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2023
Annual Report
Letter to
Shareholders
Dear fellow shareholders,
In 2023, we celebrated our 25th anniversary as a publicly listed
Company, a momentous occasion that we marked by ringing
the closing bell at the New York Stock Exchange on September
15 and changing our Company name from Corporate Office
Properties Trust (NYSE: OFC) to COPT Defense Properties
(NYSE: CDP).
The name change was the culminating event of an 11-year
transformation into the office sector leading Company we have
become, and a commitment to our shareholders to maintain the
highly successful strategy we envisioned in 2012 and enriched in
2016. It was a deeply satisfying experience for our entire team,
as our relentless pursuit of our defense investment strategy was
clearly observable in our performance, as we ranked #1 in terms
of Total Shareholder Return among office REITs (as defined by
Nareit) for the prior 24 and 48 month periods, and #2 for the prior
12, 36, and 60 month periods through September 15.
Reflecting on our strategic repositioning, it is self-evident that
we have transformed into a much different and much stronger
Company. Our focused strategy of concentrating on investments
in assets that support priority U.S. national defense missions
has proven tremendously successful in terms of our financial
performance, operating results, portfolio quality, and balance
sheet strength. Over the past 12 years, we have sold over 10
million square feet of traditional, commodity office properties
and developed over 11 million square feet of modern, efficient
buildings constructed specifically for the missions we serve and
located in key Defense/IT locations.
We had another successful year in 2023, as we executed our plan
to focus on growth and leveraging on our position of strength.
We experienced strong demand across our Defense/IT Portfolio,
which drove year-end occupancy and leased rates to near-record
levels. Our Defense/IT Portfolio was 96.2% occupied, which is on
par with the industrial, apartment, and retail REIT sectors, and is
roughly 800-basis points higher than the office REIT sector. We
FIGURE 1:
Historical Year-End Occupancy vs. Office REIT Sector
Historical Year-End Occupancy
95.0%
93.0%
94.2%
94.1%
94.0%
92.9%
93.5%
92.7%
92.4%
92.0%
91.1%
91.0%
90.0%
89.7%
89.5%
89.0%
88.1%
88.0%
87.0%
2019
2020
CDP: Total Portfolio Occupancy
Office REIT Sector Occupancy
Source: Nareit T-Tracker  
Office REIT Sector (as defined by Nareit)
2021
2022
2023
believe our strategy, which benefits from stability and strength
in defense spending, is lower risk compared to the office REIT
sector in general as our portfolio is largely insulated from the
headwinds related to the increased adoption of remote work,
which has resulted in lower physical utilization, elevated vacancy
rates, declining net effective rents, and credit ratings downgrades.
We achieved diluted FFO per share (   FFOPS   ), as adjusted for
comparability, of $2.42 in 2023, a 2.5% increase over 2022   s
results. Our FFOPS results over the past four years have
generated compound annual growth of 4.5% (see Figure 2),
despite a challenging macro environment. We believe that we
are strategically positioned to generate attractive returns for
investors in the near and medium term, as we expect FFOPS to
grow at roughly 4% on a compound annual basis between 2023
and 2026, driven by NOI growth from highly-leased properties
under development and recently placed into service, along with
growth from our operating portfolio.
Regarding our operating performance, we executed 452,000
square feet of vacancy leasing, which was ahead of our fullyear target. Our total portfolio leased and occupancy rates
of 95.3% and 94.2% at year-end, respectively, were the
highest levels in over a decade. Since year-end 2019, our total
portfolio occupancy rate increased by 130-basis points, and
has significantly outperformed the office REIT sector, which
declined 540-basis points during that period (see Figure 1). Our
outperformance is a testament to our successful strategy to
evolve our portfolio and allocate capital to durable demand
locations adjacent to priority defense installations and missions.
In 2023, we executed 747,000 square feet of development
leasing and placed 848,000 square feet of development
projects into service that were 98% leased. Our 2023 deliveries
included one build-to-suit project with a defense contractor at
The National Business Park, two projects at Redstone Gateway,
one project at Navy Support, and two data center shells in
Northern Virginia. Our development pipeline currently stands at
817,000 square feet of active projects that are 91% leased. We
expect these developments, when combined with the 848,000
square feet placed into service during 2023, will provide a
strong foundation for FFO growth through 2026.
The global threat environment to the national security of
the United States and its allies continues to escalate, which
will necessitate continued investment in U.S. intelligence,
surveillance, and reconnaissance capabilities, along with
associated and required technological advancements.
Due in part to these elevated threats, the outlook for defense
spending remains strong as the base defense budget increased
nearly 15%, or $100 billion, between fiscal year 2021 and 2023,
with another 3.3% of growth expected in 2024. We expect
demand for our portfolio from the 2024 budget will materialize
in 2025, driving leasing volume for both our operating and
development portfolios.
The timing of expected cuts to the federal funds rate is uncertain
but has been a key theme surrounding the REIT industry and
follows one of the most aggressive rate hiking cycles in decades.
Our investment grade balance sheet is well-positioned to
Continued on Inside Back Cover
 • shareholder letter icon 3/28/2024 Letter Continued (Full PDF)
 • stockholder letter icon 3/30/2023 CDP Stockholder Letter
 • stockholder letter icon More "REITs" Category Stockholder Letters
 • Benford's Law Stocks icon CDP Benford's Law Stock Score = 88


CDP Shareholder/Stockholder Letter Transcript:

2023
Annual Report

Letter to
Shareholders
Dear fellow shareholders,
In 2023, we celebrated our 25th anniversary as a publicly listed
Company, a momentous occasion that we marked by ringing
the closing bell at the New York Stock Exchange on September
15 and changing our Company name from Corporate Office
Properties Trust (NYSE: OFC) to COPT Defense Properties
(NYSE: CDP).
The name change was the culminating event of an 11-year
transformation into the office sector leading Company we have
become, and a commitment to our shareholders to maintain the
highly successful strategy we envisioned in 2012 and enriched in
2016. It was a deeply satisfying experience for our entire team,
as our relentless pursuit of our defense investment strategy was
clearly observable in our performance, as we ranked #1 in terms
of Total Shareholder Return among office REITs (as defined by
Nareit) for the prior 24 and 48 month periods, and #2 for the prior
12, 36, and 60 month periods through September 15.
Reflecting on our strategic repositioning, it is self-evident that
we have transformed into a much different and much stronger
Company. Our focused strategy of concentrating on investments
in assets that support priority U.S. national defense missions
has proven tremendously successful in terms of our financial
performance, operating results, portfolio quality, and balance
sheet strength. Over the past 12 years, we have sold over 10
million square feet of traditional, commodity office properties
and developed over 11 million square feet of modern, efficient
buildings constructed specifically for the missions we serve and
located in key Defense/IT locations.
We had another successful year in 2023, as we executed our plan
to focus on growth and leveraging on our position of strength.
We experienced strong demand across our Defense/IT Portfolio,
which drove year-end occupancy and leased rates to near-record
levels. Our Defense/IT Portfolio was 96.2% occupied, which is on
par with the industrial, apartment, and retail REIT sectors, and is
roughly 800-basis points higher than the office REIT sector. We
FIGURE 1:
Historical Year-End Occupancy vs. Office REIT Sector
Historical Year-End Occupancy
95.0%
93.0%
94.2%
94.1%
94.0%
92.9%
93.5%
92.7%
92.4%
92.0%
91.1%
91.0%
90.0%
89.7%
89.5%
89.0%
88.1%
88.0%
87.0%
2019
2020
CDP: Total Portfolio Occupancy
Office REIT Sector Occupancy
Source: Nareit T-Tracker  
Office REIT Sector (as defined by Nareit)
2021
2022
2023
believe our strategy, which benefits from stability and strength
in defense spending, is lower risk compared to the office REIT
sector in general as our portfolio is largely insulated from the
headwinds related to the increased adoption of remote work,
which has resulted in lower physical utilization, elevated vacancy
rates, declining net effective rents, and credit ratings downgrades.
We achieved diluted FFO per share (   FFOPS   ), as adjusted for
comparability, of $2.42 in 2023, a 2.5% increase over 2022   s
results. Our FFOPS results over the past four years have
generated compound annual growth of 4.5% (see Figure 2),
despite a challenging macro environment. We believe that we
are strategically positioned to generate attractive returns for
investors in the near and medium term, as we expect FFOPS to
grow at roughly 4% on a compound annual basis between 2023
and 2026, driven by NOI growth from highly-leased properties
under development and recently placed into service, along with
growth from our operating portfolio.
Regarding our operating performance, we executed 452,000
square feet of vacancy leasing, which was ahead of our fullyear target. Our total portfolio leased and occupancy rates
of 95.3% and 94.2% at year-end, respectively, were the
highest levels in over a decade. Since year-end 2019, our total
portfolio occupancy rate increased by 130-basis points, and
has significantly outperformed the office REIT sector, which
declined 540-basis points during that period (see Figure 1). Our
outperformance is a testament to our successful strategy to
evolve our portfolio and allocate capital to durable demand
locations adjacent to priority defense installations and missions.
In 2023, we executed 747,000 square feet of development
leasing and placed 848,000 square feet of development
projects into service that were 98% leased. Our 2023 deliveries
included one build-to-suit project with a defense contractor at
The National Business Park, two projects at Redstone Gateway,
one project at Navy Support, and two data center shells in
Northern Virginia. Our development pipeline currently stands at
817,000 square feet of active projects that are 91% leased. We
expect these developments, when combined with the 848,000
square feet placed into service during 2023, will provide a
strong foundation for FFO growth through 2026.
The global threat environment to the national security of
the United States and its allies continues to escalate, which
will necessitate continued investment in U.S. intelligence,
surveillance, and reconnaissance capabilities, along with
associated and required technological advancements.
Due in part to these elevated threats, the outlook for defense
spending remains strong as the base defense budget increased
nearly 15%, or $100 billion, between fiscal year 2021 and 2023,
with another 3.3% of growth expected in 2024. We expect
demand for our portfolio from the 2024 budget will materialize
in 2025, driving leasing volume for both our operating and
development portfolios.
The timing of expected cuts to the federal funds rate is uncertain
but has been a key theme surrounding the REIT industry and
follows one of the most aggressive rate hiking cycles in decades.
Our investment grade balance sheet is well-positioned to
Continued on Inside Back Cover



shareholder letter icon 3/28/2024 Letter Continued (Full PDF)
 

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