COPT DEFENSE PROPERTIES

Previous wording

finished the period with our portfolio 93.6% occupied and 94.9% leased;

Current wording

finished the period with our portfolio 93.1% occupied and 94.8% leased;

Previous wording

achieved a tenant retention rate of 82.9%, which was driven by strong leasing demand for space in our Defense/IT Portfolio; and

Current wording

achieved a tenant retention rate of 84.3%, which was driven by strong leasing demand for space in our Defense/IT Portfolio; and

Previous wording

acquired a 202,000 square foot operating office property in Columbia, Maryland that was 56% leased for a purchase price of $15.0 million.

Current wording

6841 Benjamin Franklin Drive, a 202,000 square foot property in Columbia, Maryland that was 56% leased, for a purchase price of $15.0 million on March 15, 2024;

Previous wording

Annualized rental revenue is a measure that we use to evaluate the source of our rental revenue as of a point in time. It is computed by multiplying by 12 the sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases as of a point in time (ignoring free rent then in effect and rent associated with tenant funded landlord assets). Our computation of annualized rental revenue excludes the effect of lease incentives. We consider annualized rental revenue to be a useful measure for analyzing revenue sources because, since it is point-in-time based, it does not contain increases and decreases in revenue associated with periods in which lease terms were not in effect; historical revenue under generally accepted accounting principles in the United States of America (“GAAP”) does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment and industry analysis. Tenant retention rate is a measure we use that represents the percentage of square feet renewed in a period relative to the total square feet scheduled to expire in that period; we include the effect of early renewals in this measure.

Current wording

We refer to the measures “annualized rental revenue,” “tenant retention rate,” “investment space leasing” and “vacant space leasing” in this Quarterly Report on Form 10-Q. Annualized rental revenue is a measure that we use to evaluate the source of our rental revenue as of a point in time. It is computed by multiplying by 12 the sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases as of a point in time (ignoring free rent then in effect and rent associated with tenant funded landlord assets). Our computation of annualized rental revenue excludes the effect of lease incentives. We consider annualized rental revenue to be a useful measure for analyzing revenue sources because, since it is point-in-time based, it does not contain increases and decreases in revenue associated with periods in which lease terms were not in effect; historical revenue under generally accepted accounting principles in the United States of America (“GAAP”) does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment and industry analysis. Tenant retention rate is a measure we use that represents the percentage of square feet renewed in a period relative to the total square feet scheduled to expire in that period; we include the effect of early renewals in this measure. Investment space leasing represents vacant space leased within two years of the shell completion date for development properties or the acquisition date for operating property acquisitions. Vacant space leasing represents our vacated second-generation space leased and vacant space leased in development properties and operating property acquisitions after two years from such properties’ shell completion or acquisition date.

Previous wording

During the six months ended June 30, 2024, we leased 1.7 million square feet, including: 1.4 million square feet of renewal leasing (representing a tenant retention rate of 82.9%); 264,000 square feet of vacant space leasing; and 10,000 square feet of development leasing.

Current wording

During the nine months ended September 30, 2024, we leased 2.5 million square feet, including: 2.1 million square feet of renewal leasing (representing a tenant retention rate of 84.3%); 387,000 square feet of vacant space leasing; and 90,000 square feet of investment space leasing.

Previous wording

We evaluate the operating performance of our properties using NOI from real estate operations, our segment performance measure, which includes: real estate revenues and property operating expenses; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate joint ventures (“UJV” or “UJVs”) that is allocable to our ownership interest (“UJV NOI allocable to COPT Defense”). The table below reconciles net income, the most directly comparable GAAP measure, to NOI from real estate operations:

Current wording

We evaluate the operating performance of our properties using NOI from real estate operations, our segment performance measure, which includes: real estate revenues and property operating expenses; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate joint ventures (“UJV” or “UJVs”) that is allocable to our ownership interest (“UJV NOI allocable to COPT Defense”). The table below reconciles net income (loss), the most directly comparable GAAP measure, to NOI from real estate operations:

Previous wording

Our Same Property pool consisted of 189 properties, comprising 92.1% of our portfolio’s square footage as of June 30, 2024. This pool of properties changed from the pool used for purposes of comparing 2023 and 2022 in our 2023 Annual Report on Form 10-K due to the addition of seven properties placed in service and 100% operational on or before January 1, 2023 and two properties owned through a UJV that was formed in 2022.

Current wording

Our Same Property pool consisted of 189 properties, comprising 91.4% of our portfolio’s square footage as of September 30, 2024. This pool of properties changed from the pool used for purposes of comparing 2023 and 2022 in our 2023 Annual Report on Form 10-K due to the addition of seven properties placed in service and 100% operational on or before January 1, 2023 and two properties owned through a UJV that was formed in 2022.

Previous wording

Since both of the measures discussed above exclude certain items includable in net income or loss, reliance on these measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are considered alongside other GAAP and non-GAAP measures. A reconciliation of NOI from real estate operations and NOI from service operations to net income reported on the consolidated statements of operations is provided in Note 12 to our consolidated financial statements.

Current wording

Since both of the measures discussed above exclude certain items includable in net income or loss, reliance on these measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are considered alongside other GAAP and non-GAAP measures. A reconciliation of NOI from real estate operations and NOI from service operations to net income (loss) reported on the consolidated statements of operations is provided in Note 12 to our consolidated financial statements.

Previous wording

the increase for our Same Property pool was due in large part to additional revenue in the current period resulting from increased occupancy and rental rates;

Current wording

the increase for our Same Property pool was due in large part to additional revenue in the current period resulting from increased rental and occupancy rates;

Previous wording

Comparison of Statements of Operations for the Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of Statements of Operations for the Nine Months Ended September 30, 2024 and 2023

Previous wording

Diluted FFO available to common share and common unit holders, as adjusted for comparability is defined as Diluted FFO adjusted to exclude: operating property acquisition costs; gain or loss on early extinguishment of debt; FFO associated with properties that secured non-recourse debt on which we defaulted and, subsequently, extinguished, via conveyance of such properties (including property NOI, interest expense and gains on debt extinguishment); loss on interest rate derivatives; executive transition costs associated with named executive officers; and, for periods prior to October 1, 2022, demolition costs on redevelopment and nonrecurring improvements and executive transition costs associated with other senior management team members. This measure also includes adjustments for the effects of the items noted above pertaining to UJVs that were allocable to our ownership interest in the UJVs. We believe this to be a useful supplemental measure alongside Diluted FFO as it excludes gains and losses from certain investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that net income or loss is the most directly comparable GAAP measure to this non-GAAP measure. This measure has essentially the same limitations as Diluted FFO, as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.

Current wording

Diluted FFO available to common share and common unit holders, as adjusted for comparability is defined as Diluted FFO adjusted to exclude: operating property acquisition costs (for acquisitions classified as business combinations); gain or loss on early extinguishment of debt; FFO associated with properties that secured non-recourse debt on which we defaulted and, subsequently, extinguished, via conveyance of such properties (including property NOI, interest expense and gains on debt extinguishment); loss on interest rate derivatives; and executive transition costs associated with named executive officers. This measure also includes adjustments for the effects of the items noted above pertaining to UJVs that were allocable to our ownership interest in the UJVs. We believe this to be a useful supplemental measure alongside Diluted FFO as it excludes gains and losses from certain investing and financing activities and certain other items that we believe are not closely correlated to (or associated with) our operating performance. We believe that net income or loss is the most directly comparable GAAP measure to this non-GAAP measure. This measure has essentially the same limitations as Diluted FFO, as well as the further limitation of not reflecting the effects of the excluded items; we compensate for these limitations in essentially the same manner as described above for Diluted FFO.

Previous wording

The table below sets forth the major components of our additions to properties for the six months ended June 30, 2024 (in thousands):

Current wording

The table below sets forth the major components of our additions to properties for the nine months ended September 30, 2024 (in thousands):

Previous wording

Net cash flow from operating activities increased $23.9 million when comparing the six months ended June 30, 2024 and 2023 due primarily to the effects of increased cash flow from real estate operations resulting from the growth of our operating portfolio, which was partially offset by higher cash paid for interest expense due in large part to our 5.25% Notes issued in September 2023.

Current wording

Net cash flow from operating activities increased $20.2 million when comparing the nine months ended September 30, 2024 and 2023 due primarily to the effects of increased cash flow from real estate operations resulting from the growth of our operating portfolio, which was partially offset by higher cash paid for interest expense due in large part to our 5.25% Notes issued in September 2023.

Previous wording

Net cash flow used in investing activities increased $115.8 million when comparing the six months ended June 30, 2024 and 2023 due primarily to proceeds from properties sold in the prior period (which included our sale of a 90% interest in three data center shells), which was partially offset by decreased cash paid for development of properties.

Current wording

Net cash flow used in investing activities increased $127.3 million when comparing the nine months ended September 30, 2024 and 2023 due primarily to proceeds from properties sold in the prior period (which included our sale of a 90% interest in three data center shells), which was partially offset by decreased cash paid for properties in development or held for future development.

Previous wording

Net cash flow used in financing activities in the six months ended June 30, 2024 was $99.4 million, and included primarily the following:

Current wording

Net cash flow used in financing activities in the nine months ended September 30, 2024 was $134.5 million, and included primarily the following:

Previous wording

repayments of debt borrowings during the period of $29.1 million; and

Current wording

repayments of debt borrowings during the period of $29.5 million; and

Previous wording

dividends to common shareholders of $65.3 million.

Current wording

dividends to common shareholders of $98.6 million.

Previous wording

Net cash flow used in financing activities in the six months ended June 30, 2023 was $124.7 million, and included primarily the following:

Current wording

Net cash flow provided by financing activities in the nine months ended September 30, 2023 was $81.0 million, and included primarily the following:

Previous wording

net repayments of debt borrowings during the period of $57.4 million, most of which resulted from the net paydown of our Revolving Credit Facility primarily using property sale proceeds; and

Current wording

net proceeds of debt borrowings during the period of $182.2 million, which included the net effect of our issuance of the 5.25% Notes and a net paydown of borrowings under our Revolving Credit Facility using proceeds from the notes issuance and from property sales; and

Previous wording

dividends to common shareholders of $63.0 million.

Current wording

dividends to common shareholders of $95.1 million.

Previous wording

As of June 30, 2024, we had $100.4 million in cash and cash equivalents. We were carrying a significant amount of cash and cash equivalents as of the end of the period due to our use of a portion of the net proceeds from our issuance of the 5.25% Notes to pre-fund future development investments, which resulted in a portion of the net proceeds being invested in short-term interest-bearing money market accounts pending such use.

Current wording

As of September 30, 2024, we had $34.5 million in cash and cash equivalents.

Previous wording

tenant and capital improvements and leasing costs for operating properties (expected to total approximately $55 million during the remainder of 2024);

Current wording

tenant and capital improvements and leasing costs for operating properties (expected to total approximately $35 million during the remainder of 2024);

Previous wording

During the remainder of 2024, we expect to spend $110 million to $130 million on costs for properties actively under development, most of which was contractually obligated as of June 30, 2024, and had no debt balloon payments maturing. In addition, we expect to continue to actively develop additional properties and also could opportunistically acquire operating properties during the remainder of 2024. We expect to fund these costs using, in part, remaining cash flow from operations and any remaining excess available cash and cash equivalents, with the balance funded using borrowings under our Revolving Credit Facility, at least initially.

Current wording

During the remainder of 2024, we expect to spend $55 million to $65 million on costs for properties actively under development, most of which was contractually obligated as of September 30, 2024, and had no debt balloon payments maturing. In addition, we expect to continue to actively develop additional properties. We expect to fund these costs using, in part, available cash flow from operations and any excess available cash and cash equivalents, with the balance funded using borrowings under our Revolving Credit Facility, at least initially.

Previous wording

Beyond 2024, we expect to continue to actively develop properties and also could opportunistically acquire operating properties. We expect to fund these activities using, in part, remaining cash flow from operations, with the balance funded primarily using borrowings under our Revolving Credit Facility, at least initially.

Current wording

Beyond 2024, we expect to continue to actively develop properties and also could opportunistically acquire operating properties. We expect to fund these activities using, in part, available cash flow from operations, with the balance funded primarily using borrowings under our Revolving Credit Facility, at least initially.