net debt			2,328,941				2,294,261
Costs incurred on fully-leased development properties			(53,914	)			(95,972	)
Net debt adjusted for fully-leased development		$	2,275,027			$	2,198,289
Net debt		$	2,328,941			$	2,294,261
Pro forma debt adjustments from subsequent event transaction proceeds			N/A				(189,000	)
Pro forma net debt			2,328,941				2,105,261
Costs incurred on fully-leased development properties			(53,914	)			(95,972	)
Pro forma net debt adjusted for fully-leased development		$	2,275,027			$	2,009,289

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240208427624/en/

IR Contacts:

Venkat Kommineni, CFA

443.285.5587

venkat.kommineni@copt.com

Michelle Layne

443.285.5452

michelle.layne@copt.com

Source: COPT Defense Properties

FAQ

What was COPT Defense Properties' full-year EPS for 2023?

The full-year EPS for COPT Defense Properties in 2023 was ($0.67).

What was the percentage increase in FFO per share for COPT Defense Properties in 2023?

The FFO per share for COPT Defense Properties increased by 2.5% over 2022 results.

What were the occupancy and leasing rates for the Defense/IT portfolio of COPT Defense Properties in 2023?

The Defense/IT portfolio of COPT Defense Properties was 96.2% occupied and 97.2% leased at year end, the highest rates reported since 2015.

What were the key operating and financial performance milestones achieved by COPT Defense Properties in 2023?

COPT Defense Properties achieved several key operating and financial performance milestones in 2023, including exceeding leasing goals, tenant retention of 80%, and highest reported year-over-year annual increase in over 15 years.

What affected the financial results of COPT Defense Properties in 2023?

The financial results of COPT Defense Properties in 2023 were affected by a 3rd quarter impairment of assets in the Other segment, resulting in a negative EPS for the year.