COPT Defense Properties has recently released its 10-K report, detailing its business operations and financial performance. The company is a self-managed REIT focused on owning, operating, and developing properties in locations near key U.S. Government defense installations and missions, with a Defense/IT Portfolio of 190 properties encompassing 21.7 million square feet, 97.2% of which were leased as of December 31, 2023.
Financial and operational highlights from the report include:
Occupancy and Leasing: The company experienced strengthened occupancy of its operating properties, with year-end occupancy and leased rates at near-record levels. The Defense/IT Portfolio saw a year-end occupancy rate increase from 94.1% to 96.2%, with a year-end leased rate of 97.2%. Additionally, the company achieved a tenant retention rate of 79.7% for the portfolio and 85.7% for the Defense/IT Portfolio segment, both near record levels.
Property Development: The company placed into service 848,000 square feet in six properties that were 98% leased, mostly in its Data Center Shells, Redstone Arsenal, and Fort Meade/BW Corridor sub-segments. It also ended the year with 817,000 square feet under development in an additional five properties that were 91% leased.
Capital Raising: COPT Defense Properties raised $190.2 million from the sale of a 90% interest in three data center shell properties in Northern Virginia and issued $345.0 million aggregate principal amount of 5.25% Exchangeable Senior Notes due 2028 in a private placement to qualified institutional buyers. The proceeds were primarily used for general corporate purposes, including repayment of borrowings under the Revolving Credit Facility and pre-funding of future development investments.
Financial Performance: The company reported a decrease in diluted earnings per share from $1.53 per share in 2022 to a loss per share of $(0.67) in 2023, with net income decreasing from $178.8 million in 2022 to a loss of $(74.3) million in 2023 primarily due to $252.8 million in impairment losses. However, net operating income from real estate operations increased by $21.8 million, or 6.0%, relative to 2022.
Liquidity and Capital Resources: As of December 31, 2023, the company ended the year with no significant debt maturing until 2026, $525.0 million in available borrowing capacity under the Revolving Credit Facility, and $167.8 million in cash on hand.
Market Conditions: COPT Defense Properties noted that the United States economy experienced inflationary conditions, increased interest rates, higher volatility in the debt and equity capital markets, and certain supply-chain related shortages, which affected the office real estate industry. The company also observed uncertainty in the debt markets in 2023, particularly for commercial real estate, and experienced supply-chain related shortages that did not significantly affect its ability to execute its activities.
The company highlighted the potential impact of a prolonged government shutdown or budgetary reductions on its rental revenues and leasing demand, as well as the effects of increased costs for property operating expenses and building equipment and materials on its development activities and capital improvements. It also mentioned its intention to sell eight office properties in its Other segment that do not align with its Defense/IT strategy when market conditions and opportunities are favorable.
COPT Defense Properties provided forward-looking statements and emphasized the inherent risks and uncertainties associated with its business, including general economic and business conditions, adverse changes in the real estate markets, and potential government actions and initiatives. The company also mentioned the potential impact of security breaches relating to cyber attacks and other significant disruptions of its information technology networks and related systems.
Following these announcements, the company's shares moved -0.1%, and are now trading at a price of $24.14. For more information, read the company's full 10-K submission here.
