COPT Defense Properties (CDP) Q2 2026 Earnings Report, Transcript and Summary

Welcome to the COPT Defense Properties. Second Quarter 26 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. Mister Kommineni? Please go ahead.

Thank you, Latif. Good afternoon. And welcome to COPT Defense's conference call to discuss second quarter results. With me today are Stephen E. Budorick, President and CEO Britt A. 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 4.4% increase year over year and is the 20 fourth 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 was 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 a 139 thousand square feet of vacancy leasing in the quarter and 231 thousand square feet during the first half of the year. This amounts to nearly 6% of our full year target. And represents 20% of the un leased space we had at 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 at a gap 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 3¢ above our initial guidance. This revised midpoint is even more impressive when you account for the 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 4¢ 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 thousand to 475 thousand thousand square feet. Moving on 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 is really driven off the base budget of $1.1 trillion. Which is expected to be the new run rate for fund spending. Mike Rogers, chairman of the House Armed Services Committee, was recently quoted stating that trillion-dollar base budget 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 thousand 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 thousand-square-foot lease, all 24 buildings will be 100% leased. Interactive developments for defense contractors, 7.7 thousand Advanced Gateway is fully leased. And 8.5 thousand Advanced Gate Gateway or current inventory development is 41% leased. We expect to sign a lease for 75 thousand square feet this week, and we are negotiating a lease for the remaining 15 thousand square feet which we expect to sign next month. Beyond these deals in progress, we have another 415 thousand-square-feet of demand from contractors for Mission Space related to Golden Dome and missile defense activities. Given our strong success in the quarter, and the depth of demand we are seeing, we are commencing development on 2 inventory buildings, consisting of 6.3 thousand a 180 thousand square foot building, with 30 thousand square foot floor plates which we will deliver in early 2028 and 2.2 thousand a 60 thousand thousand square foot building, with 20 thousand square foot floor plates which we 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 thousand square foot building in order to create the initial inventory to seed 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 have developed 2.4 million square feet that will be a 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 concentration. And following completion of the 2 planned 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 2 thousand. Anticipating only our current planned activity, We will 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 are seeing in the market, we look forward to updating this projection in the next 24 months. And with that, I will turn the call over to Britt.

Thank you, Steve. Before I walk through our operating performance during the quarter, I would 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 leased 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 are seeing in our markets and our ability 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 this 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 thousand square feet which increased to nearly 100 thousand square feet in 2024 and surpassed 160 thousand square feet last year. In 2026 to date, we have executed 110 thousand square feet. And with the additional activity in the pipeline, we are confident this will be strongest year for vacancy leasing in Columbia Gateway in over 5 years. 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 MBP 400 and nearly 150 thousand 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 the second quarter that will reverse in the third quarter. Second, a law firm tenant relocated within 100 Light Street in Baltimore and downsized modestly. However, they continued 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. 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 thousand 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 thousand 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 thousand square feet. Approximately 125 thousand square feet of prospects in advanced negotiations, which we define as over 90% likely to execute. Taken together, we have over 415 thousand 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 thousand square feet for the year. Our leasing activity ratio is 69%, equates to 770 thousand square feet of prospects on 1.1 million square feet of availability. Turning to renewal leasing. We executed nearly 350 thousand square feet in the quarter. 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 lease. 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 Meade/BW Corridor. 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 non renewals 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 flipbook, in the second quarter of 24, we disclosed our view on the renewal of large leases. Those in excess of 50 thousand 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 US 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 flipbook, 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 his 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 thousand square feet of the total area, on which we expect approximately 50% retention. Looking back, since we provided 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 thousand 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 thousand square feet. That is 73% preleased, amounts to nearly $450 million of capital commitment. 4 of the 6 projects are 100% preleased. In Huntsville, 500 Advanced Gateway is 41% leased. And we are currently negotiating 2 leases that will bring this building to 100% leased this quarter. 410 Goss Road is our inventory building for the government, which is inside the fence. 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 6.3 thousand and RG 2.2 thousand 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 are tracking an additional 900 thousand square feet of potential development opportunities, a nearly 60% increase since last quarter. Combined, the pipeline increased over 500 thousand square feet over the last quarter, and this acceleration further reinforces our confidence in achieving external growth in the coming years. With that, I will hand it over to Anthony.

Thank you, Britt. We reported second quarter FFO per share of $0.71 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, 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 half a 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 full year FFO per share guidance by $0.02 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 non recurring 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 by $40 million to $335 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 will 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 in 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 are benefiting from advancements in missile defense, cyber activities, quantum computing, military space activities, and intelligence programs. And this mission demand is durable, and growing. National defense spending has entered the year of trillion-dollar base budgets. To support the creation and development of advanced technology weapons programs and thereby creating current and growing opportunities throughout our markets. Look forward to sharing our third quarter progress on October And with that operator, please open the call for questions.

Thank you, mister Budorick. As a reminder, to ask a question, you will need to press 11 on your telephone. To remove yourself from the queue, you may press *1 again. Our first question comes from the line of Seth Bergey of Citi. Your line is open, Seth.

Hi. Thanks for taking my question. 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 a trillion dollars moving forward with that? Kind of change the way you think about the amount of capital you would like to deploy in future developments going forward?

No. Not really. We have 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 dollar level generates more active We are prepared and we have got a strong balance sheet to support. Increase in our investment. And the same low risk basis we have been running the company for the last 10 years. Thanks. And then just any changes on kind of your expectations for development yields? And then just given kind of the year to date movement in the stock price, has that changed the way you think about funding development with free cash flow versus potentially issuing equity off of the ATM? Well, let me take the first 1 first. We continue to achieve initial cash yields of roughly 8.5% on our new development So target that we elevated from 8% a few years back. We have been able to hold that I do not see that target changing. With regard funding, no. We have no-- no interest or intention. Of funding with due equity issuance. And we are very satisfied to continue to fund with free cash flow. We 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.

Great. Thank you so much.

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

Your line is open, Hey there, and thanks for taking the question. Just curious, in addition to the 2 new starts that you have, I earmarked for Huntsville in Q3, if you kind of go through your and look at the different regions you are 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 is also getting really tight in supply versus, like, the strong demand that you are seeing?

Yeah. Well, Manus. This is Britt. First, I do wanna 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 are gonna cite the next 8 buildings beyond that. I mean, I think there is the demand in Huntsville is tangible. But in addition to Huntsville, looking around the you know, the Fort Meade market is still showing signs of strong demand, and there is a few areas that we have at National Business Park and then also down around College Park that we like we like a lot for potential future development starts as well.

Yeah. And if I can add to that, Manus, we are starting 2 buildings, and our comments carefully said to begin to address the accelerating demand. We believe there is pretty strong potential to either add additional inventory or sign preleases beyond this initial 2 building commitment we are making in the quarter.

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

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

Alright. I appreciate it. Thank you so much.

Our next question comes from the line of Blaine. Please go ahead, Blaine.

Great. Thanks. Steve and Britt, not to beat a dead horse, here, but it does sound like activity is picking up rapidly in Huntsville and not overlook the increased guidance, but you think there is 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 you know, such that you could actually start more on a spec basis this year? Or should we expect that ramp to be more in 2027 and beyond?

Well, there is a lot of activity Timing is tough to predict. I would not like, to overpromise on this call that more can occur during the year. I can tell you we do not have any preleases on those buildings. We consider them inventory. Because we are working with tenants and 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 are seeing. We certainly anticipate activity beyond these 2. Have every confidence we get these leased quickly. Whether it happens this year or next, we will leave that future calls. Alright. Totally fair. Second question, I know it was a very recent acquisition, but 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 we have we have made no progress in taking control of the assets. The facts are that the owner of the property had a, a mortgage that matured it is not been repaid. The mortgage been transferred to a special servicer. I believe they are working to refinance it. And that is all we really know. We know long-term. Love to have those properties in our portfolio. They are a perfect fit. Both with tenant presence, the nature of the construction of the development, and the location. And we believe sometime we will be in a position to acquire those buildings.

Okay, Great. Thanks, guys.

Thank you. Our next question comes from the line of Anthony Paolone of JPMorgan. Your line is open, Anthony.

Great. Thanks. Yeah. I am struck by just 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 you I gotta regroup a little bit. Before this president got elected, we repeatedly said the 1 issue in the US government that is bipartisan is increased defense spending. Under the prior president, the pattern was that the president had a 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 of the defense department by increasing those budgets on 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 are not fearing the midterm change. And we know that irrespective of what happens in the house and senate, we do have a president who is very motivated to see increases in defense spending. I think it will still be a favorable environment.

Okay, Thanks. And then just a follow-up. Obviously, a lot of participants at this point in 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 have done in the past, like, do you do you think you still have a opportunity there in the future? You 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 customer has demand. And the hard part right now is finding access to power. We continue to work with our customer on potential solutions. Long term, something's going to break in the power situation in Iowa, but do not wanna be the pioneer that breaks that. And so we are motivated to continue that development relationship I just do not expect to see any leases, you know, for 12 to 24 months

Okay, Thanks.

Thank you. Our next question comes from the line of Richard Anderson of Cantor Fitzgerald. Please go ahead, Richard.

Alright. Thanks. Good afternoon, everyone. So, Anthony, on 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 know, 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 the 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, you know, the real estate tax refunds that we had the benefit of in the second half of 25 we know will not recur in 2026. So I think we are, there is there is not a lot of variability in the in that match right now.

Okay, In terms of tenant investment, You know, certainly, that is been a good environment for you in terms of skiff exposure and the costs associated with that being funded largely by tenants. What is your expectation there going forward? I know, you know, there is been it is been a you have had some good outcomes in terms of the investments made. You have stickier tenants and all that sort of stuff. But you are not going to have a comment about how much skiff is in the total portfolio perhaps. But is that going up in this environment? You know, just the demand for, you know, skiff 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 will have skiff requirements to support it. So the influence of skiffs has never been higher than it is right now.

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

it is more like 3 or 4 to 1. 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, you know, when you think about the growth of that 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, as the growth profile continues in that in that area. But is there some hesitation to sort of overplay that and wait for the next president You know, I think you are right about defense spending as a as a bipartisan situation. Is Golden Dome specifically a you know, an anybody president initiative?

Well, that is that is the way I view it. This is my opinion. Right? I do not have a report to read to you, but the activities in Israel and Gaza Ukraine, and now frankly in the Gulf States have really elevated the need for an anti-missile, a robust, affordable, anti missile defense shield. And we do not have that in the United States of America per se. And that is really what Golden Dome is. So it is a long term commitment to investing in things in space and capabilities from space, and broadening of the capability to bring that protection to the homeland. And I do not care who the president is. 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 is profound. And our decision makers and our leaders will see that and continue to support the program. Okay,

And is it am I right in saying that you are paying a ground lease for virtually everything you have in Redstone Gateway?

Yeah. Go ahead.

Okay, We are paying a grant we are paying we are paying ground rent on the operating assets.

And we only can-- we only start to pay ground when cash rent commences on each of the of the development projects. So the there is Okay,

You know, an ongoing discussion with the army about the potential to expand that in the future, but that is not something that we are you know, we need right now because we have over 3 million square feet of land that we control that we can build 3 million square feet on that land we control already. And how Anthony, how big is that?

Like, I know it is not a discussion now, but could it be 2x the 5.5 million square feet more Like Yeah. 10 years from now.

that is hard to answer.

Yeah.

Okay,

But Redstone Arsenal is 1 big chunk of land. it is just an enormous military installation. Land-- I am confident to say that land will never be scarcity of land will never be what holds the redstone missions back.

Okay, Fair enough. Very much. Thank you.

Our next question comes from the line of Tom Catherwood of BTIG. Please go ahead, Tom.

Thanks, and good afternoon, everybody. Britt, you may have partially answered this with your comments on planning ahead for future Ridstone developments. But the completion time lines for RG6.3 thousand and 2.2 thousand 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?

Yeah. I mean, I think the well, the RG 22 hundred timeline is really kind of October 2027. And then 6.3 thousand would be kind of closer to Sarah 2028. So, I mean, actually I mean, those are the timelines for those buildings, which we think are very achievable, and we actually think that provides some nice staggered delivery timing, you know, call it 5 months.

Between those 2. But timing wise, for duration of the projects, absolutely.

But Brooke made a comment about you know, 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, guys. And then the last 1 for me, and I know this is a small 1, but you sold land in Aberdeen in Q2, and you moved some land in Hanover into the held for sale bucket. Can you provide some more 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 have 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 is a rental preserve. that is a particular parcel that is because of the topography, it 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 from developing on that topography. Beyond that, we are we have the land we want to hold.

that is great. Thanks for the answers.

Thank you.

As a reminder, to ask a question, please press 11 on your telephone. Our next question comes from the line of Dylan Burzinski of Green Street. Please go ahead, Dylan.

Hi, guys. Thanks for taking the question. 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 2027 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 million dollar range? Just any sort of insight you can provide there would be helpful. Thanks.

Well, that feels like guidance to me, Dylan. Answer is yes. We have been saying $250 to $300 million and I think we will just stick with that. With, you know, some ebb and flow. If our outlook is supportable to increase in the future, we gladly will. But not gonna do that now.

Okay, Thanks, guys.

Thanks.

Thank you. 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 through Venkat. If you would like follow-up, call. Thank you again.

Thank you for your participation today in the COP Defense Properties Second Quarter 26 Results Conference Call. This concludes the presentation. You may now disconnect.