COPT Defense Q3 2026 Earnings: Leasing Momentum Lifts FFO Guidance

COPT Defense (NYSE: CDP) reported Q3 2026 total revenue of $208.8 million, up about 10.6% from $188.8 million a year earlier, while diluted EPS increased to $0.41 from $0.37. Adjusted FFO per share rose 2.9% to $0.71, and same-property cash NOI grew 3.2% for the quarter ended September 30, 2026. The REIT also raised its full-year adjusted FFO guidance midpoint and increased several leasing and investment targets.

Core Financial Results

Lease revenue increased about 8.5% to $193.5 million, while construction contract and other service revenue rose to $13.4 million from $8.5 million. Total operating expenses increased about 11.1% to $145.5 million, slightly faster than revenue growth.

GAAP net income benefited from a $7.7 million gain on real estate sales, compared with $3.0 million a year earlier. Because real estate sale gains are excluded from FFO, diluted EPS grew faster than adjusted FFO per share.

FFO, AFFO, and adjusted EBITDA are non-GAAP measures. Interest expense increased about 17.0% to $24.4 million, partly offsetting the benefit of higher property income.

Portfolio and Leasing Performance

COPT Defense’s 25.3 million-square-foot total portfolio was 94.0% occupied and 95.0% leased at quarter-end. Its 23.3 million-square-foot Defense/IT portfolio reported higher levels of 95.2% occupied and 96.2% leased.

The 24.6 million-square-foot same-property portfolio was 93.9% occupied and 94.9% leased. Same-property cash NOI increased 3.2% year over year during the quarter and 5.3% over the first nine months of 2026.

Total Q3 leasing reached 842,000 square feet, consisting of 545,000 square feet of renewals, 222,000 square feet of vacancy leasing, and 75,000 square feet of investment leasing. Year-to-date leasing totaled 3.0 million square feet, but the quarterly tenant retention rate was 69.9%, below the nine-month rate of 80.0%.

Renewal economics remained positive. Straight-line rents on renewed space increased 20.3%, cash rents rose 8.5%, and annual escalations averaged 2.2%. Renewal leases had an average term of 4.3 years, compared with 7.2 years for vacancy leasing and 11.6 years for investment leasing.

The development pipeline included eight properties totaling 1.1 million square feet and was 64% leased. These projects represented an estimated investment of $528 million, of which $185 million had been spent by September 30.

Profitability and Balance Sheet

Diluted AFFO increased to $65.4 million even as adjusted FFO growth remained moderate. Lower replacement capital expenditures helped the AFFO comparison, declining to $23.0 million from $27.0 million a year earlier.

Balance-sheet leverage improved compared with both the prior year and year-end 2025. Debt declined to $2.58 billion at September 30 from $2.77 billion at December 31, while debt to assets decreased to 56.4% from 58.9%. Net debt to in-place adjusted EBITDA was 5.9 times, compared with 6.1 times in Q3 2025.

The adjusted EBITDA fixed-charge coverage ratio declined to 4.4 times from 4.8 times. COPT Defense’s debt carried a weighted-average effective interest rate of 3.8% and an average maturity of four years, assuming available extensions, with 83% subject to fixed rates.

Strategic Space Recapture Lowers Retention but Raises Leasing Potential

Management reduced the 2026 tenant retention midpoint from 82.5% to 80% while increasing its vacancy leasing target from 475,000 to 625,000 square feet. The company attributed this combination to proactively recapturing space in Columbia Gateway and Huntsville for tenants with higher growth potential.

This strategy helps explain why quarterly retention fell to 69.9% despite positive rent spreads and active leasing. It may also support longer lease terms, given that vacancy and investment leases signed during the quarter had materially longer average terms than renewals. The trade-off is greater near-term execution risk because recaptured space must be leased quickly enough to avoid sustained occupancy pressure.

2026 Guidance

COPT Defense raised the midpoint of full-year adjusted FFO guidance by $0.02 to $2.80 per share, which management said was $0.05 above its initial guidance. The revised outlook incorporates $0.03 per share of incremental dilution from exchangeable notes. Fourth-quarter guidance calls for diluted EPS of $0.29 to $0.31 and adjusted FFO per share of $0.68 to $0.70.

Management cited demand for specialized space supporting intelligence, cybersecurity, and missile defense missions. It also said the fiscal 2026 defense budget and a proposed 28% year-over-year increase in the fiscal 2027 base budget request could provide a supportive demand backdrop.

Recent Insider Transactions

The supplied insider data show 11,606 shares in the purchase or acquisition category across six transactions and 35,720 shares sold in two transactions during the latest six-month period, producing a net reduction of 24,114 shares. The acquisition category includes derivative conversions and stock awards rather than only open-market purchases.

All ten listed transactions were reported as direct holdings. The two sales had a combined reported value of approximately $1.15 million; the record alone does not establish the insiders’ reasons for selling.

Risks Investors Need to Watch

• Leasing execution: Deliberately recapturing space lowers retention and creates a timing risk between tenant departures and new lease commencements. Delays could pressure occupancy and same-property NOI.
• Financing costs and leverage: Interest expense grew faster than revenue, while fixed-charge coverage declined to 4.4 times. Although 83% of debt was fixed-rate, net debt to in-place adjusted EBITDA remained 5.9 times.
• Development commitments: The 1.1 million-square-foot development pipeline was only 64% leased, and the company raised its capital commitment and investment targets. Returns depend on completing and leasing these projects as planned.
• Per-share dilution: Exchangeable notes created $0.03 per share of incremental dilution in the updated full-year outlook, which can limit the conversion of property-level growth into FFO-per-share growth.

Summary

COPT Defense’s third-quarter revenue, GAAP earnings, and adjusted FFO all increased, supported by higher lease revenue, positive renewal spreads, and 3.2% same-property cash NOI growth. The company raised its full-year FFO and same-property NOI outlook while pursuing a deliberate space-recapture strategy that lowers retention but expands vacancy leasing opportunities. Execution on re-leasing, development commitments, financing costs, and per-share dilution will be the main areas to monitor.