COPT Defense Properties (NYSE:CDP) Q2 2025 Earnings Call Transcript

COPT Defense Properties (NYSE:CDP) Q2 2025 Earnings Call Transcript July 29, 2025

Operator: Welcome to the COPT Defense Properties Second Quarter 2025 Results Conference Call. As a reminder, today’s call is being recorded. At this time, I will turn the call over to Venkat Kommineni, COPT Defense’s Vice President of Investor Relations. Mr. Kommineni, please go ahead.

Venkat Kommineni: Thank you, Lisa. 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 we should discuss 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?

Stephen E. Budorick: Hello. Thanks for joining us. The company delivered another strong performance in the second quarter, continuing our 30 quarter streak of achieving or outperforming our FFO per share guidance and allowing us to increase our outlook on several performance metrics. Moreover, the recent defense budget appropriation sets forth a record increase in defense spending, which provides a strong backdrop for future strength in our business. Turning to results for the quarter. FFO per share as adjusted for comparability was $0.68, $0.02 above the midpoint of guidance and a 6.3% increase year-over-year. Same Property cash NOI for the quarter increased 2.2% year-over-year and 4.6% during the first half of the year. We’ve generated excellent results on the leasing front.

We signed 353,000 square feet of vacancy leasing during the first half of the year, which is 88% of our initial full year target and represents 30% of the unleased space we had at the beginning of the year. Tenant retention was incredibly strong, 90% during the quarter and 82% year-to-date. The key metric that illustrates the strength of our strategy and performance is that our total portfolio is 95.6% leased, which is the highest level in nearly 20 years. Turning to guidance. Based on our strong performance during the first half of the year, we increased the midpoint of FFO per share by $0.01. We increased the midpoint of same-property cash NOI growth by 50 basis points. We increased the midpoint for tenant retention to 82.5% and we increased the full year target for vacancy leasing by 50,000 square feet.

Britt and Anthony will provide more details on these increases. Now I’d like to discuss the Defense Budget outlook. The One Big Beautiful Bill Act, which was signed in the law on July 4, appropriates an additional $150 billion to Defense spending over 4 years. The majority of which are $113 billion is allocated to 2026. The President’s 2026 Budget Request plus the appropriated funding in the Big Beautiful Bill amounts to a Defense Budget of nearly $950 billion or a 13% year-over-year increase. This is equivalent on a percentage basis to the restorative increase we experienced in 2018, and it’s the largest nominal increase in at least 25 years. The 2026 budget request allocates $116 billion to intelligence. That’s a $14 billion or a 14% increase year-over-year.

As a reminder, intelligence, surveillance and reconnaissance are key demand drivers for our Northern Virginia, Fort Meade and BWI portfolios. The request also includes over $16 billion for cybersecurity. That’s a $2 billion increase or 14%. And recall, cybersecurity is a key demand driver for our Fort Meade BWI subsegment. A new priority for the Trump administration is the development of Golden Dome, a next-generation missile defense shield for the United States. The total projected cost is $175 billion with a $25 billion down payment appropriated for 2026 in the Big Beautiful Bill, and the system is expected to be operational by 2029. The $150 billion of remaining costs to complete the project implies a significant ramp up in funding over the next 3 years.

Redstone Arsenal in Huntsville, is the center of excellence of our country’s missile and defense technology development, and we expect a significant increase in activity at the Arsenal to develop and deploy Golden Dome. Recall that Redstone Arsenal has a 75-year history of rocket missile research, development, testing and evaluation and is supported by a well-established defense contractor ecosystem and the Arsenal is home to the Missile Defense Agency, the Missile and Space Intelligence Center, Army Aviation and Missile Command and the NASA Marshall Space Flight Center. These missions, among others, serve as the demand drivers for our Redstone Gateway portfolio and the expected activity to create Golden Dome should present strong incremental opportunities.

During the prior administration, our portfolio performed well, given bipartisan support for defense spending as we produced FFO per share growth of 21% between 2020 and 2024. Looking forward, the current administration is significantly increasing defense investment to strengthen capability, capacity and lethality to realize its foreign policy objective of peace through strength. We view this as an inflection point for defense spending overall, but more importantly, for the priority missions we support, which include intelligence, surveillance, and reconnaissance, cybersecurity, missile defense, naval fleet and aviation activity and unmanned autonomous vehicles, among others. The administration’s massive recommitment to defense investment should provide opportunities for us to create facility solutions for new and expanded missions in the near to medium term, following appropriations to contract awards, providing a runway to continue our highly successful record of creating shareholder value.

And with that, I’ll turn the call over to Britt.

Britt A. Snider: Thank you, Steve. Overall, the company is executing its strategy and current year plan at very high levels, which is evidenced by the incredibly strong leasing performance in the first half of the year as well as our sector-leading retention. We finished the quarter with continued strong occupancy at 94% in our total portfolio, which increased 40 basis points over last quarter and 95.6% in our Defense/ IT Portfolio, which increased 30 basis points over last quarter. Our Northern Virginia Defense/IT properties were a standout at 94% leased and 93% occupied, the highest levels for that portfolio in over a decade. And importantly, over 80% of the vacancy leasing over the past 5 years in Northern Virginia has been with the defense IT tenants, many of which have invested in the construction of SCIF facilities for priority missions, strengthening the retention posture of this portfolio.

We outpaced our expected timing for vacancy leasing as we leased 233,000 square feet during the second quarter and 353,000 square feet during the first half of the year. Looking forward, we have another 120,000 square feet of deals in advanced negotiations, which led us to raise our full year target from 400,000 square feet to 450,000 square feet. We do expect volume to moderate in the back half of the year as the 2025 Defense Budget was just appropriated a few weeks ago, which has delayed the contract award process and many of our — the opportunities we’re working on are waiting those contract awards. Now that the 2025 budget has been appropriated, we expect enhanced leasing activity will resume in 2026. For context, since the appropriation of the 2024 Defense Budget, in March of 2024.

We’ve executed nearly 750,000 square feet of vacancy and investment leasing in our Defense/IT Portfolio, over $0.5 million of which was vacancy leasing. Our leasing activity was distributed throughout our defense IT markets, and we had notable success in our other segment, in which we leased 94,000 square feet of vacancy during the quarter and 105,000 square feet during the first half of the year. This activity is important as this segment accounted for over 35% of the unleased space in our total portfolio at the beginning of the year and represents a significant rent growth opportunity. Over the past year at these properties, we have increased the occupancy rate by over 300 basis points to 76% and increased the lease rate by nearly 450 basis points to 81%.

Following this success, the bulk of our other segment vacancy is concentrated in a single property 100 Light Street in Baltimore with nearly 170,000 square feet. Excluding 100 Light, this segment is 86% leased and 100 Light accounts for 15% of the unleased space in our entire 24 million square foot portfolio. We still have wood to chop in this segment, but we are laser focused on continuing this momentum to drive occupancy and eventually position these assets for sale. Moving on to renewal leasing. We executed 477,000 square feet in the second quarter, achieving a phenomenal tenant retention rate of 90%. We narrowed the range and increased the midpoint of full year retention by 250 basis points to 82.5%. On Slide 18 of the foot book, we provided additional detail on our lease expirations for the remainder of 2025.

We have 2.2 million square feet expiring in our Defense/IT Portfolio over the next 2 quarters, 1.5 million square feet or nearly 70% of these expirations are in secure full building leases to the U.S. government and we expect 100% retention on these leases. Our retention rate guidance assumes that we renewed 735,000 square feet of this U.S. government space by year-end and renew the remaining 750,000 square feet in 2026. As a reminder, each year, we have a certain number of U.S. government leases where the renewal process is delayed. And when this occurs, we signed a standstill agreement with the government, which requires rent payments to continue at the current rate, until a formal lease renewal is signed and rents are reconciled for the delay.

Turning to large leases expiring through 2026, as shown on Slide 19 of the flip book, we renewed 4 large leases in the quarter, totaling 270,000 square feet at a 91% retention rate caused by a small contraction by Leidos, which I’ll touch on in just a moment. Over the last 4 quarters, we’ve renewed 1.3 million square feet of large leases at a 96% retention rate. That leaves 2.6 million square feet of large leases expiring over the next 6 quarters, and we continue to expect a 95% retention rate on the full set of large lease expirations. Now stepping back over the past 3 years, we’ve renewed 34 large leases, totaling 3.4 million square feet at a 98% retention rate. And importantly, we have renewed every single tenant with only 3 small downsizes totaling 75,000 square feet.

And now I want to address our cash rent spreads during the quarter and illustrate how this statistic is not the best indicator of an economic outcome in our business. Cash rent spreads on renewal leasing were down 3.1% during the quarter, influenced primarily by just two leases. First, we executed an early renewal and small downsize with Leidos at Franklin Center. We acquired the building last spring, and it was generating an 11.2% initial cash NOI yield from a 110,000 square foot lease to Leidos, which was nearing the end of its 10-year term. We underwrote a rent roll-down and contraction upon expiration of the single lease in the property. This quarter, we executed an early renewal of 84,000 square feet and extended the lease term to 2033, with rent rolling down by nearly 8%.

But the rent achieved is still one of the strongest rental rates attained in this market. And importantly, both the roll down and the 26,000 square foot contraction were more favorable than our underwriting. Since the acquisition, we have invested capital to reposition the building and executed a 48,000 square foot lease with a top 20 defense contractor. Following this activity, the cash NOI yield still remains at a very strong 11% with 45,000 square feet still left to lease. So we have a great opportunity to drive that yield even higher as we fill the building. Second, our initial forecast assumed that Pandora, which moved its U.S. headquarters to New York, would vacate their last 18,000 square feet at 250 West Pratt in Baltimore in our other segment upon expiration of their 11-year lease.

We were able to early renew the lease for 2 years with cash rent rolling down 25%. This was also a better-than-expected outcome as we ended up with 75% of the rent instead of 0 and reflecting almost $1 million of rent over the renewal period, which we had not anticipated. Excluding these 2 leases, cash rent spreads were only down 40 basis points during the quarter and 70 basis points during the first half of the year. We expect cash rent spreads will improve in the back half of the year and are maintaining our full year guidance range of down 1% to up 1%. Turning to new opportunities. We’re maintaining our full year guidance for capital commitment to new investments at $200 million to $250 million. In the first quarter, we commenced development of 8500 Advanced Gateway, which is a $52 million project in Huntsville.

Additionally, we are in the advanced stages of negotiations on multiple build-to-suit opportunities, and we expect to execute several leases over the next 12 months. Supporting this capital commitment guidance is our 1.3 million square foot development leasing pipeline, which we define as opportunities we consider 50% likely to win or better within 2 years or less. Beyond that, we’re tracking another 1.1 million square feet of potential development opportunities. 100% of this 2.4 million square foot — square feet of development demand is at our Defense/IT locations. Looking forward, we are well positioned to capture additional leasing demand and capitalize on external growth opportunities given the strong growth outlook for defense spending, which Steve outlined.

And with that, I’ll turn it over to Anthony.

Anthony Mifsud: Thank you, Britt. We reported second quarter FFO per share as adjusted for comparability of $0.68, which was $0.02 above the midpoint of guidance and represents a year-over-year increase of 6.3%. The outperformance versus the midpoint of our guidance was driven by the commencement of rent earlier than forecasted on several leases and the benefit from lower than anticipated net operating expenses. During the quarter, our same-property cash NOI increased 2.2%. This growth was driven primarily by the benefit from the 50 basis point increase in average occupancy in the same property portfolio, the impact of the items that resulted in the outperformance in FFO per share, combined with the burn off of free rent on development leases placed into service in 2023 and on leases that commenced later in 2024.

These favorable items were partially offset by the net impact of over $1 million of nonrecurring real estate tax refunds in the second quarter of 2024. We are increasing the midpoint of our full year guidance for same-property cash NOI by 50 basis points to 3.25%. This is based on our achievement year-to-date with 4.6% growth during the first half of the year and our expectation that growth will moderate during the back half of the year due to two factors. The first relates to the nonrecurring receipt of nearly $2 million of real estate tax refunds in the second half of last year. For the full year, the refunds from successful appeals will approximate the amount received in 2024 and therefore, have no impact on full year growth, but does impact quarterly noise from timing differences.

The second relates to a decline in NOI from a few known nonrenewals in the fourth quarter in the Fort Meade/BW Corridor, all of which are under 30,000 square feet. These nonrenewals will also slightly impact same-property occupancy at year-end. Same-property occupancy ended the quarter at 94.5% and is expected to stay relatively flat during the third quarter, but then tick down during the fourth quarter as a result of these expected nonrenewals. Our line of sight on year-end occupancy is pretty clear at this point, which led us to narrow the guidance range for year-end same- property occupancy by 25 basis points at the low and high end and maintain the midpoint at 94%. Our balance sheet remains strong and well positioned to take advantage of investment opportunities and at quarter end, 97% of our debt remained at fixed rates.

We have been funding and expect to continue to fund the equity component of our investments with cash flow from operations after the dividend on a leverage-neutral basis and we’ll continue to draw on the line of credit to fund the debt component. With respect to debt maturities, we continue to plan on prefunding the capital required to refinance our $400 million, 2.25% bond, which matures in March of 2026. Our guidance continues to assume a $400 million bond issuance in the fourth quarter in the public fixed income market, where our bonds continue to trade at one of the tightest spreads to treasuries of any equal or higher rated office peer. We plan on using the proceeds to temporarily pay down the outstanding balance on our line of credit and hold the excess proceeds as cash until the March maturity.

With respect to guidance, we are increasing the midpoint of 2025 FFO per share by $0.01 to $2.67 while narrowing the overall range. This increase is the result of our improved same-property cash NOI growth outlook, partially offset by the expected delay in the commencement of one of our preleased data center shells from Q3 to Q4. We are establishing third quarter guidance for FFO per share as adjusted for comparability in a range of $0.66 to $0.68. With that, I’ll turn the call back to Steve.

Stephen E. Budorick: Thanks. I’ll close by summarizing our key accomplishments and messages. We achieved excellent results in the second quarter, highlighted by our strong leasing. We delivered FFO per share growth of 6.3% year-over-year, marking our 20th consecutive quarter of year-over-year growth. We expect 2025 to be our seventh consecutive year of FFO per share growth and our revised guidance implies an annual increase of 3.9%. We increased the midpoint of 2025 guidance for 4 key metrics: we completed 103,000 square feet of investment leasing year-to-date, and we expect strong activity during the second half of the year. We continue to anticipate compound annual FFO per share growth of 4% between 2023 and 2026. And lastly, the President’s 2026 defense budget request.

Combined with the appropriated funding in the One Big Beautiful Bill represents the largest year-over-year increase in recent history and demonstrates the substantial recommitment by this administration to achieve peace through strength. Our demand typically lags appropriation by up to 12 to 18 months, which sets up a strong tailwind for our business in the years ahead. So we’re well on track to deliver another successful year. And with that, operator, please open the call for questions.

Q&A Session

Operator: [Operator Instructions] And our first question today will be coming from the line of Manus Ebbecke of Evercore.

Manus Ebbecke: You talked about multiple build-to-suits that you’re in negotiations with tenants that are ongoing. Can you talk maybe a little bit more on which type of submarkets maybe are contemplated? What kind of like returns you’re solving for there? And just kind of like how those discussions are trending with tenants right now, that would be super helpful.

Stephen E. Budorick: Well, we have multiple discussions that are ongoing. They are in three separate submarkets. They are subsegments, they include Alabama and several locations in the BWI Corridor, and one more that I won’t mention. Discussions are going very well. Returns are targeted in our usual range, which is at this point in time, 8.5% cash yield on initial development costs. And we expect to have some good news in the second half of the year.

Manus Ebbecke: Awesome. That’s great. And could you talk maybe about like immediate, like on the ground impacts that you felt already maybe from the new legislation passing. So like after that bill has passed, have you seen more like optimism from your tenant side in terms of wanting to expand the footprint? Or is it still too early for that? Just trying to size up. Like how much of an immediate impact you’ve already felt with the tenants and discussions that you’re having and just maybe like share the sentiment that the tenants had as a reaction to the legislation being passed.

Stephen E. Budorick: Well, frankly, we felt an increase in optimism and activity after the election. And it’s remained pretty strong through the first half of the year. I can’t honestly say there’s been an inflection in the 2 weeks since the — or 3 weeks since the Big Beautiful Bill passed, but I would say our outlook is very positive.

Operator: And the next question will be coming from the line of Seth Bergey of Citi.

Seth Bergey: I guess just following up on the Big Beautiful Bill comments. How do you expect that to translate kind of directly to you? Is that — do you expect to make more progress on the vacancy leasing or that to translate into additional investment opportunities? And can you kind of provide us some context around how much the bill increases in the past have translated into past opportunities?

Stephen E. Budorick: Yes. So always hard to answer that question. In particular, as we’ve pointed out in our written comments, the Big Beautiful Bill puts a down payment on the Golden Dome program, which contemplates developing the next-generation defense shield over the full United States. And with the Center of Excellence for missile and defense technology being at Redstone Gateway, we have very high expectations that there will be mission expansions, both in research and development and program creation and administration in Huntsville. We mentioned that the Big Beautiful Bill as well as the budget request for the significant increase in the intelligence budget, of, I believe it was 14% in many components of our portfolio, serve contractors indirectly the activities in the intelligence community.

And then beyond that, just more money flowing to programs to enhance capability, capacity and lethality and that should flow through throughout our portfolio. There’s no particular algebra we can give you that says an increase in spending generates X amount of square footage of leasing. But we gave you a hand after the 2024 bill was passed with a modest 3% increase. We generated about 750,000 square feet of new leasing and over $0.5 million of that was in our vacancy. So the trend and the pattern is pretty clear, there’s no particular math. I can share with you that is predictive.

Seth Bergey: That’s helpful. And just on the $400 million bond issuance you have contemplated in the guidance, where do you think you could issue that today?

Stephen E. Budorick: Anthony?

Anthony Mifsud: Today, our spreads are on a 10-year deal, was trading at about 140 basis points over the 10-year on a 5-year, it’s about 115 to 120. So we’re still looking at the term of that bond issuance and the alternatives there because we have openings in our debt maturity ladder, but in 5-, 7- and 10-year windows.

Operator: And the next question will be coming from the line of Anthony Paolone of JPMorgan.

Anthony Paolone: Steve, you mentioned several build-to-suit opportunities that you’re evaluating right now. Are any of those tied to Golden Dome or perhaps Space Command moving to Huntsville? Or would Golden Dome, Space Command be incremental to those conversations?

Stephen E. Budorick: None of those involve either one of those programs. So cyber, the market expects the announcement of Space Command to be imminent. So that will be exciting. We’ve provided a variety of solutions to the authorities at Redstone Gateway and how we can serve them if we’re needed. So that could be an additive opportunity. It’s too early for Golden Dome. There’s a lot of activity in Redstone or Huntsville with agencies having symposiums with the defense contractors to envision and start to formulate their plan to create it. But the ones that we’re talking to now are not part of either program.

Anthony Paolone: Okay. And then, I mean, if we take all that together, I know you’re not going to give guidance for 2026, but I mean it just seems like the arrows are pointing to having a bigger year for spending and potential starts. Is that the way things are shaping up at this point, a fair way to start thinking about it?

Stephen E. Budorick: Yes. I would say my expectations are high for ’26.

Anthony Paolone: Okay. And then just last one, if I could just sneak it in. You guys had called out the MP3 getting pushed out a quarter. Anything to think about more broadly on that? Or is that just more specific to the project, something happened?

Stephen E. Budorick: It’s just getting permits in a county that’s become very cumbersome. Our team is — they are really, really well prepared to bang this thing up when they get the final permit, which I think we’re supposed to get this week.

Britt A. Snider: Yes, we can see everything on the website that everything is approved. It’s literally just getting the piece of paper.

Operator: And the next question will be coming from the line of Blaine Heck of Wells Fargo.

Blaine Matthew Heck: Can you just talk a little bit more about the current leasing environment and where you’re seeing stronger or softer demand in any specific markets or tenant industries across the portfolio today?

Britt A. Snider: Hi, Blaine, it’s Britt. Yes, I mean, I think it’s still very strong and very optimistic. I think the contractors have a lot of clarity now, especially after the budget passing. So I think there’s a little bit of waiting on that. But for now, I mean, I think we’re seeing — and I think a good example is NBP 400, which we have 420,000 square feet of demand on that 138,000 square foot building, and that’s an increase of 60,000 square feet with a new defense contractor taking a look at that. We had a tour of 30 people on Friday with our primary customer. So I think we’re very optimistic about what we’re seeing. There might have been a brief pause there, but no one is holding back at this point. I think it’s — we’re very optimistic, and that goes for all of our submarkets.

Blaine Matthew Heck: Okay. Great. That’s helpful. Sorry if I missed this, but I wanted to touch on the Des Moines land parcel. Any update on the power procurement for the initial phases of that project? And what that might mean with respect to the timing of construction?

Stephen E. Budorick: We’re still engaged with the power company in the region. We’re working through alternative scenarios to see if we can find an optimal fit between initial capacity, total capacity and timing. It’s not clear, but I will say, given the backlog of demand for expanded power around the world, we’re led to believe it will be plus or minus 4 years before we get new capacity that we can tap into. And so I think you have to look at that project as a future. It’s an investment in our future development opportunity set, and I think it will be a couple of years before we start actually building infrastructure.

Blaine Matthew Heck: I guess would that ever potentially be a candidate for disposition if you have other opportunities that might be a little bit more near term?

Stephen E. Budorick: Well, in the big picture of things, it’s about — we bought the land for $32 million. It’s hard for me to believe that we’ll be in a position where we need to sell that $32 million piece of land to grab the incremental opportunities we expect. We got a very favorable land price on a per square foot basis. We believe it’s a great opportunity for the shareholders long term. And it’s just not that much money that we feel like we’ve constrained the company.

Anthony Mifsud: And Blaine, just for some context, the land on our balance sheet for future development, excluding Iowa, we’ve owned on average for 17 years. So when we invest in land, it’s for the long-term investment opportunities for those — at those parcels. So it’s not unlike any other things that we’ve done within our portfolio.

Operator: And the next question will be coming from the line of Tom Catherwood of BTIG.

William Thomas Catherwood: Maybe Steve or Britt, with vacancy leasing continuing to improve and higher retention rates, at what point does space availability become a challenge for your tenants? And how would you address that issue if it arises?

Stephen E. Budorick: Well, to some extent, you can see it in our overall volumes. As our portfolio occupancies increase, our objective for the year was $400,000 because we don’t have that much space to lease. But what that has done is allowed us to sequentially develop inventory buildings in Redstone. We just started RG-8500 after finishing RG-8100 and the NBP — with NBP 400 being constructed. At the time we started that, we were 99.7% leased across our 4.3 million square feet. And so continued demand opportunities at the priority missions we serve will translate into new development.

William Thomas Catherwood: Got it. And then for the higher retention specifically, is that the result of an improved outlook for certain tenants so they’re not downsizing? Or is this tenants that might have gone elsewhere, but aren’t finding the space they need in the market?

Stephen E. Budorick: Well, first of all, our locations are the best in these markets. I think it’s also a recognition of the kind of co-investment that our tenants have made into the space that they occupy. Once you create a SCIF, it’s very expensive and time-consuming to build one. They can’t be moved. So that helps contribute to our kind of market-leading retention. And I think it’s also over the longer analysis, a reflection of how we have reduced the demand defense part of the company to just 5 buildings. And so the true strength of the defense investment strategy is manifesting it in the better statistics.

Britt A. Snider: And consistent with that, I would say other landlords that do have some secure space, but they’re burdened with heavy traditional office in their portfolio. They’re having a really tough time funding these deals. And so they — they know they can stick with us, and they’re not going to go anywhere because they know we can help fund their deals and co-invest with them. So it’s a really important point.

Operator: [Operator Instructions] And our next question will be coming from the line of Peter Abramowitz of Jefferies.

Peter Dylan Abramowitz: Yes. Just a follow-up on Steve’s comments about Space Command and that announcement should be coming soon here. Just curious, what would be sort of the timing and potential magnitude of development leasing there? I know you talked in the past think about up to 400,000 square feet of potential development leasing. Is that sort of still something that you have the potential for? And then would that be 2026 development leasing or could it take longer than that.

Stephen E. Budorick: So I can’t answer the question with any specificity. What I can tell you is we have space available immediately for the advanced groups, if needed, in our operating portfolio. We’ve delivered development solutions ranging from 150,000 square feet of single building to 450,000 square feet of 3-building campus. Beyond that campus, we can literally double that capacity if needed. But the needs and decisions of Space Command are unknown to us. We just stand ready to step into the breach and serve the command if needed.

Peter Dylan Abramowitz: Okay. That’s helpful. And apologies if I missed this, but could you just provide a little bit more color on the expense savings in the quarter, kind of where that came from and if any of that will be recurring?

Anthony Mifsud: So about half of the expense savings came from a variety of different kinds of utilities. The other half was some timing of repairs and maintenance projects that the cost of which were not incurred in the second quarter, but will shift into the third quarter.

Operator: And the next question is coming from the line of Dylan Burzinski of Green Street.

Dylan Robert Burzinski: Just one quick one for me. Steve, I think you mentioned that excluding 100 Light, the office portfolio or I guess the traditional office portfolio is 86% leased. Any appetite to start testing the capital markets in terms of bringing some assets to market? Or are you guys still waiting for the interest rate environment to improve?

Stephen E. Budorick: We’re anxious to bring them to market, but we are waiting for the interest rate to improve. The likelihood of a sale capturing good, strong shareholder value in this current financing environment is low.

Operator: Thank you. And now I would like to turn the call back to Mr. Budorick for closing remarks. Please go ahead.

Stephen E. Budorick: So thank you all for joining our call today. We are in our offices this afternoon, so please coordinate any follow-up questions through Venkat, if you’re interested. Thank you again.

Operator: Thank you for your participation today in COPT Defense’s Properties Second Quarter 2025 Results Conference Call. This concludes this presentation. You may now disconnect. Good day.