COPT DEFENSE PROPERTIES

Previous wording

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

Current wording

finished the period with our portfolio 93.6% occupied and 95.1% leased; and

Previous wording

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

Current wording

achieved a tenant retention rate of 74.9%, all of which was attributable to our Defense/IT Portfolio.

Previous wording

We discuss significant factors contributing to changes in our net income or loss in the section below entitled “Results of Operations.” In addition, the section below entitled “Liquidity and Capital Resources” includes discussions of, among other things:

Current wording

We discuss significant factors contributing to changes in our net income in the section below entitled “Results of Operations.” In addition, the section below entitled “Liquidity and Capital Resources” includes discussions of, among other things:

Previous 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.

Current wording

We refer to the measures annualized rental revenue (“ARR”), “tenant retention rate,” “investment space leasing” and “vacant space leasing” in this Quarterly Report on Form 10-Q. ARR 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 ARR excludes the effect of lease incentives. We consider ARR 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. In instances in which we report ARR per occupied square foot, the measure excludes revenue from leases not associated with our buildings. 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, including the effect of early renewals. 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

For operating portfolio square footage, occupancy and leasing statistics included below and elsewhere in this Quarterly Report on Form 10-Q, amounts disclosed include information pertaining to properties owned through unconsolidated real estate joint ventures.

Current wording

For operating portfolio square footage, occupancy and leasing statistics included below and elsewhere in this Quarterly Report on Form 10-Q, amounts disclosed include information pertaining to properties owned through unconsolidated real estate joint ventures except for amounts reported for ARR, which represent the portion attributable to our ownership interest.

Previous 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.

Current wording

During the three months ended March 31, 2025, we leased 647,000 square feet, including: 438,000 square feet of renewal leasing (representing a tenant retention rate of 74.9%); 120,000 square feet of vacant space leasing; and 89,000 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 (loss), 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, the most directly comparable GAAP measure, to NOI from real estate operations:

Previous wording

developed properties placed into service that were not 100% operational throughout the current and prior year reporting periods being compared;

Current wording

developed properties placed into service that were not 100% operational throughout the current and prior year reporting periods being compared; and

Previous 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.

Current wording

Our Same Property pool consisted of 198 properties, comprising 97.2% of our portfolio’s square footage as of March 31, 2025. This pool of properties changed from the pool used for purposes of comparing 2024 and 2023 in our 2024 Annual Report on Form 10-K due to the addition of six properties placed in service and 100% operational on or before January 1, 2024 and three properties owned through a UJV that was formed in 2023.

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 (loss) 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 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 rental and occupancy rates;

Current wording

the increase for our Same Properties was due in large part to additional revenue in the current period resulting from increased rental and occupancy rates. Our Same Properties also experienced increased property operating expenses, driven primarily by higher snow removal and utility expenses, the effect of which was mostly offset by increased tenant expense reimbursements and prior year real estate taxes refunded upon appeal. For the increases in our Same Properties by segment, the Defense/IT Portfolio increase was adversely affected by a $2.1 million collectability loss provision, while our Other segment increase included $2.1 million from a refund of prior year real estate taxes, net of related tenant reimbursements, at one of our properties;

Previous wording

developed properties placed in service reflects the effect of eight properties placed in service in 2023 and 2024;

Current wording

developed properties placed in service reflects the effect of four properties placed in service in 2024 and 2025; and

Previous wording

acquired properties includes two operating office properties acquired in 2024; and

Current wording

acquired properties includes two operating office properties acquired in 2024.

Previous wording

Construction contract and other service revenues and expenses increased in the current period due to a higher volume of construction activity for one of our tenants. Construction contract activity is inherently subject to significant variability depending on the volume and nature of projects undertaken by us primarily on behalf of tenants. Service operations are an ancillary component of our overall operations that typically contribute an insignificant amount of income relative to our real estate operations.

Current wording

Construction contract and other service revenues and expenses decreased in the current period due to a lower volume of construction activity for one of our tenants. Construction contract activity is inherently subject to significant variability depending on the volume and nature of projects undertaken by us primarily on behalf of tenants. Service operations are an ancillary component of our overall operations that typically contribute an insignificant amount of income relative to our real estate operations.

Previous wording

Interest and other income, net increased due primarily to interest income earned from a portion of the net proceeds from the 5.25% Notes issuance being invested in short-term interest-bearing money market accounts.

Current wording

Interest and other income, net decreased due primarily to interest income earned from excess loan proceeds that we invested in short-term interest-bearing money market accounts in the prior period.

Previous wording

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

Current wording

The table below sets forth the major components of our additions to properties for the three months ended March 31, 2025 (in thousands):

Previous 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:

Current wording

Net cash flow used in financing activities in the three months ended March 31, 2025 was $16.2 million, and included primarily the following:

Previous wording

dividends to common shareholders of $98.6 million.

Current wording

dividends to common shareholders of $33.3 million.

Previous 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:

Current wording

Net cash flow used in financing activities in the three months ended March 31, 2024 was $36.4 million, and included primarily the following:

Previous wording

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

Current wording

repayments of debt borrowings during the period of $769,000; and

Previous wording

dividends to common shareholders of $95.1 million.

Current wording

dividends to common shareholders of $32.1 million.

Previous wording

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

Current wording

As of March 31, 2025, we had $24.3 million in cash and cash equivalents.

Previous wording

We have a Revolving Credit Facility with a maximum borrowing capacity of $600.0 million. We use this facility to initially fund most of the cash requirements from our investing activities, including property development and acquisition costs, as well as certain debt balloon payments due upon maturity. We then subsequently pay down the facility using cash available from operations and proceeds from financing and/or investing activities, such as long-term borrowings, equity issuances and sales of interests in properties. The facility matures in October 2026 and may be extended by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.0625% of the total availability under the facility for each extension period. Our available borrowing capacity under the facility totaled $525.0 million as of September 30, 2024.

Current wording

We have a Revolving Credit Facility with a maximum borrowing capacity of $600.0 million. We use this facility to initially fund most of the cash requirements from our investing activities, including property development and acquisition costs, as well as certain debt balloon payments due upon maturity. We then subsequently pay down the facility using cash available from operations and proceeds from financing and/or investing activities, such as long-term borrowings, equity issuances and sales of interests in properties. The facility matures in October 2026 and may be extended by two six-month periods at our option, provided that there is no default under the facility and we pay an extension fee of 0.0625% of the total availability under the facility for each extension period. Our available borrowing capacity under the facility totaled $505.0 million as of March 31, 2025.

Previous wording

Our senior unsecured debt is rated investment grade, with stable outlooks, by the three major rating agencies. We aim to maintain an investment grade rating to enable us to use debt comprised of unsecured, primarily fixed-rate debt (including the effect of interest rate swaps) from public markets and banks. We also use secured nonrecourse debt from institutional lenders and banks primarily for joint venture financings. In addition, we periodically raise equity when we access the public equity markets by issuing common shares and, to a lesser extent, preferred shares.

Current wording

Our senior unsecured debt is rated investment grade, with either stable or positive outlooks, by the three major rating agencies. We aim to maintain an investment grade rating to enable us to use debt comprised of unsecured, primarily fixed-rate debt (including the effect of interest rate swaps) from public markets and banks. We also use secured nonrecourse debt from institutional lenders and banks primarily for joint venture financings. In addition, we periodically raise equity when we access the public equity markets by issuing common shares and, to a lesser extent, preferred shares.

Previous wording

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

Current wording

tenant and capital improvements and leasing costs for operating properties (expected to total approximately $80 million during the remainder of 2025);

Previous 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.

Current wording

During the remainder of 2025, we expect to spend $150 million to $180 million on costs for properties actively under development, most of which was contractually obligated as of March 31, 2025. During the remainder of 2025 and beyond, we expect to continue to actively develop additional properties and also could opportunistically acquire operating properties. We expect to fund these activities using, in part, available cash flow from operations and any excess available cash and cash equivalents, with the balance funded, at least initially, using borrowings under our Revolving Credit Facility.