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Thank you. Hello, welcome to COPT Defense Properties third quarter 2026 results conference call. As a reminder, today's call is being recorded. At this time, I will turn the call over to Mr. Venkat Kommineni, COPT Defense's Vice President of Investor Relations. Sir, you may begin.

Thank you, Tawanda. Good afternoon and welcome to COPT Defense's conference call to discuss third quarter results. With me today are Stephen Budorick, President and CEO, Britt A. Snider, Executive Vice President and COO, and Anthony Mifsud, Executive Vice President and CFO. Thank you. 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 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.

Good afternoon, and thank you for joining us. We had another great quarter with continued strength in demand and a robust underlying business environment highlighted by our vacancy leasing achievements. It all translated into solid results, which I'll detail. For the third quarter, FFO per share was $0.71, which was 2 cents above the midpoint of guidance and represents a 2.9% increase year over year. Same property cash NOI increased 3.2% year over year and 5.3% during the nine months. We had a particularly strong quarter in terms of vacancy leasing, executing 222,000 square feet, which exceeded our trailing five-year quarterly average by 50%. This achievement brings vacancy leasing during the first nine months to 453,000 square feet, which amounts to 95% of our prior full-year target of 475,000 square feet and over 110% of our initial target of 400,000 square feet.

We committed $88 million to two developments at Redstone Gateway, which we announced on our last call. The Huntsville operating portfolio is 98% leased and continues to see very strong demand, which led us to start these projects to provide the vital inventory we need to meet the demand we're seeing and to accelerate those lease commencements. Turning to guidance, we increased the midpoint of 2026 guidance for four metrics. FFO per share, as adjusted for comparability, increased to $2.80 per share. Same property cash NOI growth increased to 4.25%. Capital committed to new investments increased to $375 million. Capital invested in development and acquisitions increased to $240 million. Anthony will provide additional detail on what drove these increases.

We decreased the midpoint of our tenant retention guidance for a very good reason: to support the growth of core tenants and strengthen our tenant roster. Our tenant retention was actually tracking 84%, but we created an opportunity to recapture space from three suboptimal tenants and release those spaces to high-value tenants with strong long-term growth and credit profiles. As a result, we're reducing the midpoint of our tenant retention guidance by 250 basis points to a still very strong 80%. We made a corresponding change to our vacancy leasing target, increasing it to 625,000 square feet as we have leased or expect to lease over 145,000 square feet of this nearly 160,000 square feet of space recaptured from the three tenants. The strong level of demand in our portfolio positioned us to proactively enhance our tenant growth profile while continuing to maintain a sector-leading tenant retention rate.

With the midterm election just days away, I'd like to remind everyone of the immense stability in our country's support for increased defense spending over the past 12 years, regardless of the shifts in control of the Chambers of Congress and the Presidency. First, over that period, there's been a balance between unified and split control of government. With six years of unified control, including the presidency and both chambers — four under the Republican Party and two under the Democrat Party — and six years of split control. Despite these control changes within the government, there has been strong bipartisan support for defense spending throughout the period. Since fiscal year 2015, the National Defense Authorization Act has, on average, passed the House by a margin of 3.5 to 1 and the Senate by over 7.5 to 1. During this period, the defense-based budget grew by $285 billion, or 51%. And that equates to a compound annual growth rate of nearly 4%, with annual increases occurring in each of those 12 years.

Second, our business is primarily driven by the Department of Defense base budget, which at $840 billion in fiscal year 2026, is the highest defense budget in history. Looking forward, the FY2027 base budget request is $1.1 trillion. With the challenging global threat environment, we expect defense spending will continue to be a priority regardless of the election results. And finally, given the 12 to 18 month lag we generally experience between budget appropriation and leasing activity, there is embedded demand throughout our portfolio from funding that has already been appropriated. The FY2025 and FY2026 budgets plus the $150 billion of funding appropriated in the One Big Beautiful Bill Act, will continue to produce demand in our portfolio through 2027. The FY2027 budget, when ultimately passed, will drive activity in 2028 and 2029. So notwithstanding the election, we have a very strong funding backdrop, supporting our underlying industry.

We're not the only company seeing growth opportunities created by the massive investments in technological advancement in support of national defense. There's a rising tide of private capital targeting the defense sector space, and in particular, emerging technologies. In fact, Blackstone has invested $20 billion in the sector over the past five years, with a recent investment of $1 billion to form a defense tech platform specializing in missile interceptor technology. A Parallel Group announced a $3 billion defense fund. They recently invested in the company developing low-cost hypersonic weapons. JPMorgan announced the $1.5 trillion security and resiliency initiative last year to finance and facilitate investments in key areas of economic and national security, including aerospace and defense, and frontier and strategic technologies such as cybersecurity and quantum computing. Clearly, the investment priorities of the Department of Defense are generating a strong response from the private sector to deploy capital to companies serving the same priority missions supported by our portfolio, which include intelligence, cybersecurity, and missile defense. So, having touched on the highlights of the business, I'll turn it over to Britt.

Thank you, Steve. Before I walk through the operating performance during the quarter, I'd like to highlight the strong leasing results driven by our unique strategy. We have executed 3 million square feet of total leasing during the first nine months, which includes strong performance on the vacancy leasing front and very healthy demand. We are executing leases with tenants supporting broader missile defense missions in Huntsville and have a robust pipeline of additional prospects. We are also executing leases with tenants supporting U.S. Cyber Command and Columbia Gateway, which accounts for nearly half of our vacancy leasing year to date. And finally, of the nearly 1 million square feet of combined vacancy and investment leasing executed year to date, roughly 80% is with existing tenants. This highlights one of our key strengths, our tenant relationships, as the leading defense contractors in the country have multiple leases with us in multiple markets.

At the end of the third quarter, our total portfolio was 95% leased and 94% occupied, while our Defense IT portfolio, which accounts for 93% of our NOI, was 96.2% leased and 95.2% occupied. The 60 basis point decrease in the total portfolio's lease rate was primarily driven by two events. First, the law firm tenant that leased both its new and old space in Baltimore last quarter vacated their old space this quarter, which accounted for 30 basis points of the decrease. Second, as Steve discussed, a strategic early lease termination accounted for 20 basis points of the decrease. In Redstone Gateway, we recaptured 46,000 square feet from a defense tenant underutilizing their space. We are in advanced negotiations to backfill the bulk of that space to Lockheed Martin to expand its presence in the park by nearly 30% and have several great prospects for the remainder of the space. This overall decline was mitigated by 50 basis points of offsetting occupancy by placing MBP 400, our 100% occupied inventory development at the National Business Park, into service during the quarter.

As a result, total portfolio occupancy only declined by 10 basis points. Additionally, in Columbia Gateway, we recaptured 56,000 square feet from a non-defense tenant, set to vacate in 2027. We fully backfilled that space to Frequentis, an existing and fast-growing defense contractor in the park, focused on both cyber and aviation. We expect that lease to commence in the first quarter of 2027. Frequentis has more than doubled its footprint in Columbia Gateway since the beginning of the year, starting at 87,000 square feet, then expanding by nearly 100,000 square feet through four separate transactions. Both examples speak to a few of our key competitive advantages of proactive asset management scale, commitment to accommodate tenant growth throughout the portfolio, and a strong balance sheet and cash flow to fund tenant improvements. One additional point about Columbia Gateway: earlier this month, we also signed a 30,000 square foot lease at Franklin Center, bringing that recent acquisition up to 87% leased.

We executed 222,000 square feet of vacancy leasing during the third quarter and 504,000 square feet year-to-date. This achievement equates to over 125% of our initial full-year target of 400,000 square feet and over 105% of our second quarter full-year target of 475,000 square feet. We have over 200,000 square feet of prospects in advanced negotiations, which we define as over 90% likely to execute. Taken together, there are 710,000 square feet of leases, either executed or in advanced negotiations, which supports our decision to increase our target for vacancy leasing to 625,000 square feet for the year. Our leasing activity ratio has grown to a very strong 83%, which is based on over 1 million square feet of prospects on about 1.25 million square feet of availability. Of the 710,000 square feet of vacancy leasing executed or in advanced negotiations, approximately 55% or 390,000 square feet leases space that was vacant at the beginning of the year. 25% or 175,000 square feet leases non-renewing space in 2026 and 2027 and backfills nearly 20% of the forecasted non-renewals in 2026. And 20%, or 145,000 square feet, backfills the majority of the nearly 160,000 square feet of the strategically recaptured space. Again, this activity demonstrates our proactive asset management, the result of which is to satisfy our tenants' needs while minimizing downtime and capitalizing on the strong level of demand across the Defense IT portfolio.

Turning to renewal leasing, we executed nearly 550,000 square feet in the quarter, with tenant retention of 70%, cash rent spreads up 8.5%, and GAAP rent spreads up 20%. Retention results were heavily influenced by two of the three space recapture activities, which impacted tenant retention in the third quarter by 11 percentage points. Cash rent spreads in the quarter were heavily influenced by our 10% joint venture share of three data center shell renewals, which had a weighted average increase in cash rent spreads of 140%. Over the past three years, we have executed 10 data center shell renewals, all of which are held in JVs, totaling 1.7 million square feet at a weighted average cash rent spread of over 120%. Excluding the data center shell renewals, cash rent spreads would have been up 70 basis points in the quarter and up 2.7 percent over the nine months.

Moving on to development, our active pipeline now totals 1.1 million square feet. That is 64% pre-leased and amounts to nearly $530 million in capital commitment. Four of the eight projects are 100% pre-leased. Of the remaining four projects, 8500 Advanced Gateway is nearly 90% pre-leased. As we signed a 75,000 square foot lease this quarter tied to missile defense and are in advanced negotiations on a 14,000 square foot lease, which will bring the building up to just over 98% leased. This inventory building will essentially be fully leased only six months after substantial completion of construction.

We are in active discussions with multiple government missions related to space and missile defense at 410 Goss Road, which is our inventory building for the government. And we continue to expect lease activity for that building sometime in 2027. With the bulk of our Huntsville portfolio already leased, we kicked off development of two defense contractor inventory projects this quarter, which total $88 million in capital commitment. At 6300 Redstone Gateway, a 175,000 square foot development, we have 235,000 square feet of prospects. At 2200 Rideout Road, a 59,000 square foot development, we have 105,000 square feet of prospects. The government's massive investment in missile defense, which includes the Golden Dome Initiative, is emerging as a catalyst for growth in our Huntsville portfolio. Within the past year, we have already executed 170,000 square feet of vacancy and investment leasing tied to these missions, with a strong pipeline of demand behind that. Given the dynamic environment we're in, we revisited our Redstone Gateway Master Plan and expanded our development capacity by an additional 500,000 square feet. The park can now accommodate 6.4 million square feet without structured parking, increasing our future development capacity to 3.2 million square feet. We are already designing the next five buildings and planning the next eight buildings after that. When fully built out, the Redstone Gateway would become the largest park in our portfolio. Our development leasing pipeline, which we define as opportunities we consider 50% likely to win or better within two years or less, currently stands at 1.1 million square feet. On that, we are tracking an additional 1.2 million square feet of potential development opportunities. With that, I'll hand it over to Anthony. Thank you, Britt.

Thank you, Britt. We reported third quarter FFO per share of $0.71, which was 2 cents above the midpoint of guidance and included 1.3 cents of dilution from our exchangeable notes. The quarter benefited primarily from lower than anticipated net operating expenses, including the timing of R&M expense, which will occur in the fourth quarter, and higher space recapture and net development fees. Same property cash NOI for the quarter increased 3.2% year-over-year, driven by cash rent starting on development and acquisition leases, which commenced in prior years, partially offset by lower real estate tax refunds. Same property occupancy ended the quarter at 93.9%, and we continue to expect to end the year at roughly 94%.

With respect to guidance, we increased the midpoint for the following four key metrics: We increased the midpoint of same-property cash NOI growth by 25 basis points to 4.25%, 175 basis points above initial guidance, based on our outperformance this quarter. We increased the target of capital committed to new investment guidance by $40 million to $375 million, which is 50% above initial guidance. This increase is to accommodate enhanced security requirements for the mission work at our fully pre-leased development project in San Antonio, a commensurate increase in rent, which will maintain our development yield. We increased the midpoint of capital invested in development and acquisitions by $15 million to $240 million as we are ahead of schedule on several projects. Finally, we increased the midpoint of FFO per share, as adjusted for comparability, by 2 cents to $2.80, driven primarily by the overachievement in the third quarter.

When we provided our $2.75 per share initial 2026 guidance for FFO, we explained that the 1.1% implied growth was muted when compared to the 5% compound annual growth we achieved between 2019 and 2025, as it incorporated the increase in interest expense associated with the refinancing of the $400 million, two and a quarter percent bond, and the required recognition of the hypothetical dilution from our exchangeable notes. Since then, the 20% increase in our stock price during the first nine months has increased the dilution from the notes by an additional 2 cents for a total of 3 cents for the year. Our revised guidance reflects overcoming that incremental drag and increasing the midpoint of our FFO per share guidance from our initial estimate by 5 cents to $2.80 per share, equating to roughly 3% growth. Excluding the increased dilution from our exchangeable notes, FFO per share growth would have been roughly 4% this year.

A common theme among the sell-side REIT earnings previews has been how the impact of the higher interest rate environment will weigh on FFO per share growth over the next few years. Regarding short-term rates, the forward curve for SOFR forecasts an increase from an average rate of 3.7% in 2026 to 4.4% in 2027. The impact of this 70 basis point average increase in SOFR, combined with a forecasted increase in our variable rate debt of over $125 million next year, results in a significant increase in our interest expense in 2027 relative to 2026 of approximately $8 million, or 7 cents per share. With respect to long-term rates, the five and 10-year Treasury yields have increased roughly 105 and 80 basis points respectively since the beginning of the year. The market suggests we could currently price five-year unsecured debt at a spread of 100 basis points for an all-in rate of 5.8%, and 10-year unsecured debt at a spread of 130 basis points for an all-in rate of 6.3%. Despite these increases in long-term Treasury rates, we are well positioned given the fact that we have no material debt maturities until September 2028. Our credit spreads are the lowest in the office subsector. We enjoy tremendous support from the fixed income investor community, and our balance sheet and financial metrics continue to strengthen as the operating portfolio continues to grow and we place highly leased development projects into service. With that, I'll turn the call back to Steve.

Thank you. So, we're having another very successful year, and we are once again outperforming in virtually all our key measures. We increased the midpoint of 2026 guidance for four key metrics. We now expect FFO per share growth of nearly 3% in 2026, despite the headwinds from higher financing costs. We expect to commit $375 million to new investments during the year, which is the highest level of capital commitment since 2021 and brings our two-year total for capital commitments to $650 million. Our revised guidance demonstrates the strength of our Defense IT strategy. As our compound annual growth rates since 2019 are now 5.1% for NOI, 5.2% for EBITDA, and 4.7 percent for FFO per share, which demonstrates the durability of our portfolio and cash flows during some very challenging market environments. We're highly confident tenant demand will remain healthy, given the strong Department of Defense spending levels, supported by both parties in Congress, and ratified by the amount of private capital flowing into the space. This all provides the platform for us to continue to execute on our strategy and create shareholder value. Operator, please open the call for questions. Thank you, Mr. Budorick.

Ladies and gentlemen, to ask a question, please press star 11 on your telephone. Then wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Maynard Ebeke with Evercore ISI. Your line is open.

Could you please expand a little bit on your commentary about upsizing your future development opportunities at Redstone and just kind of like, help us understand how many buildings, like, going forward, you kind of expect to maybe start and how deep the demand pipeline there is, specifically in Redstone? Obviously, it sounds very encouraging. And whether you've changed your underwriting economics that you expect there, based on like the strong demand you've been seeing.

A lot of layers in that question, Maynard. All right, let me talk about the Master Plan. You know, as we commit the buildings to fulfill the demand of our development, it's not always to the plan that we've had, so we routinely revise it. We put a heavy emphasis on this current reassessment to maximize square footage, and we're able to squeak out some additional buildings. I don't remember the exact count, but it compiles about 500,000 square feet. So that was layer one. Layer two, let's talk about underwriting. Now, we have not changed our underwriting. We remain with the same threshold cash returns that we have had in the past, which currently is 8.5% initial cash yield on the development costs. Demand remains very high, and I would say there's a uniquely strong sense of urgency behind the demand that we are seeing. Tenants are looking in advance for their opportunities. They're awaiting certain things to develop with their ultimate customer. Once they have their opportunity set lined up, they want to move out quickly. So in response to that, we are advancing our pre-planning so that we can cut several months off the development cycle by having plans already developed that we can suit appropriate to that use and shorten our delivery period, accelerating lease-up. I might have missed a layer; you'll have to remind me.

No, I really appreciate it. Just one quick follow-up on the demand that you see there. Could you maybe like help us think through like how much of the tenant demand is from tenants currently already with a presence in that specific submarket versus like tenants that are coming new to Redstone to capture kind of business opportunities there?

Yeah, I'd say it's about half and half.

Got it. Okay. Thank you.

Thank you. Our next question comes from the line of Blaine Heck with Wells Fargo. Your line is open.

Steve, appreciate your commentary on midterms, but just to dig deeper and give you an opportunity to offer any more comfort on demand, I guess in the event of a change in congressional control, could that meaningfully change the timeline for getting the base budget passed and specifically change the timeline for the do you think programs like the Golden Dome might be more exposed to funding uncertainty than the base budget?

Well, so I think if there is change in control, you've got a lame duck session, and I think they're going to jam that FY27 budget through earlier than they might if there's not a change of control, where there's time to be thoughtful about the programs that they're going to fund. Either way, I would expect no later than February we're going to have an FY27 DOD appropriation. I'm trying to remember the second half of the question. Oh, well, you know, Golden Dome is a specific funding name, but it's generally missile defense. Golden Dome is applying that missile defense in an aspirational way across the U.S.A., bring home that defensive shield in a deployable way to protect our country instead of the theaters of war where it's typically been deployed. Long term, that's not going to change. They might call it something different, but absolutely the need has been identified and it's going to be deployed. Timing might be an issue. As to the technology, there's no turning back. The investment in technology that's needed in this new threat environment where we've seen the impacts of drones and swarms of missiles, irrespective of which party is in, they've got to recognize the technological threat and the shortage or, you know, the imbalance between what we currently are able to deploy and the cost and volume of things we need to deploy in the future.

Great, thanks. Maybe for Britt, with respect to the proactive space recaptures, can you comment at all on the mark-to-market you expect on the releasing of that space, how much downtime might be baked into guidance, and whether this is a one-time opportunistic move or a strategy you can repeat where you see a credit or growth upgrade available?

Yes, I'll hit the first part first. I mean, in terms of the three recaptures, I would say one of them is essentially flat, maybe slightly lower. One was up about 20% and the other was about down 20%. You know, overall pretty close when you put them all together. And then I would say in terms of the timing of this, you know, we're just seeing so much demand, both in Columbia Gateway and in Huntsville, that it was a good time to do it and, you know, evaluate, as Steve pointed out, some suboptimal tenants and can we replace them with higher credit profiles, higher growth profiles? It was just a good time to do it with essentially immediate backfills. So, not much downtime at all on any of those.

And Blaine, I would add the mark to market is relevant, but in two of these cases it's a little less relevant because they were the only two tenants in our portfolio where we had gone on a reserved their balances, so we were on a cash basis with both of those. So from a true rent, we were able to get standpoint, at least with both of those, it was going from almost nothing to the new rent from the new tenants.

Got it. Thanks, guys.

Thank you. Our next question comes from the line of Richard Anderson with Canaccord Fitzgerald, your line is open.

So despite the bipartisan comments that you made, you know, clearly Trump is making COPT great again, to put it that way. And I'm curious if there's any, you mentioned kind of constantly, you know, kind of looking at what you have underway and revising the plan. When you think about the different forms of defense that you have embedded in your portfolio, some are involved, some of which, excuse me, you're missing some that maybe are growing at a faster rate because you had this thing all embedded five years ago. I'm sort of spitballing the question. But the idea is, are new initiatives coming online now that you in history have not been necessarily a part of, and so you're having to retweak the platform and be a part of that growth profile? Or do you feel like you're kind of there and largely aligned with where the big parts of the defense budget that are growing today, if that makes sense?

Yes, it's hard to nail that down simply, but I would say some of the most advanced, the highest investment in advanced technology pertains to missile defense, that's why we highlight it. And all of that will be coordinated out of the command structure that's on the Redstone Arsenal. So that's ground zero for the missile and anti-missile world. There's also advancements that are occurring for the naval fleet in the command and control structure, technological research development, test and evaluation. We're exposed to that as well with our Navy portfolio. Britt commented about the success we're having at Columbia Gateway. That's largely tied to increased requirements in the cyber defense, and we all know that DOD, U.S. Cyber Command, is based at Fort Meade. We have several business parks that serve it. I would say there's going to be some interesting breakthroughs in manufacturing and construction. So I think you can expect over the next three years some pretty significant expansion of shipbuilding in a variety of places along the eastern and gulf seaboard. We're not going to be a part of that manufacturing. Some high-tech manufacturing that's occurring in Southern California. Thus far, we haven't seen an opportunity for us to be involved in that. But I think where the long-term mission funding and the defense of the U.S. is coordinated, we're in the right spots.

Okay, fair enough. And specific on cyber, it's growing, of course, but is it the same level of priority as it was five or 10 years ago with the advent of AI and everything else that's changing technologically? Or do you feel like it's just as much a priority to defense as it was a few years ago?

Yes. I'm hardly the cyber expert of the country, but in my view, AI is an immense threat to our cyber defense position from everything I've read. I think it's going to require increased spending to counter the efficiency that AI might bring to the adversary trying to hack our networks.

Okay. Fair enough. And just a quick last question for whoever wants to take it. 95%, 95.2% precisely on the Defense IT portfolio. I mean, great vacancy leasing activity, obviously upped your number, but how close are we to sort of a, you know, a frictional level of vacancy that is not a whole lot of upside from that point? Or do you think that you could still close into 100% or something like that? I'm not sure if that's possible, but you tell me.

Well, it's always tough to drive it much higher because you're trying to measure the demand or match the demand of the market with the space you have available. But we're optimistic we can push it up over the next couple of years. Not sure how high, but we're focused on it.

Right. But vacancy leasing, probably, this is your sweet spot now and maybe it starts to sort of naturally decline because there's just not as much more to do. Is that a fair statement?

Well, I think you can see during the year, a change in our guidance. We started with 400,000 square feet, which we thought was aspirational. We're enjoying really strong demand. I think Britt broke out our projected leasing for the year. 55% went to space that was vacant at the beginning of the year. 25% was pre-leasing maturities that were seen that were scheduled. And then another 20% was asset managing a couple of lower credit tenants, taking that space back and putting it to better use with faster growing tenants. So, you know, we'll continue to manage the portfolio to optimize the return.

Yes, and Rich, our retention rate's the highest in the sector, but there's still the component that's the inverse of the 80% retention, which is that 20% of the space, which is this year, through the nine months, is about a half a million square feet. So there's always that churn that's going to happen that will continue to backfill that space and provide metrics within the vacancy leasing target.

Yep, fair enough. Thanks, everyone.

Thank you. As a reminder, ladies and gentlemen, that's star 1-1 to ask a question. Our next question comes from the line of Seth Bergey with Citi. Your line is open.

I guess just looking at kind of the mark-to-market you put up on the three data center shell renewals this quarter, how much kind of data center shell square footage remains in the expiration schedule over the next 12 to 24 months? And do you think you would kind of achieve similar uplifts on renewal of those, if any?

Well, I'd say over the last three years, the uplift has gotten higher, peaking this year at 140%. I think it breaks down to 110, 120, and now 140. So it's pretty exciting when we get to see you in that segment. Anthony, do you have an idea?

The, you know, over the next several years we have, um, these are gross square footage numbers. So we have 300,000 square feet expiring in 2028. We have almost 1 million square feet in 2029. But again, that's the gross amount. So only 10% of that would fall into our results. I think the more impactful results for the company will come when some of the wholly owned data center shells come up for renewal, all of which are outside of the next five-year period.

Great. And then, just is there any update on kind of a timeline to dispose of those kind of non-core assets that remain in your portfolio?

No, I mean, the timing of our ability to do that in an accretive way for our shareholders is just directly tied to the interest rate environment in the investment market. With interest rates high, there's really very little ability to sell assets at a level that makes sense for our shareholders. I'd say several years out.

Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Dylan Brzezinski with Green Street. Your line is open.

I guess it seems like things continue to sort of remain very positive in your guys' sort of realm of the world and defense-oriented assets. But I guess, you know, what do you guys see as potentially the biggest near-term risk overall to the business?

So, I think the demand is driven by DOD spending, and DOD spending is driven by the global threat environment. I think that's going to remain pretty consistent to what it is for quite some time. That's not a concern we have in the business. I would say the one thing that affects what we can deliver to shareholders is interest rates. We've talked a little bit of that on the call. Higher interest rates leaks out the money that could be FFO per share. And so we're focused on maximizing the financing impact on the company as we have opportunities to influence it in the future. But our underlying business strategy is strong and I have no concern about our ability to continue to execute the plan we have.

Great. And then in light of that strong backdrop and seemingly limited risk to that, as you look at rental rate economics, I know you guys always like to talk about having a partnership with your client and therefore not pushing too hard on the face rent side of things. But are you continuing to see at all further relief on free rent and or the ability to maybe embed higher rent bumps into the overall lease structure, or is that still sort of at the same pace as maybe where we were at the start of the year?

The last three years, well, Britt, you can talk about it. It's your success. Yes, no. I was just going to say we continue to, you know, drive down that free rent where we can, due to the demand we're seeing and lack of availability. But I mean, again, every time we build a new building in Huntsville, we're pushing, I mean, we set a new record with rates. You know, and in most of our markets, we're 10% to 20% higher than the rest of the surrounding markets. So, I mean, we'll push where we can on rate, but, um, you know, we're already at the top and I think pushing pretty at a healthy level.

Thank you.

Thank you. Ladies and gentlemen, I show no further questions in the queue. I would now like to turn the call back over to Mr. Budorick for closing remarks.

Thank you for participating in our call today. We are in our offices, so please coordinate through Venkat if you'd like to follow up. Thank you very much. Have a great day.

Thank you for participating in today's COPT Defense Properties Third Quarter 2026 results conference call. This concludes the presentation. You may now disconnect. Good day.

This live transcript is auto-generated without human intervention or review.

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

Thank you, Atif. 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, 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 delivered a strong first half of the year in all aspects of our financial and operating performance and the defense economy we serve continues to be strong and benefits from increasing investment.

For the second quarter, FFO per share was $0.71, which was $0.02 above the midpoint of guidance. represents a 4.4% increase year-over-year and in the 24th consecutive quarter of year-over-year FFO per share growth for the company.

Same-property cash NOI increased 7.4% year-over-year, and we generated 6.4% growth in the first half of the year. This is favorably impacted by the timing of lease and rent commencements. We expect growth will moderate slightly in the back half of the year, which has been reflected in our annual guidance. Anthony will provide more detail.

We executed 139,000 square feet of vacancy leasing in the quarter and 231,000 square feet during the first half of the year. This amounts to nearly 60% of our full year target and represents 20% of the unleased space we had at the beginning of the year.

We invested $43 million to acquire 17 acres of land and a ground lease in the Westfield submarket in Chantilly, Virginia, and a GAAP yield of roughly 7.5% with some additional future upside. Turning to guidance. Based on our strong performance year-to-date and our outlook for the second half of the year, we increased the midpoint of 2026 guidance for 4 metrics. FFO per share increased by $0.02 to $2.78 per share. This implies 2.2% growth over 2025's results and is $0.03 above our initial guidance.

This revised midpoint is even more impressive when you account for the $0.12 of higher financing costs year-over-year in our guidance based on $0.08 of incremental net interest expense from our bond refinancing and $0.04 of dilution from our exchangeable notes, resulting from our strong stock performance.

Same-property cash NOI growth increased by 100 basis points to 4%, which is 150 basis points above our initial guidance. Cash rent spreads on renewals increased by 100 basis points to 3%, and our capital commitment to new investments increased by $45 million to $335 million.

Additionally, our vacancy leasing target increased by nearly 20% from 400,000 to 475,000 square feet. Moving now to the defense budget. In April, the White House submitted the FY 2027 Defense base budget request, which requested a 30% increase year-over-year to $1.1 trillion and amounts to a nearly 50% increase over the last 5 years. Last week, Congress made progress on the legislation and the House passed the National Defense Authorization Act, or NDAA, which matched the President's base budget request of $1.1 trillion. Reconciliation funding is expected to provide additional upside to FY 2027 spending, and the estimates range between $73 billion at the low end based on the reconciliation framework passed by the house, all the way to the $350 billion at the high end, which was the President's request.

The NDAA calls for meaningful increases in funding in the priority missions that our portfolio supports, including the $16 billion or 14% increase for Intelligence, a $4 billion or 25% increase for DoD cyber funding and an additional $18 billion for Golden Dome. While the ultimate outcome is still being determined in Congress, our business has really driven off the base budget of $1.1 trillion, which is expected to be the new run rate for transpending.

Mike Rogers, Chairman of the House Armed Services Committee was recently quoted stating that $1 trillion base budgets are going to be the new normal. Regarding our growth opportunities, things are getting even more exciting at Redstone Gateway in Huntsville. In the third quarter, we will start 2 new development projects totaling 240,000 square feet because we have no contractor space left to lease. Our 2.4 million square-foot operating portfolio is 99.6% leased. And the only remaining availability is spoken for. Following the execution of this last 10,000 square foot lease, all 24 buildings will be 100% leased.

In our active developments for defense contractors, 7,700 Advanced Gateway is fully leased and 8,500 Advanced Gateway, our current inventory development is 41% leased. We expect final lease for 75,000 square feet this week, and we're negotiating a lease for the remaining 15,000 square feet, which we expect to sign next month.

Beyond these deals in progress, we have another 415,000 square feet of demand from contractors for mission space related to golden dumb and missile defense activities. Given our strong success in the quarter, and the depth of demand we're seeing, we're commencing development on 2 inventory buildings, consisting of RG 6,300, 180,000 square foot building with 30,000 square foot floor plates, which will deliver in early 2028 and RG 2200, a 60,000 square foot building with 20,000 square foot floor plates, which will deliver in late 2027.

These buildings will provide vital inventory to begin to meet the space and timing requirements of the current demand. Looking back in 2011, we commenced our first development in Redstone Gateway, a 120,000 square foot building in order to create the initial inventory to see the park. We leased that building to a defense contractor shortly thereafter, and it has been 100% leased ever since.

Over the past 15 years, we developed 2.4 million square feet that will be 100% leased in the coming weeks. Upon completion of the 3 projects under active development, the park will be 2.8 million square feet, making Redstone Gateway our second largest market condenstration. And following completion of the 2 plant starts, the park will exceed 3 million square feet.

For context, it took 21 years for the National Business Park to reach 3 million square feet after commencing development in 1990 anticipating only our current planned activity -- we'll achieve that milestone at Redstone Gateway in 16 years or 5 years earlier than the national business park.

Given the strength of the demand we're seeing in the market, we look forward to updating this projection in the next 24 months. And with that, I'll turn the call over to Britt.

Thank you, Steve. Before I walk through our operating performance during the quarter, I'd like to share 3 key highlights. First, we are outperforming on vacancy leasing driven by demand in our Fort Meade BW corridor subsegment, materializing most significantly in Columbia Gateway.

Second, we continue to deliver sector-leading tenant retention. We averaged 84% in the first half of the year and 79% over the past decade. This provides a material capital advantage over traditional office landlords and is the foundation for our unique ability to self-fund the equity required for external growth.

And third, the government's massive investments in the missions that we support is providing not only current opportunities, but also long-term external growth potential. We finished the quarter with continued strength in both our lease and occupancy rates. Our total portfolio was 95.6% leased and 94.1% occupied while our Defense/IT portfolio was 96.4% leased and 95.1% occupied. 2 data points, which demonstrate the strength of the demand we're seeing in our markets and our ability to to convert that demand into lease executions are: first, our Northern Virginia portfolio ended the quarter at 95.2% leased, which is the highest lease rate in the subsegment in over a decade and compares very favorably to the overall Northern Virginia market occupancy rate of about 78%.

Second, our Columbia Gateway portfolio has seen significant momentum in terms of vacancy leasing over the past few years. In 2023, we executed 50,000 square feet, which increased to nearly 100,000 square feet in 2024 and surpassed 160,000 square feet last year. In 2026 to date, we've executed 110,000 square feet. And with the additional activity in the pipeline, we are confident this will be the strongest year for vacancy leasing in Columbia Gateway in over 5 years.

There were 2 temporary events in the quarter, which caused total occupancy to decline by 30 basis points in aggregate, both of which will reverse next quarter. First, we placed NBP 400 and nearly 150,000 square foot building into service as vacant space. However, the building is fully leased to a leading defense contractor and the lease will commence in the third quarter.

This delivery resulted in a 60 basis point decrease in occupancy in Q2 that will reverse in Q3. Second, all of firm tenant relocated within 100 Light Street in Baltimore and downsized modestly. However, they continue to occupy their old space in the quarter, and this resulted in a temporary 30 basis point increase in both total and same property occupancy and an almost 400 basis point increase in the occupancy rate of the other portfolio.

The net impact of these 2 temporary events will be a 30 basis point increase in total occupancy in the third quarter. We executed 139,000 square feet of vacancy leasing during the second quarter, nearly 70% of which was with existing tenants further demonstrating the strength of our franchise and our deep relationships within the defense industry.

Year-to-date, we have signed 290,000 square feet of vacancy leasing, which amounts to roughly 25% of the unleased space in our total portfolio at the beginning of the year and equates to over 70% of our initial full year target of 400,000 square feet. We have approximately 125,000 square feet of prospects in advanced negotiations, which we define as over 90% likely to execute.

Taken together, we have over 415,000 square feet of leases either executed or in advanced negotiations. This achievement and the continued strength of our demand gives us the confidence to raise our target to 475,000 square feet for the year. Our leasing activity ratio was 69% which equates to 770,000 square feet of prospects on 1.1 million square feet of availability.

Turning to renewal leasing. We executed nearly 350,000 square feet in the quarter with tenant retention of 68%, cash rent spreads down 20 basis points and GAAP rent spreads up 4.4%. We continue to leverage the strength of demand for our Defense/IT portfolio by minimizing concessions on renewal leasing. Year-to-date, our renewal concessions are down nearly 30% compared to 2025.

Our relatively lower retention rate this quarter was driven by 2 strategic nonrenewals in the Fort BW quarter. These nonrenewals occurred following strategic expansions of 2 tenants into new properties to accommodate the growth required for them to execute their priority missions. Net of these 2 deals, retention would have been 12 percentage points higher. Notably, we backfilled 1 of the nonres immediately at a significant increase in rent and the other provides the necessary growth capacity for a third tenant in our portfolio.

These anomalies occur when you have the strong tenant relationships that we have and our commitment to accommodate tenant growth in our highly occupied portfolio. Our full year outlook for tenant retention is unchanged at 80% to 85%. Our outlook for retention over the next several years continues to remain strong. Looking back, as shown on Page 18 of our foot book, in the second quarter of 2024, we disclosed our view on the renewal of large leases. Those in excess of 50,000 square feet over the next 10 quarters through year-end 2026.

At the time, we had 32 large leases totaling 4 million square feet set to expire. Since then, we have renewed 24 of those leases and achieved a 97% retention rate on this 3 million square feet. The remaining 8 leases in that pool are all full building leases to the U.S. government, which total nearly 1 million square feet.

We expect to retain 100% of that lease space with lease executions expected in 2027. When these 8 leases renew, our retention on their 4 million square foot pool will be nearly 98%, which compares favorably with our initial projection of over 95%.

On Page 19 of our foot book, we expanded this disclosure to include our view of large lease expirations for the next 10 quarters through year-end 2028. In this window, we have 39 large leases expiring, totaling 4.1 million square feet which account for nearly 60% of our total expiring annualized rental revenue during the period. We expect approximately 90% retention on this population. Roughly 70% of this large lease pool by square footage and 66% by annualized rental revenue is government and data center shell tenants for which we expect 100% retention.

This pool includes 2 leases in our Other segment, which equates to roughly 5% or 160,000 square feet of the total area, on which we expect approximately 50% retention. Looking back, since we provided -- started providing large lease retention disclosure 4 years ago, we have renewed 5 million square feet of large leases at a 98% retention rate. And importantly, over those 4 years, we have retained 100% of the tenants in our portfolio with only 4 modest downsizes that total less than 120,000 square feet.

We continue to provide this disclosure to reinforce the fact that our portfolio is not exposed to material nonrenewals, which would impact occupancy, cash flow and NOI. Moving on to development. Our active pipeline now totals nearly 900,000 square feet that is 73% pre-leased and amounts to nearly $450 million in capital commitment. 4 of the 6 projects are 100% pre-leased. In Huntsville, 8,500 advanced gateway is 41% leased, and we are currently negotiating 2 leases that will bring this building to 100% leased this quarter.

For 10 Gas Road is our inventory building for the government, which is inside defense. We are in active discussions with multiple government agencies related to missile defense and space activity, and we expect lease action for that building sometime in 2027. As Steve discussed, we will commence development of RG 6300 and RG 2200 later this summer, which totals $91 million in capital commitments.

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 1.2 million square feet, a 20% increase since last quarter. Beyond that, we're tracking an additional 900,000 square feet of potential development opportunities, a nearly 60% increase since last quarter.

Combined, the pipeline increased over 500,000 square feet over the last quarter and this acceleration further reinforces our confidence in achieving external growth in the coming years. With that, I'll hand it over to Anthony.

Thank you, Britt. We reported second quarter FFO per share of $0.71 and which was $0.02 above the midpoint of guidance and represents a 4.4% increase year-over-year. The quarter benefited primarily from effective operating expense and property management, which resulted in lower net operating expenses, as well as higher net development fees.

Same property cash NOI for the quarter increased 7.4% year-over-year driven by cash rent commencement on developments and acquisitions placed into service in prior years, cash rent increases on virtually all the leases in our portfolio, along with the benefits from the commencement of a large portion of the over 0.5 million square feet of vacancy leasing executed last year.

Same-property occupancy ended the quarter at 94.5%, which is up 30 basis points from last quarter due to the temporary occupancy bump at 100 Light Street that Britt mentioned. We continue to expect same-property occupancy will end the year at roughly 94%. With respect to guidance, we increased the midpoint for the following 4 key metrics regarding FFO per share, our assumed full year share count reflects roughly $0.04 of dilution from our exchangeable notes, the impact of which has doubled in each of the past 2 quarters.

We will gladly manage through the impact of this dilution since it is a result of our 38% stock price appreciation year-to-date. And despite this impact, we increased the midpoint of full year FFO per share guidance by $0.02 and to $2.78. Our forecast for FFO has increased by $8 million since we established initial 2026 guidance, which is driven by $5 million of outperformance during the first half of the year and $3 million from the net impact from the acquisition of Mission Ridge, additional interest income and the expected settlement agreement with a nondefense tenant to regain control of much needed inventory in Columbia Gateway.

We increased the midpoint of same-property cash NOI growth by 100 basis points to 4%. This reflects the strong performance during the first half of the year and our expectation that growth will moderate in the back half of the year due to several known move-outs and contractions along with nonrecurring real estate tax refunds received in the back half of 2025, primarily in the third quarter. We increased the midpoint of the cash change in cash rents on renewals by 100 basis points to 3%, which is positively impacted by several early renewals we expect to sign later this year.

Finally, we increased the target of capital committed to new investment guidance by $40 million to $330 million -- $5 million, which reflects the impact of an additional start at Redstone Gateway. We are establishing FFO per share guidance for the third and fourth quarter at a range of $0.68 to $0.70. With that, I'll turn the call back to Steve.

Thank you. Summarizing the key themes of our call today. We outperformed our FFO objectives and raised our annual guidance, outpacing the incremental dilution resulting from our sector-leading 38% increase in share price year-to-date. And we raised our guidance on 3 other metrics. Our tenant retention remains rock solid, providing the strong foundation to support continued growth in investment spending and FFO per share achievement. We continue to have the capacity to fund the equity component of roughly $300 million of investment on a leverage-neutral basis annually. We are committing another $91 million to new development and Redstone Gateway to begin to address the accelerating demand from space and missile programs, our country is prioritizing.

We continue to enjoy strong market fundamentals throughout our portfolio, supported by record increases in defense-based budget spending and growth in the priority missions we serve. We're benefiting from advancements in missile defense, cyber activities, quotum computing, military space activities and intelligence programs. And this mission is durable and growing. National fund spending has entered the year of $1 trillion base budgets -- to support the creation and development of advanced technology weapons programs and thereby creating current and growing opportunities throughout our markets. We look forward to sharing our third quarter progress in October. And with that, operator, please open the call for questions.

Thank you, Mr. Budorick. [Operator Instructions]. Our first question comes from the line of Seth Bergey of Citi.

I guess just the first 1 on the increase in the base budget. And it sounds like based off your commentary that the 20% increase is kind of a structural step-up just given the expectation for it to be kind of $1 trillion moving forward. Does that kind of change the way you think about the amount of capital you would look to deploy in future developments going forward? .

No, not really. We've positioned the company very well to deploy capital on a low-risk basis where we see incremental opportunities. And to the extent this new elevated trillion level generates more activity, we're prepared and we've got a strong balance sheet to support increasing our investment on the same low-risk basis, we've been running the company for the last 10 years. .

And then just any changes on kind of your expectations for development yields? And then just given kind of the year-to-date even in the stock price, has that changed the way you think about funding development with free cash flow versus potentially assuming equity of ATM.

Well, let me take the first 1 first. We continue to achieve initial cash yields of roughly 8.5% on our new development target that we elevated from 8% a few years back, we've been able to hold that. And I don't see that target changing. With regard to funding, then we have no interest or intention of funding with new equity issuance, and we're very satisfied to continue to fund with free cash flow.

We've worked very hard for several years to get us in a position where we can grow this company without going to the market. and we intend to keep it there.

Our next question comes from the line of Manus Ebbecke of Evercore.

Just curious, in addition to the 2 new starts that you have earmarked for Huntsville in Q3. If you kind of go through your portfolio and look at the different regions you're in, like where could you see additional starts kind of coming up next or like which are kind of like the next markets on the list where you think like it's also getting really tight in supply versus like the strong demand that you're seeing? .

Yes. Well, Manus, this is Britt. First, I do want to hit on Huntsville because, I mean, we are taking a longer view on development there just generally beyond even these 2 and investing in some predevelopment dollars for the next 4 buildings beyond these 2 and even the next -- looking at where we're going to cite the next 8 buildings beyond that. I mean I think there's -- the demand in Huntsville is tangible.

So -- but in addition to Huntsville, looking around the port meat market is still showing signs of strong demand, and there's a few areas that we have at National Business Park and then also down around College Park that we like that we like a lot for potential future development starts as well. .

Yes. And if I can add to that Manus, as we're starting 2 buildings, and our comments carefully said to begin to address the accelerating demand -- we believe there's pretty strong potential to either add additional inventory or sign pre-leases beyond this initial 2-building commitment we are making in the quarter. .

Okay. Makes sense. And then maybe a quick follow-up. I know you always are actively talking to your tenants and contractors in the areas that you guys are in. just curious if there's any updated takes or kind of like a story you can share on like Golden Dome that you've been hearing over the last few months. and how that could potentially kind of like incrementally healthy even in the future? Obviously, we understand that the positive impact of these 2 big programs have to you overall?

Well, I would say over the -- if you're looking at the near-term pipeline of that or higher probability pipeline of 1.2 million square feet, I would say 83% of that higher probability pipeline is in Huntsville and 50% of that is Golden Dome related. So it is something that is steadily growing down there. .

Our next question from the line of Blaine Heck.

Steve and Britt, not to beat a dead horse here, but it does sound like activity is picking up rapidly in Huntsville and not to overlook the increased guidance. But -- do you think there's potential upside to the incremental $45 million of development starts in Huntsville in the second half of this year? I guess -- are those 2 starts truly speculative? Or do you have negotiations or even letters of intent on those buildings that such that you could actually start more on a spec basis this year? Or should we expect that ramp to be more in '27 and beyond? .

Well, there's a lot of activity. Timing is tough to predict. I would not like to overpromise on this call that Mark can occur during the year. I can tell you, we don't have any pre-leases on those buildings. -- we consider them inventory because we're working with tenants on specific space requirements. And we picked those 2 sizes of buildings for a reason to match the floor plates with the kind of demand we're seeing.

So we certainly anticipate activity behind these 2. We have every confidence we get these leases quickly. Whether it happens this year or next we'll leave that future calls.

All right. Probably fair. Second question, I know it was a very recent acquisition, but I wanted to ask whether there was any update on the ground lease in Chantilly or any progress made towards potentially taking control of the assets there? .

So we have made no progress in taking control of the assets. The facts are that the owner of the property had a mortgage that matured. It's not been repaid. The mortgage has been transferred through a special servicer. I believe they are working to refinance it. And that's all we really know. We know long term, we'd love to have those properties in our portfolio, really a perfect fit, both with tenant -- tenant presence, the nature of the construction of the development in the location. And we believe sometime we'll be in a position to acquire those buildings. .

Our next question comes from the line of Anthony Paolone of JPMorgan.

Great. I'm struck by just how how much Golden Dome has had an impact on your leasing. And so just wondering, with midterms coming up, if that changes sort of power in the House and Senate -- does it have any implications on that? Or do you think it has any implications on momentum anywhere else in the portfolio? .

Well, let's just -- I got to regroup a little bit. Before this president got elected, we repeatedly said the 1 issue in the U.S. government that is bipartisan, is increased defense spending. Under the prior President, the pattern was that the President did have strong interest in investing in defense. So the White House requests were relatively flat. And the House and the Senate addressed the needs of the defense department by increasing those budgets in a bipartisan way. .

So I truly believe irrespective of the outcome of the midterm that bipartisan recognition of the need to have the strongest military on the face of the earth and to invest in the new technologies that have the potential to change that balance will exist. And so we're not hearing the midterm change -- and we know that irrespective of what happens in the House and Senate, we do have a President who's very motivated to see increases in defense spending. So I think it will still be a favorable environment.

Okay. And then just a follow-up. Obviously, a lot of participants at this point and liquidity in the data center industry broadly I know you guys have the Des Moines land. But just as you think about your positioning there and what you've done in the past, like do you -- do you think you still have an opportunity there in the future? Do you see yourselves getting more active in that space? Or has it just become too crowded? .

Well, I think we have a customer -- and the customer has demand. And the hard part right now is finding access to power. We continue to work with our customers on potential solutions. Long term, something is going to break in the power situation in Iowa, but we don't want to be the pioneer that breaks that. And so we're motivated to continue that development relationship. I just don't expect to see any leases for 12 to 24 months. .

Our next question comes from the line of Richard Anderson of Cantor Fitzgerald.

So Anthony, on your your expectation of a moderating same-store growth profile in the second half. Is there any circumstance where that may not happen? I know you mentioned known move-outs, but are they in the bag known move-outs? Or is there anything that could happen where you may not do 7% plus same-store, but something a little less impactful in terms of the moderating organic growth profile of the company? .

No. I think the -- both on the increases that are contractual as well as the known move-outs, those are move-outs that either occurred late in the second quarter or will occur early in the third quarter. And the real estate tax refunds that we had the benefit of in the second half of 2025, we know we will not recur in 2026. So I think we're -- there's not a lot of variability in that math right now. .

Okay. In terms of tenant investment, certainly, that's been a good environment for you in terms of skips exposure and the costs associated with that being funded largely by tenants. What is your expectation there going forward? I know you -- it's been -- you've had some good outcomes in terms of the investments made. You have stickier tenants and all that sort of stuff. But you're not going to have a comment about how much SKF is in the total portfolio, perhaps. But is that going up in this environment, just the demand for SKF build-outs? .

Unquestionably, over the last several years, almost every requirement for space with defense contractor involves a skiff component more and more programs are having elevated classification levels. All of the activity around Golden Dome, missile defense, Space Command will be -- we'll have skipp requirements to support it. So the influence starts skiff has never been higher than it is right now. .

And just so I have the math right, it's almost like 2 or 3x that the tenant pays for that versus your allowance. Is that correct? .

It's more like 3 or 4.

Okay. And then lastly, on Huntsville, just to stick to that topic. I guess if Golden Dome was a person, it might be Donald Trump. And I wonder when you think about the growth of that campus, specifically as it relates to Golden Dome, I think the land is subject to a ground lease with the government that may be able to release more land to you to -- as the growth profile continues in that area. But is there some hesitation to sort of overplay that and wait for the next President? I think you're right about defense spending as a bipartisan situation. Is Golden Dome specifically anybody President initiative? .

Well, that's the way I view it. This is opinion, I don't have a report to read to you, but the activities in Israel and Gaza Ukraine in Iran in the Gulf States have really elevated tenet for antimissile a robust affordable antimissile defend shield, and we don't have that in the United States America per se. And that's really what Golden Dome is. So it's a long-term commitment to investing in things in space, capabilities from space and broadening of that capability to bring that protection to the homeland. And I don't care who's the President, you have to recognize just look at Ukraine and look at the impacts that the asymmetric impact that a small country like Ukraine is rendering on Russia right now. It's profile. And our decision-makers and our leaders, we'll see that and continue to sport the program. .

Okay. And is it -- am I right in saying that you're paying a ground lease for virtually everything you have in Redstone Gateway. .

Yes. We're paying ground rent on the operating assets and we only start to pay ground rent when cash rent commences on each of the development projects. So there is an ongoing discussion with the Army about the potential to expand that in the future, but that's not something that we're -- we need right now because we have over 3 million square feet of plan that we control that we can build 3 million square feet on the land we control already. .

And Anthony, how big is that? Like I know it's not a discussion now, but could it be 2x the 5.5 million square feet more like 10 years from now? .

That's hard to answer -- but Redstone or is 1 big chunk of land. It's just an enormous military installation. I'm confident to say that land will never be -- scarcity of land will never be what it holds the Redstone missions back. .

Our next question comes from the line of Tom Catherwood of BTIG. .

Brett, you may have partially answered this with your comments on planning ahead for future Redstone developments. But the completion time lines for RG 6300 and RG 2200 suggest like 15 to 18 months of construction. Is that correct? And do you think you can achieve similar time lines on future projects there? .

Yes. I mean I think that -- well, the RG 2200 time line is really kind of October of '27 and then 6,300 would be kind of closer to March of '28. So I mean you actually I mean those are the time lines for those buildings, which we think are very achievable. And we actually think that provides some nice staggered delivery timing, call it, 5 months between those 2. But timing-wise, for duration of the projects absolutely. .

But Britt made a comment about advancing our planning and the next sequence of buildings which we are doing with the intent of keeping those delivery times just as sure as we can possibly do it.

Got it. Appreciate that. And then last one for me. I know this is a small one, but you sold land in Aberdeen in Q2 and you moved some land in Hanover into the held-for-sale bucket. You provide some more kind of color on those moves? And is there some portion of the land in your portfolio right now that you might consider noncore or look to monetize in the near term? .

Both of those are probably the extent of it. You may recall that the company started development in Aberdeen in about 2010, and it never really materialized as expected. So we've had that surplus land. We have no intention of investing. We saw a nice opportunity to transfer that land to the county that the development sits in. And then in Hanover, that's rental preserve. That's a particular parcel that's because of the topography is better suited for residential than office, and it made sense for us to monetize that chunk of land because we could not really envision an economic a positive economic outcome developing on that topography. Beyond that, we're -- we have plan we want to hold. .

[Operator Instructions] Our next question comes from the line of Dylan Burzinsky of Green Street.

Just a quick 1 for me. You guys raised sort of your capital committed to new investments guidance this quarter. I guess, how should we sort of be thinking about that on an ongoing basis in 2017 and beyond? Is sort of the low to mid-$300 million range, a fair estimate as we look out to the future? Do you expect it to sort of be in the $200 million range. Just any sort of insight you can provide there would be helpful. .

Well, that feels like guidance to be. We've been paying $250 million to $300 million. And I think we'll just stick with that with some ebb and flow. If our outlook is supportable to increase in the future. We gladly will. But we're not going to do that now. .

I would now like to turn the call back to Mr. Budorick for closing remarks. Sir? .

So thank you all for joining our call today. We are in our offices so please coordinate with Venkat if you'd like a follow-up call. Thank you again. .

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

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.