COPT Defense Properties: A Strategic Play on the 2025–2026 Defense Spending Boom

The U.S. defense budget is entering a new era. With the FY 2026 Budget Request and the One Big Beautiful Bill Act (OBBBA) injecting $113 billion in additional funding, defense spending is set to grow by 13% year-over-year and 58% compared to FY 2017 levels. For investors, this represents a seismic shift in demand for specialized real estate: the secure, mission-critical facilities that house defense and intelligence operations. At the forefront of this opportunity is COPT Defense Properties (CDP), a REIT uniquely positioned to capitalize on this spending boom through its hyper-focused portfolio, disciplined capital allocation, and alignment with the Department of Defense's (DOD) highest-priority missions.

The Leasing Momentum: A Tailwind from Government Priorities

CDP's recent Q2 2025 earnings report underscores the strength of its business model. The company delivered 6.3% year-over-year FFOPS growth ($0.68/share) and exceeded guidance by 2 cents/share, marking its 30th consecutive quarter of outperformance. This consistency is no accident—it stems from a portfolio where 90% of annualized rental revenue is derived from defense and IT tenants, a sector insulated from the volatility plaguing commercial real estate.

Leasing activity in Q2 was nothing short of explosive:
- 724,000 square feet leased in Q2, with 1.4 million square feet added in the first half of 2025.
- 95.6% occupancy in the Defense/IT Portfolio, with a 96.8% leased rate.
- 90% tenant retention in Q2 and 82% for the first half, far outpacing the average office REIT.

This momentum has forced management to raise its full-year 2025 guidance across the board. FFOPS is now projected at $2.65–$2.69/share (a 3.9% increase over 2024), while same-property cash NOI growth guidance was lifted to 3.0–3.5%. The company's updated capital deployment plans—$200–$250 million for development and acquisitions—reflect a strategic shift toward quality over quantity, ensuring assets align with high-demand defense corridors.

Alignment with High-Priority Missions: A Moat of Government Dependency

CDP's portfolio is not just defense-focused—it is mission-critical. Over 90% of its assets are located in key defense hubs like Maryland (Fort Meade), Virginia (Arlington), and Texas (San Antonio), where DOD agencies, intelligence contractors, and cybersecurity firms operate. These locations are prioritized for modernization under the OBBBA, which allocates funds for cyber infrastructure, AI development, and secure data centers—sectors where CDP's tenants are already entrenched.

The company's long-term lease renewals further solidify this alignment:
- 95% of large leases expiring through 2026 are expected to renew, with 100% of U.S. Government large leases set for extension.
- Defense tenants, unlike commercial counterparts, operate under multi-year contracts and are incentivized to maintain physical presence due to security clearances and operational continuity.

This creates a self-reinforcing cycle: as defense budgets rise, CDP's tenants secure more space, driving NOI growth and enabling further reinvestment in high-conviction markets.

Financial Discipline in a High-Yield Sector

Critics of defense REITs often cite valuation risks, but CDP's balance sheet tells a different story. With a Debt/EBITDA ratio of 5.9x (down from 6.2x in 2019) and 97% fixed-rate debt, the company is insulated from interest rate volatility. Its 4.7% CAGR in FFOPS since 2019 (27% total growth) demonstrates the power of disciplined capital allocation and defensive cash flows.

Why This Is a High-Conviction Buy

The case for CDP is rooted in three pillars:
1. Structural Growth: Defense spending is entering a multi-decade upcycle, driven by geopolitical tensions and technological modernization.
2. Operational Excellence: CDP's 88% first-half leasing target completion and 90%+ tenant retention highlight a management team that executes.
3. Valuation Attractiveness: At $28.03/share (as of July 28, 2025), CDP trades at a discount to NAV, offering a compelling entry point for investors seeking exposure to a sector with 3.9%+ annualized FFOPS growth.

Positioning for the Long Term

For investors seeking uncorrelated, defensive growth, CDP represents a rare intersection of strategic alignment, operational rigor, and macro tailwinds. The updated 2025 guidance and $113 billion OBBBA tailwind suggest the best is yet to come. While the stock's 0.29% dip post-earnings may create near-term noise, the fundamentals are unshakable.

In a world where defense spending is no longer a cyclical play but a structural inevitability, COPT Defense Properties is the REIT to own. For those who act now, the inflection point is already here.