COPT Defense Props (NYSE:CDP) reported first-quarter financial results on Tuesday. The transcript from the company's first-quarter earnings call has been provided below.
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The full earnings call is available at https://edge.media-server.com/mmc/p/w73jcaax/
Summary
COPT Defense Props reported a 6.2% year-over-year increase in FFO per share for Q1 2026, outperforming guidance by $0.01.
The company increased its annual dividend by 4.9%, marking the fourth consecutive year of dividend increases.
Occupancy rates improved with a 91% tenant retention rate and significant lease renewals, including a major government campus near Lackland Air Force Base.
COPT Defense Props committed nearly $250 million to new investments, including projects at Redstone Gateway and land acquisition in Chantilly, Virginia.
Moody's upgraded the company's credit rating to Baa2, recognizing its strong performance and strategy.
Management noted the potential impact of the proposed FY2027 defense budget, which includes significant increases in defense and cyber spending.
The company is on track to meet its full-year target of 400,000 square feet for vacancy leasing.
COPT Defense Props reaffirmed its strategic focus on defense and intelligence markets, with no current plans to broaden its acquisition strategy significantly.
Full Transcript
OPERATOR
Welcome to the COPT Defense Props first quarter 2026 results conference call. As a reminder, today's call is being recorded at this time. I will turn the call over to Venkat Komoneni, COP defenses vice president of investor relations. Mr. Komoneni, please go ahead.
Venkat Komoneni (Vice President of Investor Relations)
Thank you. Good afternoon and welcome to COPT Defense Props' conference call to discuss first quarter results. With me today are Steve Bedoric, President and CEO Britt Snyder, 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 Bedoric (President and CEO)
Steve Good afternoon and thank you for joining us. We're off to a solid start in 2026 and all aspects of the business are on track to achieve our objectives for the year based on our strong results in 2025 and our outlook for 2026. In February we recommended and our board approved an increase in our annual dividend of $0.06 per share or 4.9%, marking our fourth consecutive year of dividend increases. Since 2022, our dividend has increased 16.4% and our FFO per share has increased 15.3%, demonstrating our attractive total return investment profile, all while maintaining the conservative AFFO payout ratio below 65% and continuing to have the capacity to self fund the equity required for our external investments. For the first quarter, FFO per share was $0.69, which is $0.01 above the midpoint of guidance and represents a 6.2% year over year increase. Same property cash NOI increased 5.4% year over year, driven in part by a 70 basis point increase in our average occupancy. We executed 1.2 million square feet of renewal leasing and achieved a 91% retention rate. This included the full renewal of our nearly million square foot campus, at least to the U.S. Government near Lackland Air Force Base in San Antonio. These renewals address the significant portion of our maturity risk in 2026, reducing our annual our expiring annualized rental revenue from 21% at the beginning of the year to 11%. We executed 92,000 square feet of vacancy leasing and we are right on track to meet our full year target of 400,000 square feet we executed 384,000 square feet of investment leasing which consists of two previously announced full building leases at the National Business Park. Year to date we've committed nearly $250 million of capital to new investments consisting of 620 Guardian Way which fully leased Build Suit Project at the national business park and two new investments totaling nearly $100 million. Based on these strong results, we're elevating four guidance metrics and Anthony will provide additional details in his section regarding these two new investments. First, we committed $55 million to 150,000 square foot development project at Redstone Gateway which sits inside the fence within our secure parcel on Redstone Arsenal. This investment creates Anti Terrorism Force Protected Inventory or ATFP for the United States Government in advance of expected requirements. Missions we're currently seeing demand for multiple government missions experiencing growth related missile defense and space activities which in aggregate exceeds the capacity of the building. Second, we committed roughly $43 million to the acquisition of 17 acres of land in a ground lease in the Westfield submarket in Chantilly, Virginia. The ground lease has very attractive long term economics which are supported by two highly strategic 100% leased office buildings known as Mission Ridge. These buildings are occupied by the FBI's technology division, including their cyber group and two leading defense contractors who are among our top 20 defense IT tenants. This transaction provides us with essentially perpetual control of a strategic land parcel in one of our priority submarkets in which we currently have a dominant market share and importantly the senior position in the capital structure which should lead to an opportunity to acquire the leasehold interest at attractive terms sometime in the future. Recall last quarter we acquired Stonegate One in this same Westfield submarket which was a $40 million purchase of 140,000 square foot building that is fully leased to a top 20 US defense contractor. As shown on slide 15 of our flipbook, Stonegate and Mission Ridge are located within a half mile of each other in the same rich ecosystem of defense contractors supporting the adjacent U.S. Government demand drivers. In March, we are very pleased to receive the news that Moody's upgraded our investment grade rating by one level to Baa2 with a stable outlook. Over the past five years we've issued $1.8 billion of unsecured debt in four separate offerings. We achieved stellar pricing in each of those transactions with a weight average credit spread of 120 basis points at a maturity of nearly nine years. Clearly our fixed income investors recognize the inherent strength of our strategy in our portfolio and we're pleased to receive that recognition from Moody's as well. We are one of only three office REITs with a Baa2 rating, which we believe acknowledges our proven performance over the last six years, which encompass the global COVID pandemic, significant increase in both inflation and interest rates, along with factors that led to the highest U.S. office national vacancy rate in over 40 years. Turning to the Defense budget, earlier this month President submitted the FY 2027 budget, which the administration describes as a historic paradigm shift for investment in our national security infrastructure. The top line figure for defense budget request is a record $1.5 trillion which is nearly a 45% increase year over year and it's comprised of a base budget of 1.1 trillion and anticipated reconciliation funding of 350 billion. Our business is really driven off the proposed base budget of 1.1 trillion which has been described as the new baseline by the Chairman of the House Armed Services Committee, Mike Rogers. The FY2027 proposed budget represents a nearly 30% increase over last year and nearly 50% increase over the last five years. The defense based budget request includes a $16 billion increase for intelligence or 14%, which is the largest year over year increase in over 20 years. A $4 billion increase for DoD cyber funding or 25% which is the largest increase in the history of DoD cyber funding. An additional $18 billion for Golden Dome program, which brings appropriations and requests to date for this program to roughly 40 billion. Of the $185 billion total, $21 billion was appropriated for Golden Dome program in FY2026, but only a small portion of this amount has actually been awarded to date, which bodes well for emerging demand through the end of the year. And there is still more than $160 billion yet to be appropriated. This current and anticipated funding should provide a long Runway of tenant demand that will develop and support the Golden Dome program initiative in the coming years as There is typically 12 to 18 month lag time between appropriations and lease executions. The FY2027 defense budget is a continuation of a 12 year trend of growth in defense spending and represents one of the few areas of public policy that garner strong bipartisan support the country's significant investment, the priority missions which our location support should result in a favorable demand backdrop for our portfolio over the near and medium term and provide additional opportunities for external growth. With that, I'll turn the call over to Britt.
Britt Snyder (Executive Vice President and COO)
Thank you Steve. We finished the quarter with Strong occupancy at 94.4% in the total portfolio and 95.6% in the defense IT portfolio. Year over year occupancy increased in both portfolios by 80 basis points and 30 basis points respectively. During the first quarter we executed 92,000 square feet of vacancy leasing, nearly 70% of which is tied to cyber activity. Year to date we have signed 152,000 square feet of vacancy leasing which equates to 38% of our full year target of 400,000 square feet. We have approximately 115,000 square feet of prospects in advanced negotiations which we define as over 90% likely to execute. Taken together, we have over 265,000 square feet of leases either executed or in advance negotiations, which amounts to two thirds of our full year target. In April, we leased the remaining floor at 8100 Rideout Road in Huntsville to a top 20 US defense contractor. This lease doubles the tenants footprint in the building to over 50,000 square feet and brings the property to 100% leased. 23 of the 24 operating buildings in our Redstone Gateway Park are now 100% leased, bringing this nearly 2.5 million square foot campus to 99.6% leased with only one 10,000 square foot suite available. Also in April, we signed a 12,000 square foot expansion lease at Franklin center in Columbia Gateway with a top 10 U.S. defense contractor. This lease increases the tenant's footprint in the building to 60,000 square feet and we are tracking 155,000 square feet of prospects on the remaining 55,000 square feet of availability. Turning to renewal leasing, we executed 1.2 million square feet in the quarter with tenant retention of 91%, cash rent spreads up 3.8% and gap rent spreads up 12%. Our quarterly volume was driven by the full renewal of our US Government campus near Lackland Air Force Base in San Antonio, which totaled 953,000 square feet and accounted for over 40% of our annualized rental revenue expiring in 2026. At the beginning of the year, cash rent spreads on the San Antonio renewals increased 4.2% with annual rent bumps of 3%. Once we include these four large lease renewals in San Antonio, our track record for retention on leases in excess of 50,000 square feet becomes even more impressive. For large leases that expire between mid 2024 and year end 2026, we have renewed nearly 3 million square feet with a retention rate of 97%. We have eight leases remaining totaling 950,000 square feet, all with the US government. We expect 100% retention on these leases with executions anticipated in 2027. Additionally since we started providing this disclosure nearly four years ago, we have renewed over 5 million square feet of large leases with a retention rate of over 97%. Moving on to development, we commenced two projects in the first quarter and our active pipeline now totals over 1 million square feet. That is 73% pre leased and amounts to over a half a billion dollars in capital commitment. Each of these seven projects are on schedule and on budget and five of the seven are 100% pre leased. The two developments with available space are both inventory buildings in Huntsville, one inside the fence targeting government tenancy and one outside the fence for defense contractors. We commenced construction of 410 Goss Road in the first quarter which is designed for the government inside the fence, and we are tracking demand that exceeds the availability in the building from multiple missions, all of which require secure facilities that are ATF fee compliant. We achieved substantial completion of 8500 Advanced Gateway earlier this month, which is outside the fence and is currently 20% leased to a defense contractor. We are finalizing a lease for a full floor which we expect to execute imminently. That will increase the lease rate to 40% and we're working on another deal for two full floors which would increase the lease rate to over 80%. We've already planned the next inventory building RG6300 and expect to commence development once we approach that 80% threshold. Our development leasing pipeline, which we define as opportunities we consider 50% likely to win or better within two years or less, currently stands at nearly 1 million square feet. Beyond that, we're tracking an additional 600,000 square feet of potential development opportunities. With that, I'll hand it over to Anthony.
Anthony Mifsud (Executive Vice President and CFO)
Thank you Brit. We reported first quarter FFO per share of $0.69, which was $0.01 above the midpoint of guidance and represents a 6.2% increase year over year. The quarter benefited from the earlier than budgeted commencement of several leases, strong renewal leasing, the timing of certain R and M projects, and unbudgeted real estate tax refunds from continued successful assessment appeals. These favorable items were partially offset by higher than forecasted net winter weather related expenses. Same property cash NOI increased 5.4% year over year driven by the burn off of free rent on development and acquisition leases which commenced in prior years and a 70 basis point increase in same property average occupancy. We received $2 million less of non recurring real estate tax refunds in 2026 which muted this quarter's strong growth by approximately 200 basis points. Same property occupancy ended the quarter at 94.2% which is a 60 basis point increase over the year and was driven by a 500 basis point increase in the other segment. With respect to capital transactions, on March 16th we repaid our $400 million bond which carried an interest rate of 2.25%. Recall that we pre funded the capital for this maturity roughly seven months ago when we issued $400 million of five year unsecured notes at 4.5% at a sector leading credit spread of 95 basis points. The increased interest on this $400 million of debt results in $0.09 of higher financing costs in 2026. We have no significant near term refinancing risk as our next bond maturity is not until the fall of 2028. As Steve mentioned, Moody's rating upgraded our investment grade credit rating in March to Baa2. In its press release, Moody's rating highlighted the strong operating performance of our specialized office portfolio, our solid EBITDA to interest expense ratio and income growth from assets under development. I would like to give a special recognition to our team who worked diligently to achieve this important milestone which represents the culmination of years of effort and outreach. We appreciate that Moody's rating recognizes the strength and specialized nature of our strategy platform, portfolio and tenants. With respect to guidance, we increased the midpoint for several items. We increased the midpoint of FFO per share guidance by $0.01 to $2.76 which is driven by the contribution from both the outperformance during the quarter and the Mission Ridge land acquisition, partially offset by the accounting treatment for the dilution from our exchangeable notes. We increased the midpoint of same property cash NOI growth by 50 basis points to 3% due to stronger renewal leasing and unanticipated real estate tax refunds. We increased the midpoint of tenant retention guidance by 250 basis points to 82.5%. We increased the midpoint of capital committed to new investment guidance by $40 million to $290 million due to the Mission Ridge land acquisition. And finally, we're establishing second quarter guidance for FFO per share in a range of 68 to 70 cents. With that, I'll turn the call back to Steve.
Steve Bedoric (President and CEO)
So in closing, we're off to a great start to the year with leasing volume right on track with full year plan. We delivered FFO per share growth of 6.2% year over year, marking our 23rd consecutive quarter of year over year growth. We increased the midpoint of 2026 guidance for four key metrics. We increased the dividend again in the first quarter by 4.9% and have increased it over 16% over the last four years. We committed nearly $250 million of capital to three new investments year to date. And since the beginning of 2025, the strength of our strategy has resulted in over a half billion dollars of capital commitments to new investments consisting of eight projects in five different markets. 80% of the dollar value is for 100% pre lease projects and 20% of the dollar value is create much needed inventory to meet the demand we're seeing from both the U.S. government and Defense contractors in parks where we have little to no availability. These investments combined with the expected additional opportunities from the substantial increase in the proposed defense budget, we'll support the continued track record of growth we've delivered in NOI and shareholder value with that. Operator, please open the call for questions.
OPERATOR
Thank you. Mr. Boudorek. To ask a question, please press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand back when we compile the Q and A roster. And our first question comes from Seth Berge of Citi. Your line is open.
Seth Berge (Equity Analyst at Citi)
Hey, thanks for taking my question. You know, just kind of wanted to ask you have a slide in the flipbook on just kind of the long term growth rate of like 4.5% kind of FFO per share CAGR, you know, just with the kind of increase in defense spending. Is that kind of how you think about the long term kind of earnings power or, you know, do you kind of see a path to that accelerating as the defense spending increases and the development pipeline kind of continues to mature?
Steve Bedoric (President and CEO)
Sure. The slide Seth's referring to demonstrates the 4.5% growth rate we've compounded at for the last seven or eight years. Looking forward, Seth, this year our growth is a little muted because of the $0.09 of additional interest expense Anthony referred to in his comments. So we expect to get somewhere around a point and a half percent of growth. Looking forward. We generally expect that we can return to the growth path that we've experienced recently. And hypothetically there could be upside to that from the increase in defense spending. I remind you that that bill has not even been passed and appropriated yet. So it's aspirational, but it certainly supports the continued trend we referred to over the last 12 years of increases in investment, which will be good for our business and potentially lead to a better outlook. Great. And then with the acquisition, that's kind of the second acquisition you've made in that sub market, are there any other types of kind of buildings or ground leases that you're looking at in that market? And then just kind of as, you know, the business improves, defense spending increases. Are you seeing any any changes to, you know, other players in this space, so to speak, to the first one, if you look at the aerial on slide 15, you'll see that market is, as we described it, a rich ecosystem of defense contractors supporting the local missions. And we control. Well, we own about 28% of that market now. There are certainly buildings that have great tenants with characteristics that would be compatible with us that, you know, under the right price or terms, we'd be very interested in buying. There are none currently available, but it's certainly one of the top three markets we've staked out and we keep a pretty sharp eye peeled on opportunities there. Second part of the question referred to. Seth, help me.
Seth Berge (Equity Analyst at Citi)
Any other? Oh, just kind of, yeah, just increased competition that is also kind of seeing the increase in defense spending and getting more interested in taking a look at the space.
Steve Bedoric (President and CEO)
Nothing meaningful that I could talk about. You know, there are several investment groups that are considerably smaller that like to invest in Northern Virginia in similar assets, and I think their interest will remain high as it has been in the past. But I can't say that I can identify any new entrants.
Seth Berge (Equity Analyst at Citi)
Great, thank you.
OPERATOR
Thank you. And our next question comes from Steve Sakwa of Evercore isi. Your line is open.
Steve Sakwa (Equity Analyst at Evercore ISI)
Yeah, thanks. Good afternoon, Steve, I'm just wondering if you're sort of thinking about the development pipeline and development start kind of any differently today, just given all of the positive sort of backdrop and tailwinds that you talked about, are you kind of willing in some of the sub markets to have a little bit more spec product? And is the tenancy changing given some of the, I guess, new entrants into the defense contracting business?
Steve Bedoric (President and CEO)
So we're not yet ready to start accumulating more inventory than we traditionally have, but we are certainly for the last year and increasingly so putting ourselves in a posture to move extremely quickly by pre-designing and in some cases addressing land conditions in advance of the opportunity to cut our delivery time frame. To the extent that demand ramps up, particularly in Huntsville, where we expect it to ramp up to support Golden Dome, we're prepared to move more aggressively, but we need to see that demand really materialize a little more formally than it has been.
Steve Sakwa (Equity Analyst at Evercore ISI)
Got it. And then I guess as you just think about vacancy, leasing, maybe just talk about kind of where the, I guess Focal points are. And, you know, I guess what are the prospects for, I guess driving occupancy even higher from kind of current levels?
Britt Snyder (Executive Vice President and COO)
Yeah. And this is Brett. Hey, Steve. So I think in terms of the prospects that we're standing in Northern Virginia, you know, if you look at some of the buildings and deals that we've done recently, we've been able to actually push some cash rents there too. And so I think that's a good sign for the tenants that are in that market looking for at our buildings there. And I would also say, I mean, the growth in the cyber funding in the BWI corridor, I think is an area that we're starting to see some more activity after, I would just say a little bit, I mean, a little bit quieter period. But all of a sudden we're starting to see a lot more inquiries there. And if you really look at how the funding is being allocated, it's really for the missions that we support in our buildings. And looking at, you know, the cyber mission force, which is a key part of where the dollars are flowing for cyber, I think those are two areas, Northern Virginia and PW corridor, where we're going to see heightened vacancy leasing. We've certainly seen it in Columbia Gateway as well. At the beginning of this year, we don't have any vacancy to lease in Huntsville. We're down to our last suite.
Steve Sakwa (Equity Analyst at Evercore ISI)
That's it for me. Thanks.
OPERATOR
Thank you. And our next question comes from Blaine Heck of Wells Fargo. Your line is open.
Steve Bedoric (President and CEO)
Great, thanks. The 2027 budget request at roughly 1.5 trillion is clearly a major positive. Steve, assuming that goes through, given that the increase is so substantial, do you think your tenant base will need to start leasing a bit earlier and get a get out ahead of all of those funds coming in, or do you think the normal kind of 12 to 18 month lag rule probably still holds steady? Well, remember, you got to break that 1.5 trillion down into 350 billion. That's going to be a reconciliation appropriation. And if you break that down, that's really going for things that would not be, that would not affect leases in our portfolio. So increased inventory, munitions, shipbuilding got a breakdown. I could go through it with you offline. The almost 30% increase in the base budget, that certainly should affect our tenant base and hypothetically could and would influence their need for space. But again, it's too early. It hasn't been passed yet nor appropriated. And then once it's appropriated, it's got to flow through to the contractors. So I think the 12 to 18 months is still going to hold in.
Blaine Heck (Equity Analyst at Wells Fargo)
Got it. Very helpful.
Steve Bedoric (President and CEO)
And then we noticed your potential future opportunities in the development pipeline came down by about 400,000 square feet from last quarter. Was there any specific driver behind that reduction? Any projects that might have fell out of that bucket and any color you can provide around those situations? Well, we harvested some with deals that we announced last quarter, and we made a decision on one particular mission to reduce the possibility of future demand because they look pretty committed to a MILCON solution. Okay, got it.
Blaine Heck (Equity Analyst at Wells Fargo)
Thanks very much.
OPERATOR
Thank you. And our next question comes from Tom Catherwood of btig. Your line is open. Thank you.
Tom Catherwood (Equity Analyst at BTIG)
Good afternoon, everybody. Going back to Steve's question on the leasing, Brit, in the past you've talked about dialing back on tenant improvements and free rent, and that's clearly shown up in the numbers for the last few quarters. Two questions around that. How much growth are you getting on a net effective basis now? And second, as availabilities get tighter in your portfolio, how much more do you think you can pull back on concessions?
Britt Snyder (Executive Vice President and COO)
Well, I think on the NER front, it's something that we're doing very focused on every deal we look at. And so I don't have the exact percentage about how we've grown that, but it certainly we have enhanced focus on that, I would say, over the past couple of years. And then I think it's in certain markets, certainly in Northern Virginia in particular, we've been able to pull back on the concessions more so than we have in the past. So, I mean, you know, for the folks that need mission critical space, they are willing to pony up more dollars to build out and upgrade their skiffs, whereas we're staying generally at the same level if not pulling back. And certainly in the pre rent area is where we're really trying to pull back.
Tom Catherwood (Equity Analyst at BTIG)
Do you think that's low single digits? Do you think it's high single digits on a net effective basis? I mean, just kind of general bookends. Do you have a sense of what that might look like over the past year?
Britt Snyder (Executive Vice President and COO)
Yeah, probably mid single digits.
Tom Catherwood (Equity Analyst at BTIG)
You talking about a growth rate, Tom? Yeah, that's about right. Perfect, perfect, perfect. And then Steve, kind of going back to something that you alluded to in your response to Blaine's question. But traditionally we've thought of CDP with a focus on defense intelligence markets, and then you've shied away from markets that were more focused on defense manufacturing or deployment. But with the push to modernize defense capabilities, it seems like those lines are blurring a Is that a fair comment? And if so, is that driving you to look at other markets that maybe you hadn't looked at before?
Steve Bedoric (President and CEO)
Well, if we were going to bridge into the realm of defense we've not traditionally served, it would be in conjunction with one of our tenants and a specific opportunity to support them with third party capital to support their needs. We have had conversations in the past with some of our tenants to move to other markets. We've not yet made that decision. I can't say that's accelerating now, but on an individual basis we consider it. Got it.
Tom Catherwood (Equity Analyst at BTIG)
That's it for me. Thanks, everyone.
OPERATOR
Thank you. And our next question comes from Richard Anderson of Cantor Fitzgerald. Your line is open.
Richard Anderson (Equity Analyst at Cantor Fitzgerald)
Thanks. Good afternoon. So speaking of other markets, what about Des Moines? What's the latest and greatest there as you sort of look to, to build out data shells, data center shells in that market?
Steve Bedoric (President and CEO)
It's going to be a great corn crop this year. No real update. We're at an impasse on power. We're waiting for the power situation to materialize. I think we told you in prior calls that to move forward today, the economic terms were too burdensome. We elected to step side, let others lead in that market and wait for the power company to adjust to the new elevated demand for power for the data in the market. So we continue to think that three to four years out, so for now, no corn on the copt? Is that what you're saying? No corn on the copt. Wow, that's impressive, Rich. That is impressive.
Richard Anderson (Equity Analyst at Cantor Fitzgerald)
So as far as Huntsville, you mentioned 99.6% leased, 10,000 square feet available in a single suite. That campus has the potential to be twice the size. In terms of your buildings, I assume I have that correct. When you talk about all the golden dome initiatives that are going on, what's the chance that you could have the very high class problem of, you know, just not having enough space there when it's all said and done?
Steve Bedoric (President and CEO)
Well, that's a long Runway away. So we have at least two and a half, really more like 3 million square feet of capacity. To the extent that we have that great news and we're gobbling it up, do recall that our partner, in essence, is the U.S. government. We lease land from them. It's an extraordinarily large parcel of property, the U.S. the Redstone Arsenal. And certainly believe in light of that kind of success, we could find a way to expand our enhanced use of lease and continue to support the growth of the missions on the arsenal. So that's the least of My concerns when I go to bed at night.
Richard Anderson (Equity Analyst at Cantor Fitzgerald)
And then finally, for me on the vacancy leasing, I know you're tracking to 400,000, but you're guilty of your own past success on that topic. In the past couple of years, you kind of blew away your vacancy leasing targets over the course of the year. You're sort of tracking in line now. Is that a vestige of just the more you get occupied, the harder it is to execute on vacancy leasing? So we should probably not expect the $400,000 target to go up meaningfully from here over the course of the year. Is that a fair way to think about it?
Steve Bedoric (President and CEO)
Yeah, I think generally that's fair. As our properties get as full as they are, it becomes more difficult to have inventory that matches the exact demand that's emerging. We've done a really good job of continuing to attack it. And of course, we get some space back even with our extraordinary rural retention that we can bring to market. And then the wild card is can we make some hay with our other assets where we have more vacancy? We like to set a target and beat it. So we fully plan to do our best to beat this 400,000 square foot goal. But we're comfortable. We're going to make it.
Richard Anderson (Equity Analyst at Cantor Fitzgerald)
Sorry. That's great. One quick last one for me on the defense budget yet to be appropriated, given its sheer size, is it not reasonable to assume that it will take longer for that to pass just because it's such a big commitment, or is it because it's bipartisan? You might actually get to a final budget pretty soon after October 1st.
Steve Bedoric (President and CEO)
Well, that's a tough question to handicap. We seem to find ourselves in new circumstances, continually trying to get things appropriated and funded. So I would think it's going to be difficult, not because it doesn't have bipartisan support, but because we have, you know, let's face it, some adversarial objectives in the overall direction of the country. And it seems like anything is a potential for a bargaining chip, as we're seeing right now with Department of Homeland Security unfunded in a point in time where we absolutely need the funding for so many reasons anyway, I won't editorialize. Anything's possible. Okay, great.
Richard Anderson (Equity Analyst at Cantor Fitzgerald)
Thanks very much.
OPERATOR
Thank you. And our next question comes from Dylan Brzezinski of Green Street. Your line is open.
Dylan Brzezinski (Equity Analyst at Green Street)
Hi, guys. Most of my questions have been asked, but I guess since you guys called out sort of activity picking up, or maybe not picking up, but potential for vacancy leasing to accelerate in VW corridor and Northern Virginia. I'm just curious.
Britt Snyder (Executive Vice President and COO)
It looks like navy support still remains sort of the most underleased within the portfolio, albeit it's still at a high level. So just sort of curious what, you know, vacancy leasing prospects are there for this part of the portfolio. Yeah, I mean, it has a lot to do with the cyber prospects, I think are we're seeing them pop up again after, like I said, a little bit of a quiet period. You know, smaller cyber related companies. Really think he's looking for Navy Support. Oh, Navy support. I'm sorry. Yeah, Navy Support. Actually, it's a much smaller portfolio for us, but you know, Navy Support, we are actually seeing some improvements down in especially the Pax river area. There's a lot of autonomous vehicle and drone work happening down there. So as you might imagine, there's been some pickup there. And then certainly with our buildings next to the D.C. navy Yard at Maritime Plaza, those have also seen quite a bit of activity and pretty significant increases in occupancy over the past year. There's a lot of activity going on in the D.C. navy Yard and the contractor support there is critical. So yeah, I would say Pax river and the D.C. maritime Plaza are two areas where we're seeing real prospect activity increase. Great. And then I know this question gets asked every so often, and I know it's tough because acquisitions are tough to pencil, but sort of just curious what you're seeing in terms of the acquisition pipeline today. I mean, any noticeable pickup at all or is it still sort of one off opportunity that you guys are looking at? So we're currently not looking at anything and it continues to be one off. Remember, we've got very, very focused investment strategy. So in the broader market, I'm sure there's more activity than we're paying attention to, but within the small set of assets we would invest in, there's nothing currently that we're tracking. Great. Thanks guys. Have a good one.
OPERATOR
Thank you. And as a reminder, if you have a question, please press star 11. And our next question comes from Anthony Pallone of JP Morgan. Your line is open.
Anthony Pallone (Equity Analyst at JP Morgan)
Yeah, thanks. Good afternoon. I know you touched on this a little bit, but that million square foot of development leasing pipeline for what's basically about 180,000 square feet that you have, how much of that pipeline is for that specific space versus requirements that you might consider for incremental starts and to the extent like you don't accommodate them, where do these folks tend to go?
Britt Snyder (Executive Vice President and COO)
So many of the things in that development pipeline anticipate new projects. I'd say 25 to 30% are for things that we're actually building currently. Some is overflow for the next set of buildings that would follow what comes behind it. It's more where's the demand, where's the market? And we're in the business to make sure we have inventory when it's ready to move forward.
Anthony Pallone (Equity Analyst at JP Morgan)
Okay, and then just a second question on the regional office portfolio. I know it's small and there's not much expiring this year, but as we look out the next couple years, the expiration starts to get heavier. Any updated thoughts on how to mitigate that or the risk of that getting in the way of what's otherwise been just a lot of growth at the core.
Britt Snyder (Executive Vice President and COO)
I think the team's already starting to address some of those expirations that are in the next several years with the tenants and they're working on transactions to try and pull those forward and get those done early. So in order to mitigate that risk. So I think what we're trying to do is to make sure that our headline remains where it belongs, which is in our defense IT portfolio and not on any blips within the other portfolio.
Anthony Pallone (Equity Analyst at JP Morgan)
Okay, thank you.
OPERATOR
Thank you. And our next question comes from Cef Saqwa of Evercore isi. Your line is open.
Steve Sakwa (Equity Analyst at Evercore ISI)
Yes, just one quick follow up. Steve, I know you've talked about selling some of those non core office assets at sort of the right time. And I realize, you know, office, traditional office has been a little bit of a dirty word, but we have seen some, I think successful new developments take place in Washington D.C. what are I think considered exceptionally high rents. And I'm just curious, does that make 2100 L Street kind of a more viable disposition candidate today? I realize Baltimore might be a different story, but where does the Washington D.C. asset fall?
Steve Bedoric (President and CEO)
Well, I think those benchmark rents certainly support an increased expectation of value for the asset. Those are really been driven by a relatively small component of demand that's very well funded. Tenants that want true trophy space in a market that doesn't have any available. I don't think the investment cash flow is quite picked up enough where it would make sense to market that. But I don't think we're that far away. Certainly I think that opportunity comes quicker than we'll see say in Baltimore at Dyson's Corner.
Steve Sakwa (Equity Analyst at Evercore ISI)
Great. That's it for me. Thanks.
OPERATOR
Thank you. I will now turn the call back to Mr. Boudorek for closing remarks.
Steve Bedoric (President and CEO)
So thank you for joining our call today. We are in the office, so please coordinate with Venkat if you've got a follow up question you'd like to discuss. Thanks again.
OPERATOR
Thank you for your participation today in the COPT Defense Props first quarter 2026 results conference call. This concludes the presentation and you may disconnect. Good day.
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