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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K 
(Mark one)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto

Commission file number 1-14023
COPT_MainHorizontal_FullColor_RGB jpg.jpg
COPT DEFENSE PROPERTIES
(Exact name of registrant as specified in its charter)
Maryland 23-2947217
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6711 Columbia Gateway Drive, Suite 300, Columbia, MD
21046
(Address of principal executive offices)(Zip Code)

 Registrant’s telephone number, including area code:  (443) 285-5400

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares of beneficial interest, $0.01 par valueCDPNew York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     
Yes   ☐ No
    
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
☐ Yes   ☒ No
    
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes   ☐ No
    
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes   ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company







If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐
        
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
        
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes   No

The aggregate market value of the voting and non-voting shares of common stock held by non-affiliates of COPT Defense Properties was approximately $2.3 billion, as calculated using the closing price of such shares on the New York Stock Exchange as of and the number of outstanding shares as of June 30, 2023. For purposes of calculating this amount only, affiliates are defined as Trustees, executive owners and beneficial owners of more than 10% of COPT Defense Properties’ outstanding common shares, $0.01 par value. At February 7, 2024, 112,548,467 of COPT Defense Properties’ common shares were outstanding.

Portions of the proxy statement of COPT Defense Properties for its 2024 Annual Meeting of Shareholders to be filed within 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference into Part III of this Form 10-K.




TABLE OF CONTENTS
Form 10-K

 
 PAGE
 

3



Forward-Looking Statements


This Form 10-K contains “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995, that are based on our current expectations, estimates and projections about future events and financial trends affecting the financial condition and operations of our business. Additionally, documents we subsequently file with the SEC and incorporated by reference will contain forward-looking statements.

Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements. We caution readers that forward-looking statements reflect our opinion only as of the date on which they were made. You should not place undue reliance on forward-looking statements. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

>general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability, property operating and construction costs, and property values;
>adverse changes in the real estate markets, including, among other things, increased competition with other companies;
>our ability to borrow on favorable terms;
>risks of property acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated;
>risks of investing through joint venture structures, including risks that our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives;
>changes in our plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of significant impairment losses;
>potential impact of a prolonged government shutdowns or budgetary reductions or impasses, such as a reduction of rental revenues, non-renewal of leases and/or reduced or delayed demand for additional space by existing or new tenants;
>potential additional costs, such as capital improvements, fees and penalties, associated with environmental laws or regulations;
>adverse changes resulting from other government actions and initiatives, such as changes in taxation, zoning laws or other regulations.
>our ability to satisfy and operate effectively under federal income tax rules relating to real estate investment trusts and partnerships;
>the dilutive effects of issuing additional common shares; and
>security breaches relating to cyber attacks, cyber intrusions or other factors, and other significant disruptions of our information technology networks and related systems.

We undertake no obligation to publicly update or supplement forward-looking statements, whether as a result of new information, future events or otherwise. For further information on these and other factors that could affect us and the statements contained herein, you should refer to the section below entitled “Item 1A. Risk Factors.”

4


PART I
Item 1. Business

General
COPT Defense Properties (“COPT Defense”) and subsidiaries (collectively, the “Company”, “we” or “us”) is a fully-integrated and self-managed real estate investment trust (“REIT”) focused on owning, operating and developing properties in locations proximate to, or sometimes containing, key U.S. Government (“USG”) defense installations and missions (which we refer to herein as our Defense/IT Portfolio). Our tenants include the USG and their defense contractors, who are primarily engaged in priority national security activities, and who generally require mission-critical and high security property enhancements. In September 2023, we changed our name from Corporate Office Properties Trust to COPT Defense Properties to better describe our investment strategy’s focus on locations serving our country’s priority defense activities. As of December 31, 2023, our Defense/IT Portfolio included:

>190 operating properties totaling 21.7 million square feet comprised of 16.0 million square feet in 160 office properties and 5.7 million square feet in 30 single-tenant data center shells. We owned 24 of these data center shells through unconsolidated real estate joint ventures;
>five properties under development (two office properties and three data center shells) that will total approximately 817,000 square feet upon completion; and
>approximately 660 acres of land controlled that we believe could be developed into approximately 7.9 million square feet.

We also owned eight other operating properties totaling 2.1 million square feet and approximately 50 acres of other developable land in the Greater Washington, DC/Baltimore region as of December 31, 2023.
 
We conduct almost all of our operations and own almost all of our assets through our operating partnership, COPT Defense Properties, L.P. (“CDPLP”) and subsidiaries (collectively, the “Operating Partnership”), of which COPT Defense is the sole general partner. CDPLP owns real estate directly and through subsidiary partnerships and limited liability companies (“LLCs”).  In addition to owning real estate, CDPLP also owns subsidiaries that provide real estate services such as property management, development and construction services primarily for our properties but also for third parties. Some of these services are performed by a taxable REIT subsidiary (“TRS”). In September 2023, we changed CDPLP’s name from Corporate Office Properties, L.P. to COPT Defense Properties, L.P.

Equity interests in CDPLP are in the form of common and preferred units. As of December 31, 2023, COPT Defense owned 97.8% of the outstanding CDPLP common units (“common units”) and there were no preferred units outstanding. Common units not owned by COPT Defense carry certain redemption rights. The number of common units owned by COPT Defense is equivalent to the number of outstanding common shares of beneficial interest (“common shares”) of COPT Defense, and the entitlement of common units to quarterly distributions and payments in liquidation is substantially the same as that of COPT Defense common shareholders.

In September 2023, the ticker symbol under which our common shares are publicly traded on the New York Stock Exchange (“NYSE”) changed from “OFC” to “CDP”.

We believe that COPT Defense is organized and has operated in a manner that satisfies the requirements for taxation as a REIT under the Internal Revenue Code of 1986, as amended, and we intend to continue to operate COPT Defense in such a manner. If COPT Defense continues to qualify for taxation as a REIT, it generally will not be subject to federal income tax on its taxable income (other than that of its TRS entities) that is distributed to its shareholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its annual taxable income to its shareholders.

Our executive offices are located at 6711 Columbia Gateway Drive, Suite 300, Columbia, Maryland 21046 and our telephone number is (443) 285-5400.

Our Internet address is www.copt.com. We make available on our Internet website free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably possible after we file such material with the Securities and Exchange Commission (the “SEC”). In addition, we have made available on our Internet website under the heading “Corporate Governance” the charters for our Board of Trustees’ Audit, Nominating and Corporate Governance, Compensation and Investment Committees, as well as our Corporate Governance Guidelines, Code of Business Conduct and Ethics and Code of Ethics for Financial Officers. We intend to make available on our website any future amendments or waivers to our Code of Business Conduct and Ethics and Code of Ethics for Financial Officers within four business days after any such amendments or waivers. The information on our Internet site is not part of this report.

5


The SEC maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. This Internet website can be accessed at www.sec.gov.

Business and Growth Strategies

Our primary goal is to deliver attractive total returns to our shareholders. This section sets forth key components of our business and growth strategies that we have in place to support this goal.

Defense/IT Strategy: We focus on owning, operating and developing Defense/IT Portfolio properties, which as of December 31, 2023 accounted for 190 of our 198 properties, representing 89.8% of our annualized rental revenue, and we control developable land to accommodate future growth in this portfolio. The properties in this portfolio are adjacent to, or contain, their demand drivers, whose activities pertain more to knowledge and technology (i.e., research and development and other highly-technical defense and security areas) than to force structure (i.e., troops) and weapon system mass production. Demand drivers for our Defense/IT Portfolio include:

>mission-critical facilities and missions of USG organizations and agencies supporting defense and national security activities, such as intelligence, surveillance, reconnaissance, missile defense, cybersecurity, space exploration, research and development and advanced weapons systems testing and engineering, in Maryland, Northern Virginia, Washington, D.C., Huntsville, Alabama and San Antonio Texas; and
>data center shells in Northern Virginia, one of the largest data center markets in the world due in large part to its central location along the United States’ Eastern Seaboard, robust fiber connectivity infrastructure and access to reliable and affordable utilities required to support operations.

Due to this business strategy, our Defense/IT Portfolio has certain distinguishing characteristics relative to typical commercial office properties, including:

>proximity to demand drivers, which is generally preferred, and often required, for tenants to execute their missions;
>demand that is driven by, and correlated with, national security spending for activities occurring in the properties’ respective demand drivers, which we believe has made them less susceptible to the effects of conditions in the overall economy than typical office properties;
>higher likelihood of significant tenant investments in properties for unique needs such as Sensitive Compartmented Information Facility (“SCIF”), critical power supply and operational redundancy, which we believe may make tenants unable, or less likely, to relocate;
>ability of many of the properties leased to the USG to meet Anti-Terrorism Force Protection (“ATFP”) requirements; and
>higher preponderance of tenants who require their employees to work in the properties for security purposes, which we believe makes them less susceptible to remote work trends.

Our Defense/IT Portfolio includes data center shells, which are properties leased to tenants to be operated as data centers in which we provide tenants with only the core building and basic power, while the tenants fund the costs for the critical power, fiber connectivity and data center infrastructure.  We enter into long-term leases for these properties prior to commencing development, with triple-net structures, rent escalators and multiple extension options. Additionally, our tenants’ significant funding of the costs to fully power and equip these properties greatly enhances the value of these properties and creates high barriers to exit for such tenants.

We believe that our cross-discipline teams collectively complement our Defense/IT strategy due to:

>well-established relationships with the USG and its contractors, many of whom lease space in more than one of our properties, and in multiple geographic locations in some cases;
>extensive experience in developing:
>high quality office properties;
>secured, specialized space, with the ability to satisfy the USG’s unique needs (including SCIF, ATFP and access control requirements); and
>data center shells to customer specifications within very condensed timeframes to accommodate time-sensitive tenant demand; and
>depth of knowledge, specialized skills and credentialed personnel in operating highly-specialized properties with complex space and security-oriented needs.

Other Office Properties: In addition to our Defense/IT Portfolio, we also owned eight other office properties as of December 31, 2023, representing 10.2% of our annualized rental revenue. Included among these properties is a portfolio of properties located in the Greater Washington, DC/Baltimore region, which we historically referred to as Regional Office; in 2023, we concluded that these properties were no longer strategic holdings since they do not align with our Defense/IT strategy. We intend to sell our other office properties when we believe that market conditions and opportunities position us to be able to optimize our return on investment.
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Asset Management Strategy: We aggressively manage our portfolio to maximize the value and operating performance of each property through: (1) proactive property management and leasing; (2) maximizing tenant retention in order to minimize space downtime and capital requirements associated with space rollover; (3) increasing rental rates where market conditions permit; (4) leasing vacant space; (5) achievement of operating efficiencies by increasing economies of scale and, where possible, aggregating vendor contracts to achieve volume pricing discounts; and (6) redevelopment when we believe property conditions and market demand warrant. We also continuously evaluate our portfolio and consider dispositions when properties no longer meet our strategic objectives, or when capital markets and circumstances pertaining to such holdings otherwise warrant, in order to maximize our return on invested capital or support our capital strategy.

We aim to sustainably develop and operate our portfolio to create healthier work environments and reduce consumption of resources by: (1) developing new buildings designed to use resources with a high level of efficiency and low impact on human health and the environment during their life cycles through our participation in the U.S. Green Building Council’s Leadership in Energy and Environmental Design (“LEED”) program, targeting new office properties to meet LEED certification standards or, when not possible, striving to otherwise incorporate LEED criteria into property designs; (2) adopting select LEED for Building Operations and Maintenance (“LEED O+M: Existing Buildings”) guidelines for much of our portfolio, including cleaning, recycling, energy reduction and landscaping practices; (3) investing in building automation systems and high-efficiency heating and air conditioning equipment and implementing resource conservation practices to reduce energy consumption; (4) investing in water-saving features; and (5) participating in the annual Global Real Estate Sustainability Benchmark (“GRESB”) survey, which is widely recognized for measuring the environmental, social and governance (“ESG”) performance of real estate companies and funds. We earned an overall score of “Green Star” on the GRESB survey in each of the last nine years, representing the highest quadrant of achievement on the survey.

Property Development and Acquisition Strategy: We expand our portfolio of operating properties primarily through property development in support of our Defense/IT strategy, and we have significant land holdings that we believe can further support that growth while serving as a barrier against competitive supply. We pursue development activities as market conditions and leasing opportunities support favorable risk-adjusted returns on investment. While we typically prefer properties to be significantly leased prior to commencing development, we develop properties ahead of completed leasing in certain locations where we believe that consistent demand and high occupancy rates warrant building of inventory to accommodate future anticipated USG and contractor demand. To a lesser extent, we may also pursue growth through acquisitions, seeking to execute such transactions at attractive yields and below replacement cost.

Capital Strategy: Our capital strategy is aimed at maintaining continuous access to capital irrespective of market conditions in the most cost-effective manner by:

>maintaining an investment grade rating to enable us to use debt comprised primarily of unsecured, fixed-rate debt (including the effect of interest rate swaps) from public markets and banks;
>using secured nonrecourse debt from institutional lenders and banks;
>managing our debt by monitoring, among other things: (1) the relationship of certain measures of earnings to our debt level and to certain capital costs; (2) the timing of debt maturities to ensure that maturities in any one year do not exceed levels that we believe we can refinance; (3) our exposure to changes in interest rates; and (4) our total and secured debt levels relative to our overall capital structure;
>monitoring capacity available under revolving credit facilities and equity offering programs to provide liquidity to fund investment activities and other capital needs;
>raising equity through issuances of common shares and, to a lesser extent, issuances of common equity in CDPLP and preferred equity;
>recycling proceeds from sales of interests in properties, including through joint venture structures for certain investments, to fund property development and other investment activities and/or reduce overall debt;
>paying dividends at a level that is at least sufficient for us to maintain our REIT status; and
>continuously evaluating the ability of our capital resources to accommodate our plans for growth.

Industry Segments
As of December 31, 2023, our operations included the following reportable segments: Defense/IT Portfolio and Other. Our Defense/IT Portfolio segment included the following sub-segments:

>Fort George G. Meade and the Baltimore/Washington Corridor (“Fort Meade/BW Corridor”);
>Northern Virginia Defense/IT Locations (“NoVA Defense/IT”);
>Lackland Air Force Base in San Antonio, Texas;
>locations serving the U.S. Navy (“Navy Support”). Properties in this sub-segment as of December 31, 2023 were proximate to the Washington Navy Yard in Washington, D.C., the Naval Air Station Patuxent River in Maryland and the Naval Surface Warfare Center Dahlgren Division in Virginia;
>Redstone Arsenal in Huntsville, Alabama; and
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>data center shells in Northern Virginia.

As of December 31, 2023: our Defense/IT Portfolio segment included 190 of our operating properties, representing 91.0% of our square feet in operations, and all of our properties under development were for this segment; and our Other segment included our remaining eight operating properties, representing 9.0% of our square feet in operations.

For information relating to our reportable segments, refer to Note 13 to our consolidated financial statements, which are included in a separate section at the end of this Annual Report on Form 10-K beginning on page F-1.

Human Capital

Our Workforce: As of December 31, 2023, our workforce was comprised of 410 employees based in Maryland, where we are headquartered, Virginia, Washington, D.C., Alabama and Texas. Our workforce has varying expertise, and includes:

>Building Technicians (172 employees), of which approximately 32% were of minority race. Building technicians are skilled trades professionals who perform mechanical and operating systems maintenance and otherwise service our properties; and
>Office Staff, outlined below, of which approximately 53% were female and approximately 32% of minority race:
>Operations Management (73 employees): Property managers and support staff who service our tenant customer needs.
>Asset Management and Leasing (10 employees): Customer-facing leaders who drive the financial performance of our assets.
>Development and Construction (30 employees): Project managers and support staff who drive our development pipeline and interior design.
>Finance and Accounting (68 employees): Professionals who manage our financial activities.
>Company Support Functions (44 employees): Includes Human Resources, Investor Relations, Investments, Legal, Marketing, Information Technology, Facility Security and Corporate Administrative Support.
>Senior Leadership (13 employees): Our business line and Company leaders, including our Named Executive Officers, who interface with our Board of Trustees and shareholders and manage our business strategy, functional activities, risk and overall success.

In support of our Defense/IT Portfolio strategy, over one-third of our employees carry government credentials.

We operate in markets in which we compete for human capital. We rely on our employees to drive our success and we support them with a variety of programs to enhance their workplace engagement and job fulfillment.

Culture and Workforce Engagement: We develop and reinforce our culture by emphasizing our core values, illustrated by the actiiVe acronym that stands for: Accountability, Commitment, Teamwork, Integrity, Innovation, Value Creation and Excellence. These values are intended to serve as a compass to our workforce to inform behavior and fuel our success.

We believe in equal opportunity, engagement and ethics. All employees must adhere to our Code of Business Conduct. We typically survey our workforce annually to measure employee engagement and identify opportunities for further improvement, which we believe has helped us to achieve annual “best workplace” honors for over a decade.

Compensation Program: Our compensation philosophy is driven by accountability, which results in a pay-for-performance structure. Our compensation program includes: base salary; an annual cash bonus program based on the achievement of individual, business unit and company objectives; health and welfare benefits; a retirement savings plan with a company match; financially-supported learning programs; and employee recognition programs. We also grant common equity to all new full-time employees and provide our senior management team and high performers with the ability to earn additional grants to align their interests with those of our shareholders and to incent retention.

Wellbeing and Safety: We view wellbeing as including five dimensions: Physical, Emotional, Career, Financial and Community. We design programs to support each of these dimensions. We directly incent wellbeing behaviors through a points-driven program each year. Employees who achieve the points threshold receive reductions in medical premiums or contributions to their health savings accounts. We believe this program enhances employee wellbeing and reduces medical costs.

Safety is a key part of our employee wellbeing, largely weighted in the Physical dimension. Recognizing this, we conduct job-tailored safety training on an ongoing basis. We also monitor our workers’ compensation claims to measure the effectiveness of our safety program.

Talent Development: We aim to attract, retain and develop our top talent throughout the employment cycle in order to enhance our talent pool. During 2023, our workforce size did not change significantly, with 72 new hires and 57 departures (an attrition rate of approximately 13.9%).

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We offer robust learning programs to all employees, including educational assistance for college-level and vocational degree programs, and cover all expenses for licenses and certifications, management and leadership courses, key skills training and industry and professional conferences. Further, we offer internship and mentorship programs to facilitate teaching and learning from others.

Community Engagement: We encourage employee engagement with our communities to facilitate personal growth and connection and to enhance our citizenship within our communities. We provide a platform for employees to engage with communities by contributing time, effort, money and expertise, which includes providing employees eight hours of paid time per year to engage in volunteer activities to serve our community directly in a company-organized team or individual format. Our employees select community non-profits for Corporate giving grants and for volunteer time contributions. We empower our employees to become involved and fuel our success in community partnerships.

Competition
The commercial real estate market is highly competitive. Numerous commercial landlords compete with us for tenants. Some of the properties competing with ours may be newer or in more desirable locations, or the competing properties’ owners may be willing to accept lower rents. We also compete with our own tenants, many of whom have the right to sublease their space. The competitive environment for leasing is affected considerably by a number of factors including, among other things, changes in economic conditions and supply of and demand for space. These factors may make it difficult for us to lease existing vacant space and space associated with future lease expirations at rental rates that are sufficient to produce acceptable operating cash flows.
We occasionally compete with other entities, including other publicly-traded commercial REITs, for acquisitions of land and/or commercial properties. Competitors for such acquisitions may have substantially greater financial resources than ours. In addition, our competitors may be willing to accept lower returns on their investments or may be willing to incur higher leverage.
We also compete with other entities, including other publicly-traded commercial office REITs, for capital. This competition could adversely affect our ability to raise capital that we may need to fulfill our capital strategy.

In addition, we compete with other entities for talent. If there is an increase in the costs for us to retain employees, or if we otherwise fail to attract and retain employees, our business and operating results could be adversely affected.

Item 1A. Risk Factors

Set forth below are risks and uncertainties relating to our business and the ownership of our securities. These risks and uncertainties may lead to outcomes that could adversely affect our financial position, results of operations, cash flows or ability to make expected distributions to our shareholders. You should carefully consider each of these risks and uncertainties, along with all of the information in this Annual Report on Form 10-K and its Exhibits, including our consolidated financial statements and notes thereto for the year ended December 31, 2023 included in a separate section at the end of this report beginning on page F-1.

Risks Associated with the Real Estate Industry and Our Properties

Our performance and asset value are subject to risks associated with our properties and with the real estate industry. Real estate investments are subject to various risks and fluctuations in value and demand, many of which are beyond our control.  Our performance and the value of our real estate assets may decline due to conditions in the general economy and the real estate industry, which could adversely affect our financial position, results of operations, cash flows or ability to make expected distributions to our shareholders. These conditions include, but are not limited to:

>downturns in national, regional and local economic environments, including increases in the unemployment rate and inflation or deflation;
>competition from other properties;
>trends in office real estate that may adversely affect future demand, including remote work and flexible work arrangements, open workspaces and coworking spaces;
>deteriorating local real estate market conditions, such as oversupply, reduction in demand and decreasing rental rates;
>declining real estate valuations;
>adverse developments concerning our tenants, which could affect our ability to collect rents and execute lease renewals;
>increasing operating costs, including real estate taxes, utilities, insurance and other expenses, some of which we may not be able to pass through to tenants;
>increasing vacancies and the need to periodically repair, renovate and re-lease space;
>increasing interest rates and unavailability of financing on acceptable terms or at all;
>unavailability of financing for potential purchasers of our properties;
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>potential impact of prolonged government shutdowns or budgetary reductions or impasses, such as a reduction of rental revenues, non-renewal of leases and/or reduced or delayed demand for additional space by existing or new tenants;
>potential additional costs, such as capital improvements, fees and penalties, associated with environmental laws and regulations;
>adverse changes from other government actions and initiatives, such as changes in taxation, zoning laws or other regulations;
>potential inability to secure adequate insurance;
>adverse consequences resulting from civil disturbances, natural disasters, terrorist acts or acts of war; and
>adverse consequences resulting from climate-related risks.

Our business may be affected by adverse economic conditions. Our business may be affected by adverse economic conditions in the United States, real estate industry as a whole or local markets in which our properties are located, including the impact of high unemployment, inflation or deflation, constrained credit and shortages of goods or services. Such conditions could potentially be triggered by geopolitical or other world events. Adverse economic conditions could increase the likelihood of tenants encountering financial difficulties, including bankruptcy, insolvency or general downturn of business, and as a result could increase the likelihood of tenants defaulting on their lease obligations to us. Such conditions could also decrease our likelihood of successfully renewing tenants at favorable terms or at all or leasing vacant space in existing properties or newly-developed properties. In addition, such conditions could disrupt the operations or profitability of our business or increase the level of risk that we may not be able to obtain new financing for development activities, refinancing of existing debt, acquisitions or other capital requirements at reasonable terms, if at all.

We may suffer adverse consequences as a result of our reliance on rental revenues for our income. We earn revenue from leasing our properties. Certain of our operating costs do not necessarily fluctuate in relation to changes in our occupancy and rental revenue. As a result, these costs will not necessarily decline and may increase even if our revenues decline.

For new tenants or upon expiration of existing leases, we generally must make improvements and pay other leasing costs for which we may not receive increased rents. We also make building-related capital improvements for which tenants may not reimburse us.

If our properties do not generate revenue sufficient to meet our operating expenses and capital costs, we may need to borrow additional amounts to cover these costs. In such circumstances, we would likely have lower profits or possibly incur losses. We may also find in such circumstances that we are unable to borrow to fund such costs, in which case our operations could be adversely affected.

In addition, the competitive environment for leasing is affected considerably by a number of factors including, among other things, changes due to economic factors such as supply and demand. These factors may make it difficult for us to lease vacant space in existing properties or newly-developed properties and space associated with future lease expirations at rental rates that are sufficient to meet our short-term capital needs.

We rely on the ability of our tenants to pay rent and would be harmed by their inability to do so. Our performance depends on the ability of our tenants to fulfill their lease obligations by paying their rental payments in a timely manner. As a result, we would be harmed if one or more of our major tenants, or a number of our smaller tenants, were to experience financial difficulties, including bankruptcy, insolvency or general downturn of business.

We may be adversely affected by developments concerning our major tenants, including the USG and its contractors, or the defense installations or missions from which demand for our Defense/IT Portfolio’s properties is driven. As of December 31, 2023, our 10 largest tenants accounted for 63.5% of our total annualized rental revenue, the three largest of these tenants accounted for 49.6%, and the USG, our largest tenant, accounted for 35.9%. For additional information regarding our tenant concentrations, refer to the section entitled “Concentration of Operations” within the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We calculate annualized rental revenue by multiplying by 12 the sum of monthly contractual base rents (ignoring free rent then in effect and rent associated with tenant funded landlord assets) and estimated monthly expense reimbursements under active leases in our portfolio as of the date defined; with regard to properties owned through unconsolidated real estate joint ventures, we include the portion of annualized rental revenue allocable to our ownership interests.

Most of our leases with the USG provide for one-year terms, with a series of one-year renewal options. The USG may terminate its leases if, among other reasons, the United States Congress fails to provide funding. We would be harmed if any of our largest tenants fail to make rental payments to us over an extended period of time, including as a result of a prolonged government shutdown, or if the USG elects to terminate some or all of its leases and the space cannot be re-leased on satisfactory terms.

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As of December 31, 2023, 89.8% of our annualized rental revenue was from our Defense/IT Portfolio. A reduction in government spending targeting the activities of the USG or its contractors (such as knowledge- and technology-based defense and security activities) in this portfolio’s demand drivers could adversely affect our tenants’ ability to fulfill lease obligations, renew leases or enter into new leases and limit our future growth from properties whose demand rely on such activities. In addition, uncertainty regarding the potential for future government spending for such activities could also decrease or delay leasing activity from existing or new tenants engaged in these activities. Moreover, we may face additional economic harm in the event of long-term displacement, or elimination, of government spending for defense installations or missions from which demand for our Defense/IT Portfolio’s properties is driven.

Our future ability to develop data center shells will be limited without additional land to do so. Since 2013, we have developed 30 data center shells in Northern Virginia totaling 5.7 million square feet for a Fortune 100 Company tenant, and we had an additional three under development totaling 643,000 square feet for that tenant as of December 31, 2023. These properties have also garnered the interest of outside investors, enabling us to raise capital by selling ownership interests through joint venture structures at favorable profit margins, and to apply the proceeds towards other development opportunities. As of December 31, 2023, we did not have additional land under control in Northern Virginia for the future development of data center shells. If we are unable to locate additional data center shell development opportunities, we may no longer be able to develop data center shells.

We may suffer economic harm in the event of a decline in the real estate market or general economic conditions in the Mid-Atlantic region, particularly in the Greater Washington, DC/Baltimore region, or in particular business parks. Most of our properties are located in the Mid-Atlantic region of the United States, particularly in the Greater Washington, DC/Baltimore region. Many of our properties are also concentrated in business parks in which we own most of the properties. Consequently, our portfolio of properties is not broadly distributed geographically. As a result, we could be harmed by a decline in the real estate market or general economic conditions in the Mid-Atlantic region, the Greater Washington, DC/Baltimore region or markets, submarkets or business parks in which our properties are located.

We would suffer economic harm if we were unable to renew our leases on favorable terms. When leases expire, our tenants may not renew or may renew on terms less favorable to us than the terms of their original leases. If a tenant vacates a property, we can expect to experience a vacancy for some period of time, as well as incur higher leasing costs than we would likely incur if a tenant renews. As a result, we may be harmed if we experience a high volume of tenant departures at the end of their lease terms.

We may be adversely affected by trends in the office real estate industry. Certain businesses have implemented remote work and flexible work arrangements and/or utilized open workspaces and coworking spaces. These practices could enable businesses to reduce their office space requirements. A continuation or acceleration of these trends could erode demand for commercial office space and, in turn, place downward pressure on occupancy, rental rates and property valuations.

We may encounter a significant decline in the value of our real estate. The value of our real estate could be adversely affected by general economic and market conditions connected to a specific property or property type, a market or submarket, a broader economic region or the office real estate industry. Examples of such conditions include a broader economic recession, declining demand for space and decreases in market rental rates and/or market values of real estate assets. If our real estate assets significantly decline in value, it could result in our recognition of impairment losses. Moreover, a decline in the value of our real estate could adversely affect the amount of borrowings available to us and our ability, or willingness, to execute plans to sell properties.

We may not be able to compete successfully with other entities that operate in our industry. The commercial real estate market is highly competitive. Numerous commercial properties compete with our properties for tenants; some of the properties competing with ours may be newer or in more desirable locations, or the competing properties’ owners may be willing to accept lower rates than are acceptable to us. In addition, we compete for the acquisition of land and commercial properties with many entities, including other publicly-traded REITs and large private equity backed entities and funds; competitors for such acquisitions may have substantially greater financial resources than ours, or may be willing to accept lower returns on their investments or incur higher leverage.

Real estate investments are illiquid, and we may not be able to dispose of properties on a timely basis when we determine it is appropriate to do so. Real estate investments can be difficult to sell and convert to cash quickly, especially if market conditions, including real estate lending conditions, are not favorable. Such illiquidity could limit our ability to fund capital needs or quickly change our portfolio of properties in response to changes in economic or other conditions. Moreover, under certain circumstances, the Internal Revenue Code imposes penalties on a REIT that sells property held for less than two years and limits the number of properties it can sell in a given year.

We may be unable to successfully execute our plans to develop additional properties. Although the majority of our investments are in operating properties, we also develop and redevelop properties, including some that are not fully pre-leased. When we develop or redevelop properties, we assume a number of risks, including, but not limited to, the risk of: actual costs
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exceeding our budgets; conditions or events occurring that delay or preclude our ability to complete the project as originally planned or at all; projected leasing not occurring as expected or at all, or occurring at lower than expected rental rates; and not being able to obtain financing to fund property development activities.

We may suffer adverse effects from acquisitions of commercial real estate properties. We may pursue acquisitions of existing commercial real estate properties as part of our property development and acquisition strategy. Acquisitions of commercial properties entail risks, such as the risk that we may not be in a position, or have the opportunity in the future, to make suitable property acquisitions on advantageous terms and/or that such acquisitions fail to perform as expected.

We may pursue selective acquisitions of properties in regions where we have not previously owned properties. These acquisitions may entail risks in addition to those we face with acquisitions in more familiar regions, such as our not sufficiently anticipating conditions or trends in such regions and therefore not being able to operate the acquired properties profitably.

In addition, we may acquire properties that are subject to liabilities in situations where we have no recourse, or only limited recourse, against the prior owners or other third parties with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it.

We may be subject to possible environmental liabilities. We are subject to various federal, state and local environmental laws, including air and water quality, hazardous or toxic substances and health and safety. These laws can impose liability on current and prior property owners or operators for the costs of removal or remediation of hazardous substances released on a property, even if the property owner was not responsible for, or even aware of, the release of the hazardous substances. Costs resulting from environmental liability could be substantial. The presence of hazardous substances on our properties may also adversely affect occupancy and our ability to sell or borrow against those properties. In addition to the costs of government claims under environmental laws, private plaintiffs may bring claims for personal injury or other reasons. Additionally, various laws impose liability for the costs of removal or remediation of hazardous substances at the disposal or treatment facility; anyone who arranges for the disposal or treatment of hazardous substances at such a facility is potentially liable under such laws.

Although most of our properties have been subject to varying degrees of environmental assessment, many of these assessments are limited in scope and may not include or identify all potential environmental liabilities or risks associated with the property.  Identification of new compliance concerns or undiscovered areas of contamination, changes in the extent or known scope of contamination, discovery of additional sites, human exposure to the contamination or changes in cleanup or compliance requirements could result in significant costs to us.

We would incur losses if third parties to whom we make loans fail to service or repay such loans. We enter into loan arrangements with tenants of our properties and other third parties. We would incur losses if these parties failed to fulfill their obligations to service and repay such loans.

We may be adversely affected by the impact of climate-related risks. We may be adversely affected by extreme weather events, such as hurricanes, floods and tornadoes, which could result in significant property damage and make it more difficult for us to obtain affordable insurance coverage in the future. Longer term, we could also face the potential for more frequent or destructive severe weather events and shifts in temperature and precipitation amounts. Such events could adversely affect our properties in a number of ways, including, but not limited to: declining demand for space; our ability to operate them effectively and profitably; their valuations; and our ability to sell them or use them as collateral for future debt.

We may be adversely affected by legislation and regulatory changes relating to combating climate change. We may be adversely affected by legislation and regulatory changes aimed at combating climate change. For example, the State of Maryland enacted legislation that will subject our properties in the state (approximately half of our portfolio at year end) to future energy performance standards, with potential monetary penalties for failing to meet such standards, building code changes and other requirements. In order to meet these performance standards and other requirements, we expect that we will need to make additional investments in building systems for new and existing properties. Other jurisdictions in which our properties are located have also either enacted similar legislation or are considering doing so in the future. We believe that our future additional capital investments and potential fees and penalties resulting from the State of Maryland legislation, and other similar federal, state or local laws or regulations in the future, could potentially be substantial.

We may be subject to other possible liabilities that would adversely affect our financial position and cash flows. Our properties may be subject to other risks related to current or future laws, including laws relating to zoning, development, fire and life safety requirements and other matters. These laws may require significant property modifications in the future and could result in the levy of fines against us.

Attacks by terrorists or foreign nations or incidents related to social unrest may adversely affect the value of our properties, our financial position and cash flows. We have significant investments in properties located in large metropolitan areas or near military installations. Attacks by terrorists or foreign nations, or incidents related to social unrest, could directly or
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indirectly damage our properties or cause losses that materially exceed our insurance coverage. After such an attack or incident, tenants in these areas may choose to relocate their businesses to areas of the United States that may be perceived to be less likely targets of future attacks or unrest, and fewer customers may choose to patronize businesses in these areas. This in turn would trigger a decrease in demand for space in these areas that could increase vacancies in our properties and adversely affect property rental rates and valuations.

We may be subject to increased costs of insurance and limitations on coverage. Our portfolio of properties is insured for losses under our property, casualty and umbrella insurance policies. These policies include coverage for acts of terrorism. Future changes in the insurance industry’s risk assessment approach and pricing structure may increase the cost of insuring our properties and decrease the scope of insurance coverage. Most of our loan agreements contain customary covenants requiring us to maintain insurance. Although we believe that we have adequate insurance coverage for purposes of these agreements, we may not be able to obtain an equivalent amount of coverage at reasonable costs, or at all, in the future. In addition, if lenders insist on greater coverage than we are able to obtain, it could adversely affect our ability to finance and/or refinance our properties and execute our growth strategies. Moreover, there are some loss events for which we cannot obtain insurance at reasonable costs, or at all, such as acts of war. With respect to such losses and losses from acts of terrorism, earthquakes, fires, pandemics or other catastrophic events, if we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged properties, as well as the anticipated future revenue from those properties.

We may suffer economic harm as a result of the actions of our partners in real estate joint ventures and other investments. We may invest in certain entities in which we are not the exclusive investor or principal decision maker. Investments in such entities may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that the other parties to these investments might become bankrupt or fail to fund their share of required capital contributions. Our partners in these entities may have economic, tax or other business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. These investments may also lead to impasses on major decisions, such as whether or not to sell a property, because neither we nor the other parties to these investments may have full control over the entity; such a dispute could also result in a sale of either our ownership interest in a joint venture or the joint venture’s underlying properties at a suboptimal price or time. In addition, we may in certain circumstances be liable for the actions of the other parties to these investments.

Our business could be adversely affected by a negative audit by the USG. Agencies of the USG, including the Defense Contract Audit Agency and various agency Inspectors General, routinely audit and investigate parties that provide goods and services to the USG. These agencies review such parties’ performance under contracts, cost structure, internal controls systems and policies and compliance with applicable laws, regulations and standards. Any costs found to be misclassified may be subject to repayment. If an audit or investigation of us were to uncover improper or illegal activities associated with our activities for the USG, we may be subject to civil or criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the USG. In addition, we could suffer serious reputational harm if allegations of impropriety were made against us.

Risks Associated with Financing and Other Capital-Related Matters

We are dependent on external sources of capital for growth. Because COPT Defense is a REIT, it must distribute at least 90% of its annual taxable income to its shareholders. This requirement may limit the extent to which we are able to fund our investment activities using retained cash flow from operations. Therefore, our ability to fund much of these activities is dependent on our ability to externally generate capital through issuances of new debt, common shares, preferred shares, common or preferred units in CDPLP or sales of interests in properties. These capital sources may not be available on favorable terms or at all. Moreover, additional debt financing may substantially increase our leverage and subject us to covenants that restrict management’s flexibility in directing our operations. Our inability to obtain capital when needed could have a material adverse effect on our ability to expand our business and fund other cash requirements.

We often use our Revolving Credit Facility to initially finance much of our investing activities and certain financing activities. Our lenders under this and other facilities could, for financial hardship or other reasons, fail to honor their commitments to fund our requests for borrowings under these facilities. If lenders default under these facilities by not being able or willing to fund a borrowing request, it would adversely affect our ability to access borrowing capacity under these facilities.

We may suffer adverse effects as a result of the indebtedness that we carry and the terms and covenants that relate to this debt. As of December 31, 2023, we had $2.4 billion in debt, the future maturities of which are set forth in Note 8 to our consolidated financial statements. Payments of principal and interest on our debt may leave us with insufficient cash to operate
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our properties or pay distributions to COPT Defense’s shareholders required to maintain COPT Defense’s qualification as a REIT. We are also subject to the risks that:

>we may not be able to refinance our existing indebtedness, or may only be able to do so on terms that are less favorable to us than the terms of our existing indebtedness;
>in the event of our default under the terms of our Revolving Credit Facility, CDPLP could be restricted from making cash distributions to COPT Defense unless such distributions are required to maintain COPT Defense’s qualification as a REIT, which could result in reduced distributions to our equityholders or the need for us to incur additional debt to fund such distributions; and
>if we are unable to pay our debt service on time or are unable to comply with restrictive financial covenants for certain of our debt, our lenders could foreclose on our properties securing such debt.

Virtually all of our unsecured debt is cross-defaulted, which means that failure to pay interest or principal on the debt above a threshold value will create a default on certain of our other debt.
If interest rates were to rise, our debt service payments on debt with variable interest rates would increase.

Our operations likely will not generate enough cash flow to repay all of our debt without additional borrowings, equity issuances and/or sales of interests in properties. If we cannot refinance, extend the repayment date of, or otherwise raise funds required to repay, debt by its maturity date, we would default on such debt.

Our organizational documents do not limit the amount of indebtedness that we may incur. Therefore, we may incur additional indebtedness and become more highly leveraged, which could harm our financial position.

A downgrade in our credit ratings would materially adversely affect our business and financial condition. Our Senior Notes are currently rated investment grade, with stable outlooks, by the three major rating agencies. These credit ratings are subject to ongoing evaluation by the credit rating agencies and can change. Any downgrades of our ratings or a negative outlook by the credit rating agencies would have a materially adverse impact on our cost and availability of capital and also could have a materially adverse effect on the market price of our common shares. In addition, since the variable interest rate spread and facility fees on certain of our debt, including our Revolving Credit Facility and a term loan facility, is determined based on our credit ratings, a downgrade in our credit ratings would increase the payments required on such debt.

We have certain distribution requirements that reduce cash available for other business purposes. Since COPT Defense is a REIT, it must distribute to its shareholders at least 90% of its annual taxable income, which limits the amount of cash that can be retained for other business purposes, including amounts to fund development activities and acquisitions. Also, due to the difference in time between when we receive revenue and pay expenses and when we report such items for distribution purposes, it is possible that we may need to borrow funds for COPT Defense to meet the 90% distribution requirement.

We may issue additional common or preferred equity that dilutes our shareholders’ interests. We may issue additional common shares or new issuances of preferred shares without shareholder approval. Similarly, we may issue additional common or preferred units in CDPLP for contributions of cash or property without approval by our shareholders. Our existing shareholders’ interests could be diluted if such additional issuances were to occur.

A number of factors could cause our security prices to decline. As is the case with any publicly-traded securities, certain factors outside of our control could influence the value of our equity security issuances. These conditions include, but are not limited to:

>market perception of REITs in general and office REITs in particular;
>market perception regarding our major tenants and property concentrations;
>the level of institutional investor interest in us;
>general economic and business conditions;
>prevailing interest rates;
>our financial performance;
>our underlying asset value;
>our actual, or market perception of our, financial condition, performance, dividends and growth potential;
>adverse changes in tax laws; and
>market perception regarding our commitment to environmental, social and governance matters.

We may be unable to continue to make distributions to our shareholders at expected levels. We expect to make regular quarterly cash distributions to our shareholders. However, our ability to make such distributions depends on a number of factors, some of which are beyond our control. Some of our loan agreements contain provisions that could, in the event of default, restrict future distributions unless we meet certain financial tests or such payments or distributions are required to
14


maintain COPT Defense’s qualification as a REIT. Our ability to make distributions at expected levels is also dependent, in part, on other matters, including, but not limited to:

>continued property occupancy and timely receipt of rent from our tenants;
>the amount of future capital expenditures and expenses for our properties;
>our leasing activity and future rental rates;
>the strength of the commercial real estate market;
>our ability to compete;
>governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses;
>our costs of compliance with environmental and other laws;
>our corporate overhead levels; and
>our amount of uninsured losses.

In addition, we can make distributions to holders of our common shares only after we make preferential distributions to holders of any outstanding preferred equity.

Our ability to pay distributions may be limited, and we cannot provide assurance that we will be able to pay distributions regularly. Our ability to pay distributions will depend on a number of things discussed elsewhere herein, including our ability to operate profitably and generate cash flow from our operations. We cannot guarantee that we will be able to pay distributions on a regular quarterly basis in the future. Additionally, the terms of some of our debt may limit our ability to make some types of payments and distributions in the event of certain default situations. This may limit our ability to make some types of payments, including payment of distributions on common or preferred shares, unless we meet certain financial tests or such payments or distributions are required to maintain COPT Defense’s qualification as a REIT. As a result, if we are unable to meet the applicable financial tests, we may not be able to pay distributions in one or more periods. Furthermore, any new common or preferred equity that we may issue in the future for raising capital, financing acquisitions, share-based compensation arrangements or otherwise will increase the cash required to continue to pay cash distributions at current levels.

We may experience significant losses and harm to our financial condition if financial institutions holding our cash and cash equivalents file for bankruptcy protection. We believe that we maintain our cash and cash equivalents with high quality financial institutions. However, we may incur significant losses and harm to our financial condition in the future if we were holding large sums of cash in any of these financial institutions at a time when they filed for bankruptcy protection.

Other Risks

Our business could be adversely affected by security breaches through cyber attacks, cyber intrusions or other factors, and other significant disruptions of our IT networks and related systems. We face risks associated with security breaches and other significant disruptions of our IT networks and related systems, which are essential to our business operations. Such breaches and disruptions may occur through cyber-attacks or -intrusions over the Internet, malware, computer viruses, attachments to e-mails or by actions of persons inside our organization, including those with access to our systems. Because of our concentration on serving the USG and its contractors with a general focus on national security and information technology, we may have a heightened likelihood of being targeted for cyber-attacks or -intrusions, including by governments, organizations or persons hostile to the USG. Additionally, a successful attack on our vendors or service providers could result in a compromise of our own network or a disruption in our supply chain or services upon which we rely.

We have preventative, detective, and responsive measures in place to maintain the security and integrity of our networks and related systems that have to date enabled us to avoid breaches and disruptions that were individually, or in the aggregate, material. However, despite our activities to maintain the security and integrity of our networks and related systems, there can be no assurance that these activities will be effective in mitigating these risks. We also have insurance coverage in place in the event of significant future losses from breaches and disruptions; however, continuing changes in the insurance industry’s risk assessment approach and pricing structure could in the future increase the cost for us to obtain insurance coverage or decrease the scope of such coverage available to us.

Like other businesses, we and our vendors and service providers have been, and expect to continue to be, subject to cyber-attacks or -intrusions, computer viruses or malware, attempts at unauthorized access and other events of varying degrees. A security breach or other significant disruption involving our IT networks and related systems, or those of certain of our vendors or service providers, could:

>disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our tenants;
>increase the likelihood of missed reporting or permitting deadlines;
>affect our ability to properly monitor our compliance with rules and regulations regarding our qualification as a REIT;
15


>result in unauthorized access to, and/or destruction, loss, theft, misappropriation or release of, proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or which could expose us to damage claims by third-parties;
>disrupt or disable the building systems relied upon by us and our tenants for the effective and efficient use of our properties;
>require significant management attention and resources to remedy any resulting damages;
>subject us to termination of leases or other agreements or claims for breach of contract, damages or other penalties; and
>damage our reputation among our tenants and investors generally.

Please refer to Item 1C for disclosure regarding our cybersecurity risk management, strategy and governance.

We may be adversely affected by environmental, social and governance matters. Certain investors and other stakeholders are increasingly focused on environmental, social and governance matters. If our perceived commitment to environmental, social and governance matters fails to meet the expectations of investors and other stakeholders, it could adversely affect their willingness to invest in, or otherwise do business with, us.

We may suffer adverse effects from epidemics or pandemics. The occurrence of epidemics or pandemics may adversely affect us in many ways, including, but not limited to:

>disruption of our tenants’ operations, which could adversely affect their ability, or willingness, to sustain their businesses and/or fulfill their lease obligations;
>our ability to maintain occupancy in our properties and obtain new leases for unoccupied and new development space at favorable terms or at all;
>shortages in supply of products or services from vendors that are needed for us and our tenants to operate effectively, and which could lead to increased costs for such products and services;
>access to debt and equity capital on attractive terms or at all. Severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our or our tenants’ ability to access capital necessary to fund operations, refinance debt or fund planned investments on a timely basis, and may adversely affect the valuation of financial assets and liabilities; and
>our and our tenants’ ability to continue or complete planned development, including the potential for delays in the supply of materials or labor necessary for development.

The extent of any effect on our operations, financial condition and cash flows will be dependent on various factors, such as the duration and extent of the epidemic or pandemic, the prevalence, strength and duration of restrictive measures implemented in response and the resulting effects on our tenants, potential future tenants, the commercial real estate industry and the broader economy. Moreover, some of the risks described in other risk factors set forth in this Annual Report on Form 10-K may be more likely to impact us as a result of epidemics or pandemics, including, but not limited to: downturns in national, regional and local economic environments; deteriorating local real estate market conditions; and declining real estate valuations.

Our business could be adversely impacted if we are unable to attract and retain highly-qualified personnel. Our ability to operate effectively and succeed in the future is dependent in large part on our employees. Our Defense/IT strategy in particular relies on the knowledge, specialized skills and credentialed personnel on our teams that serve those properties’ unique needs. We face very intense competition for highly-qualified personnel in the labor market. We also occasionally face even greater competition for personnel with certain skill sets or qualifications. As a result, we may not be successful in retaining our existing talent or attracting, training and retaining new personnel with the requisite skills. We may also find that we need to further increase compensation costs in response to this competition. Our business could be harmed by the loss of key employees, a significant number of employees or a significant number of employees in a specialized area of the Company.

We have certain provisions or statutes that may serve to delay or prevent a transaction or a change in control that would be advantageous to our shareholders from occurring. COPT Defense’s Declaration of Trust limits ownership of its common shares by any single shareholder to 9.8% of the number of the outstanding common shares or 9.8% of the value of the outstanding common shares, whichever is more restrictive. COPT Defense’s Declaration of Trust also limits ownership by any single shareholder of our common and preferred shares in the aggregate to 9.8% of the aggregate value of our outstanding common and preferred shares. We refer to these restrictions as the “Ownership Limit.” COPT Defense’s Declaration of Trust allows our Board of Trustees to exempt shareholders from the Ownership Limit. The Ownership Limit and the restrictions on ownership of our common shares may delay or prevent a transaction or a change of control that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.

Subject to the requirements of the New York Stock Exchange, our Board of Trustees has the authority, without shareholder approval, to issue additional securities on terms that could delay or prevent a change in control. In addition, our Board of Trustees has the authority to reclassify any of our unissued common shares into preferred shares. Our Board of Trustees may issue preferred shares with such preferences, rights, powers and restrictions if it chooses to do so, which could also delay or prevent a change in control.

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In addition, various Maryland laws may have the effect of discouraging offers to acquire us, even if the acquisition would be advantageous to shareholders. Resolutions adopted by our Board of Trustees and/or provisions of our bylaws exempt us from such laws, but our Board of Trustees can alter its resolutions or change our bylaws at any time to make these laws applicable to us.

COPT Defense’s failure to qualify as a REIT would have adverse tax consequences, which would substantially reduce funds available to make distributions to our shareholders. We believe that COPT Defense has qualified for taxation as a REIT for federal income tax purposes since 1992. We plan for COPT Defense to continue to meet the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. The determination that COPT Defense is a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95% of COPT Defense’s gross income must come from certain sources that are specified in the REIT tax laws. COPT Defense is also required to distribute to shareholders at least 90% of its annual taxable income. The fact that COPT Defense holds most of its assets through CDPLP and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize COPT Defense’s REIT status. Furthermore, Congress and the Internal Revenue Service might make changes to the tax laws and regulations and the courts might issue new rulings that make it more difficult or impossible for COPT Defense to remain qualified as a REIT.

If COPT Defense fails to qualify as a REIT, it would be subject to federal income tax at regular corporate rates. Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, COPT Defense would remain disqualified from being a REIT for four years following the year it first fails to qualify. If COPT Defense fails to qualify as a REIT, it would have to pay significant income taxes and would therefore have less money available for investments or for distributions to our shareholders. In addition, if COPT Defense fails to qualify as a REIT, it would no longer be required to pay distributions to shareholders. As a result of all these factors, COPT Defense’s failure to qualify as a REIT could impair our ability to expand our business and raise capital and would likely have a significant adverse effect on the value of our shares.

We may be adversely impacted by changes in tax laws. At any time, U.S. federal tax laws or the administrative interpretations of those laws may be changed. We cannot predict whether, when or to what extent new U.S. federal tax laws, regulations, interpretations or rulings will be issued. In addition, while REITs generally receive certain tax advantages compared to entities taxed as C corporations, it is possible that future legislation could result in REITs having fewer tax advantages, and therefore becoming a less attractive investment alternative. As a result, changes in U.S. federal tax laws could negatively impact our operating results, financial condition and business operations, and adversely impact our shareholders.

Occasionally, changes in state and local tax laws or regulations are enacted that may result in an increase in our tax liability. Shortfalls in tax revenues for states and municipalities may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional taxes on our assets, revenue or income.

Our tenants and contractual counterparties could be designated “Prohibited Persons” by the Office of Foreign Assets Control.  The Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”). OFAC regulations and other laws prohibit us from conducting business or engaging in transactions with Prohibited Persons. If a tenant or other party with whom we conduct business is placed on the OFAC list or is otherwise a party with whom we are prohibited from doing business, we would be required to terminate our lease or other agreement with them. 

Item 1B. Unresolved Staff Comments
None.

Item 1C. Cybersecurity
(a)    As discussed in Item 1A, Risk Factors, we face risks associated with security breaches and other significant disruptions of our IT networks and related information systems, which are essential to our business operations. Due to our Defense/IT strategy and the nature of the customers and activities it serves, we may have a heightened likelihood of being targeted for cyber-attacks or -intrusions, including by governments, organizations or persons hostile to the USG.

Our cybersecurity risk management efforts are informed by a cyber risk assessment, a continuous evaluation of our risks and vulnerabilities and risk tolerances. Our processes for assessing, identifying and managing cybersecurity risks are led by our Vice President – Information Technology and Chief Information Officer (our “CIO”), a management-level position reporting directly to our Executive Vice President and Chief Financial Officer (our “CFO”). Our CIO, a Certified Information Systems Security Professional (“CISSP”) with over 20 years of information systems and information security leadership experience, leads our information technology team members, many of whom have USG security clearances and include one additional CISSP certified team member, in supporting our cybersecurity risk management efforts. This team’s efforts are further informed through their participation in external cybersecurity-related panels, industry presentations and advisory boards, tabletop exercises and information-sharing collaborations and partnerships.
17



Our information technology team executes a series of preventive, detective and responsive measures aimed towards managing our cybersecurity risks, including the following:

>administering a series of processes and automated tools to monitor and alert for potentially malicious activities and vulnerabilities on our network, systems, applications and devices, with the ability to terminate processes and isolate potential vulnerabilities;
>employing tools and controls to support our efforts in identity and access management and device and user management and authentication;
>ongoing cybersecurity maintenance activities, including scheduled maintenance time windows for comprehensive system updates to occur, with additional ad hoc updates occurring as needed, monitoring of all Company devices for timeliness of security updates and pushing time-sensitive updates to our system infrastructure and devices, as appropriate;
>recurring, redundant backups of our applications, servers and data, with replication to remote storage locations;
>assessing audit reports issued on controls of certain outsourced, or externally-hosted, systems or applications; and
>periodically evaluating our readiness by performing testing of our process and system for responding to cyber events, including our ability to recover following such events.

We engage consultants:

>on an ongoing basis for certain aspects of our information technology team’s recurring monitoring and alert processes and round-the-clock support, as needed; and
>periodically to perform penetration testing and vulnerability scanning of our systems, websites and properties, run or support tabletop exercises and complete cyber risk-based assessments of us.

Organizationally, we aim to further support the forementioned measures through:

>purchase and contracting controls aimed at preventing our entry into purchases or service arrangements: with entities blocked or banned by OFAC or the Federal Trade Commission; or outside of manufacturer authorized distribution channels; and
>education of our employees, including cybersecurity-related training and periodic reminders and promotions regarding potential risks.

Our CIO routinely apprises our CFO regarding cyber risk management activities and provides updates and data, as needed, to our executive team to facilitate decisions regarding our cyber risk posture and related considerations regarding our enterprise risk management assessment. Our CIO and CFO provide to the Audit Committee of our Board of Trustees: quarterly updates on our cybersecurity risk management strategy and related activities; annual reviews of our cyber risk assessment; and other information as needed to facilitate the committee’s oversight of our cybersecurity risk. Two members of this committee possess cybersecurity and information systems experience, which we believe brings valuable insight and perspective to our risk management strategy. Our CIO and CFO also provide an annual review of our cyber risk assessment to our full Board of Trustees.

While to date, we have not experienced cybersecurity events that were individually, or in the aggregate, material, we have developed a cyber-incident response playbook that sets forth our process for responding in the event of certain defined cyber incidents. Under our response protocols, following identification of such an incident, our CIO or other members of the information technology team would notify our executive team, which then would notify the Chairman of our Board of Trustees and assemble an Incident Management Team, comprised of certain defined management team members and external consultants, who collectively would assess and monitor the situation and manage internal and external communications.

We also are subject to legal and regulatory requirements that affect our response to cybersecurity-risk management, including the Sarbanes-Oxley Act, state data breach notification requirements and certain requirements under our leases with tenants.

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Item 2. Properties

The following table provides certain information about our operating property segments as of December 31, 2023 (dollars and square feet in thousands, except per square foot amounts):
Segment Number of PropertiesOperational Square FeetOccupancy (1)Annualized Rental Revenue (2)Annualized Rental Revenue per Occupied Square
Foot (2)
Defense/IT Portfolio:
Fort Meade/BW Corridor:  
National Business Park (Annapolis Junction, MD)34 4,293 99.3 %$176,899 $41.49 
Howard County, MD35 2,862 93.9 %78,389 $29.12 
Other23 1,725 93.1 %53,064 $32.90 
Fort Meade/BW Corridor Subtotal / Average92 8,880 96.4 %308,352 $35.99 
NoVA Defense/IT16 2,501 88.9 %82,482 $37.09 
Lackland Air Force Base1,062 100.0 %61,383 $53.27 
Navy Support 22 1,273 87.4 %33,420 $30.04 
Redstone Arsenal22 2,300 97.5 %56,918 $25.24 
Data Center Shells:
Consolidated Properties1,408 100.0 %31,087 $22.08 
Unconsolidated Joint Venture Properties24 4,295 100.0 %6,741 $15.69 
Defense/IT Portfolio Subtotal / Average190 21,719 96.2 %580,383 $33.74 
Other2,140 73.2 %66,277 $38.42 
Total Operating Properties / Average198 23,859 94.2 %$646,660 $34.14 
Total Consolidated Operating Properties$639,920 
(1)This percentage is based upon all rentable square feet under lease terms that were in effect as of December 31, 2023.
(2)Annualized rental revenue is the monthly contractual base rent as of December 31, 2023 (ignoring free rent then in effect and rent associated with tenant funded landlord assets) multiplied by 12, plus the estimated annualized expense reimbursements under existing leases for occupied space. With regard to properties owned through unconsolidated real estate joint ventures, we include the portion of annualized rental revenue allocable to our ownership interest. We consider annualized rental revenue to be a useful measure for analyzing revenue sources because, since it is point-in-time based, it does not contain increases and decreases in revenue associated with periods in which lease terms were not in effect; historical revenue under generally accepted accounting principles does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment and industry analysis. Our calculation of annualized rental revenue per occupied square foot excludes revenue of our reportable segments from leases not associated with our buildings.

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The following table provides certain information about properties that were under, or contractually committed for, development as of December 31, 2023 (dollars and square feet in thousands):
Property and LocationEstimated Rentable Square Feet Upon CompletionPercentage LeasedCalendar Quarter Anticipated to be OperationalCosts Incurred to Date (1)Estimated Costs to Complete (1)
Redstone Arsenal:
5300 Redstone Gateway
   Huntsville, Alabama
46 100%1Q 24$17,973 $2,578 
8100 Rideout Road
   Huntsville, Alabama
128 42%3Q 2430,485 13,478 
Subtotal / Average174 57%48,458 16,056 
Data Center Shells:
Southpoint Phase 2 Bldg A
   Northern Virginia
225 100%3Q 2420,760 61,740 
Southpoint Phase 2 Bldg B
   Northern Virginia
193 100%3Q 255,150 59,850 
MP 3
   Northern Virginia
225 100%4Q 2510,031 101,769 
Subtotal / Average643 100%35,941 223,359 
Total Under Development817 91%$84,399 $239,415 
(1)Includes land, development, leasing costs and allocated portion of structured parking and other shared infrastructure, if applicable.

The following table provides certain information about land that we owned or controlled as of December 31, 2023, including properties under ground lease to us (square feet in thousands):
SegmentAcres Estimated Developable Square Feet
Defense/IT Portfolio land owned/controlled for future development:    
Fort Meade/BW Corridor:
National Business Park (Annapolis Junction, MD)1441,630 
Howard County, MD19290 
Other1261,338 
Total Fort Meade/BW Corridor2893,258 
NoVA Defense/IT291,171 
Navy Support3864 
Redstone Arsenal (1)3003,400 
Total Defense/IT Portfolio land owned/controlled for future development6567,893 
Other land owned/controlled531,538 
Total Land Owned/Controlled7099,431 
(1)This land is owned by the USG and is controlled under a long-term master lease agreement to a consolidated joint venture. As this land is developed in the future, the joint venture will execute site-specific leases under the master lease agreement. Lease payments will commence under the site-specific leases as cash rents under tenant leases commence at the respective properties.

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Lease Expirations

The following table provides a summary schedule of lease expirations for leases in place at our operating properties as of December 31, 2023 based on the non-cancelable term of tenant leases determined in accordance with generally accepted accounting principles (dollars and square feet in thousands, except per square foot amounts):
Year of Lease ExpirationSquare Footage of Leases ExpiringAnnualized Rental Revenue of Expiring Leases (1)Percentage of Total Annualized Rental Revenue Expiring (1)Total Annualized Rental Revenue of Expiring Leases Per Occupied Square Foot (1)
20242,576 $82,599 12.8 %$35.92 
20253,645 145,662 22.5 %$39.51 
20261,959 61,398 9.5 %$39.41 
20271,714 49,383 7.6 %$35.59 
20282,418 64,392 10.0 %$32.92 
20292,321 52,455 8.1 %$30.72 
20301,320 29,624 4.6 %$28.51 
2031959 16,649 2.6 %$29.19 
2032230 7,209 1.1 %$31.30 
2033646 22,836 3.5 %$35.37 
20341,438 32,661 5.1 %$29.46 
20351,080 33,217 5.1 %$30.75 
20361,010 9,908 1.5 %$29.44 
2037102 9,573 1.5 %$92.86 
2038569 14,207 2.2 %$24.96 
2039483 9,786 1.5 %$20.25 
2041 (2)— 4,841 0.8 %N/A
2063 (2)— 135 — %N/A
2072 (2)— 125 — %N/A
Total22,470 $646,660 100.0 %$34.14 
(1)Refer to definition provided on first page of Item 2 of this Annual Report on Form 10-K.
(2)Includes only ground leases.

With regard to the leases reported above as expiring in 2024, we believe that the weighted average annualized rental revenue per occupied square foot for such leases as of December 31, 2023, on average, approximated estimated current market rents for the related space, with specific results varying by market.

Item 3. Legal Proceedings

We are not currently involved in any material litigation nor, to our knowledge, is any material litigation currently threatened against us (other than routine litigation arising in the ordinary course of business, substantially all of which is expected to be covered by liability insurance).

Item 4. Mine Safety Disclosures

Not applicable.

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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)    In September 2023, the ticker symbol under which our common shares are publicly traded on the New York Stock Exchange (“NYSE”) changed from “OFC” to “CDP”. The number of holders of record of our common shares was 439 as of February 7, 2024. This number does not include shareholders whose shares were held of record by a brokerage house or clearing agency, but does include any such brokerage house or clearing agency as one record holder.

Common Shares Performance Graph

The graph and the table set forth below assume $100 was invested on December 31, 2018 in our common shares. The graph and the table compare the cumulative return (assuming reinvestment of dividends) of this investment with a $100 investment at that time in the S&P 500 Index, the FTSE All Equity REITs Index of the National Association of Real Estate Investment Trusts (“Nareit”) (the “All Equity REITs Index”) and the Office Property Sector of the FTSE All Equity REITs Index of Nareit (the “Office Sector Index”):
881
Period Ended
Index12/31/1812/31/1912/31/2012/31/2112/31/2212/31/23
COPT Defense Properties$100.00 $145.23 $134.90 $150.59 $145.69 $150.89 
S&P 500 Index$100.00 $131.49 $155.68 $200.37 $164.08 $207.21 
Office Property Sector of FTSE Nareit All Equity REITs Index$100.00 $131.42 $107.19 $130.77 $81.58 $83.23 
FTSE Nareit All Equity REITs Index$100.00 $128.66 $122.07 $172.49 $129.45 $144.16 

In our 2022 Annual Report on Form 10-K, we used the All Equity REITs Index for purposes of comparing the performance of our shares to an industry index of our peers. Effective for our 2023 Annual Report on Form 10-K, we changed the industry index of our peers to the Office Sector Index as we believe it to be a closer representation of our business model than the broader index we previously used. Since 2023 is the initial year for our change in the industry index of our peers, we are presenting both of these indexes in the graph and table included above.

Shares Authorized for Issuance Under Equity Compensation Plans

For the information required by Item 5 (a) related to shares authorized for issuance under equity compensation plan, you should refer to our definitive proxy statement relating to the 2024 Annual Meeting of our Shareholders to be filed with the
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Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

(b)    Not applicable

(c)    None

Item 6. [Reserved]
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should refer to our consolidated financial statements and the notes thereto as you read this section.

This section contains “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995, that are based on our current expectations, estimates and projections about future events and financial trends affecting the financial condition and operations of our business. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “could,” “believe,” “anticipate,” “expect,” “estimate,” “plan” or other comparable terminology. Forward-looking statements are inherently subject to risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not even anticipate. Although we believe that the expectations, estimates and projections reflected in such forward-looking statements are based on reasonable assumptions at the time made, we can give no assurance that these expectations, estimates and projections will be achieved. Future events and actual results may differ materially from those discussed in the forward-looking statements. Important factors that may affect these expectations, estimates and projections include, but are not limited to:

>general economic and business conditions, which will, among other things, affect office property and data center demand and rents, tenant creditworthiness, interest rates, financing availability, property operating and construction costs, and property values;
>adverse changes in the real estate markets, including, among other things, increased competition with other companies;
>our ability to borrow on favorable terms;
>risks of property acquisition and development activities, including, among other things, risks that development projects may not be completed on schedule, that tenants may not take occupancy or pay rent or that development or operating costs may be greater than anticipated;
>risks of investing through joint venture structures, including risks that our joint venture partners may not fulfill their financial obligations as investors or may take actions that are inconsistent with our objectives;
>changes in our plans for properties or views of market economic conditions or failure to obtain development rights, either of which could result in recognition of significant impairment losses;
>potential impact of a prolonged government shutdowns or budgetary reductions or impasses, such as a reduction of rental revenues, non-renewal of leases and/or reduced or delayed demand for additional space by existing or new tenants;
>potential additional costs, such as capital improvements, fees and penalties, associated with environmental laws or regulations;
>adverse changes resulting from other government actions and initiatives, such as changes in taxation, zoning laws or other regulations.
>our ability to satisfy and operate effectively under federal income tax rules relating to real estate investment trusts and partnerships;
>the dilutive effects of issuing additional common shares; and
>security breaches relating to cyber attacks, cyber intrusions or other factors, and other significant disruptions of our information technology networks and related systems.

We undertake no obligation to publicly update or supplement forward-looking statements.
 
Overview

In 2023, we:

>experienced continued strong demand across our Defense/IT Portfolio segments that drove:
>strengthened occupancy of our operating properties, with year-end occupancy and leased rates at near-record levels; and
>near-record tenant retention rates, at increased rent levels;
>continued growth through substantially pre-leased development, with space placed in service during the year that was virtually full and a pipeline of substantially pre-leased properties under development at year end;
>raised capital from a sale of interests in data center shell properties, using the proceeds to create borrowing capacity to fund future development activities;
>opportunistically issued debt through a private placement to pre-fund the expected borrowings needed to fund our forecasted development activities for most of the next three years; and
>ended the year with no significant debt maturing until 2026, most of our Revolving Credit Facility’s borrowing capacity available and significant cash balances on hand.

Strong demand from our Defense/IT Portfolio drove increased property occupancy that more than offset the continuing effects of lagging demand in our Other segment. Our strengthened operating property occupancy in 2023 included increases in:

>total portfolio year-end occupancy rate from 92.7% to 94.2%, with a year-end leased rate of 95.3%;
>Defense/IT Portfolio year-end occupancy rate from 94.1% to 96.2%, with a year-end leased rate of 97.2%;
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>Same Property year-end occupancy rate from 92.0% to 93.4%, with a year-end leased rate of 94.7% for our Same Properties in total and 96.8% for the Defense/IT Portfolio component; and
>average Same Property occupancy from 91.6% to 92.7%, and from 92.9% to 94.7% for the Defense/IT Portfolio component.

We also in 2023 achieved a tenant retention rate of 79.7% for the portfolio, and 85.7% for our Defense/IT Portfolio segment, which were near record levels. Our increased occupancy and leased rates were attributable primarily to our strong tenant retention coupled with the effects of our vacant space leasing efforts.

Defense/IT Portfolio demand also continued to feed growth in our portfolio through property development. In 2023, our Defense/IT Portfolio:

>placed into service 848,000 square feet in six properties that were 98% leased, mostly in our Data Center Shells, Redstone Arsenal and Fort Meade/BW Corridor sub-segments; and
>ended the year with 817,000 square feet under development in an additional five properties that were 91% leased, three of which were scheduled to be placed in service in 2024. Our properties under development included three data center shells and two properties in Redstone Arsenal.

We believe that our Defense/IT Portfolio has strongly benefited from continued:

>defense budget appropriation increases, with bipartisan support, and without extended delays in appropriations in recent years. As global threats to our national security and that of our allies continue to evolve and, in some cases, escalate, we believe that defense spending for the critical missions that our portfolio supports, such as intelligence, surveillance and cyber, will continue to be considered vital for the foreseeable future. However, future leasing demand could be delayed or diminish if this bipartisan support does not continue or if appropriations legislation to fund approved defense budgets faces extended delays (including the USG’s 2024 fiscal year defense budget, which was authorized but was awaiting appropriations as of the date of this filing); and
>demand for data center shells in Northern Virginia, one of the largest data center markets in the world. We believe that our properties in operations and undergoing development in this sub-segment will continue to benefit from strong demand through high tenant retention, with renewals at increased rental rates. However, as of December 31, 2023, we did not have additional land under control in Northern Virginia for the future development of data center shells. As a result, our ability to continue to develop data center shells, as we have for the past decade, may be limited.

As of December 31, 2023, we had scheduled lease expirations for 2.6 million square feet in 2024, representing 11.5% of our total occupied square feet and 12.8% of our total annualized rental revenue, including:

>2.4 million square feet in our Defense/IT Portfolio segment, a high proportion of which we expect to renew; and
>161,000 square feet in our Other segment, most of which we do not expect to renew.

Please refer to the section below entitled “Occupancy and Leasing” for additional related disclosure.

On January 10, 2023, we raised $190.2 million in capital from our sale of a 90% interest in three data center shell properties in Northern Virginia, resulting in a gain on sale of $49.4 million. We retained a 10% interest in the properties through a newly-formed joint venture. We used substantially all of the proceeds from this sale to pay down our Revolving Credit Facility to create additional borrowing capacity available to fund future development.

On September 12, 2023, we issued $345.0 million aggregate principal amount of 5.25% Exchangeable Senior Notes due 2028 (the “5.25% Notes”) in a private placement to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). While we were previously anticipating issuing debt through the capital markets in late-2024, due to what we considered to be a potentially challenging capital environment, we opportunistically completed this issuance to remove future execution and debt-pricing risk, while pre-funding and creating capacity under our Revolving Credit Facility for the expected borrowings needed to fund our forecasted development activities for most of the next three years. The proceeds from this issuance, after deducting the initial purchasers’ commissions, but before other offering expenses, were $336.4 million. The net proceeds from the notes were primarily used for general corporate purposes, including repayment of borrowings under our Revolving Credit Facility and pre-funding of future development investments, which resulted in a portion of the net proceeds being invested in short-term interest-bearing money market accounts pending such use.

As of December 31, 2023, we ended the year, with:

>no significant debt maturing until 2026;
>$525.0 million in available borrowing capacity under our Revolving Credit Facility;
>no variable-rate debt exposure expected until late-2024, including the effect of interest rate swaps;
>only 4.1% of our outstanding debt encumbered by properties; and
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>$167.8 million in cash on hand.

In 2023, the United States economy experienced inflationary conditions, increased interest rates, higher volatility in the debt and equity capital markets and certain supply-chain related shortages that, coupled with increased prevalence of remote- and flexible-work arrangements in recent years, adversely affected the United States office real estate industry. For us:

>the above conditions have not significantly affected our ability to achieve expected leasing in our Defense/IT Portfolio, although the properties in our Other segment continue to experience a challenging leasing environment that has not improved;
>inflationary conditions have contributed to increased costs for certain property operating expenses and building equipment and materials, which affects our development of new properties and improvements for existing properties. For:
>property operating expenses, most of our leases obligate tenants to pay either their full share of a building’s operating expenses or their share to the extent such expenses exceed amounts established in their leases. These lease arrangements reduce our exposure to increases in property operating expenses;
>new property development and tenant improvements associated with new leasing in our Defense/IT Portfolio, increased costs have not significantly affected our ability to achieve targeted yields due to continued strong demand for space, which has generally enabled us to increase rents to maintain such yields. However, continued cost increases could adversely affect our ability to continue to achieve targeted yields on future new property development and future new leasing of our existing properties to the extent increases in market rental rates do not keep pace; this could also reduce our willingness to develop, or our tenants’ willingness to commit to leasing, new properties; and
>other capital improvements, the increasing cost environment could affect our willingness, or timeline, for completing such improvements;
>we observed uncertainty in the debt markets in 2023 both in terms of availability and pricing, particularly for commercial real estate. Due to this uncertainty, we chose to issue our 5.25% Notes to remove future execution and debt-pricing risk by pre-funding and creating capacity under our Revolving Credit Facility for the expected borrowings needed to fund forecasted future development activities;
>the effects of increased interest rates were limited to a certain extent since our debt is predominantly fixed rate and in the form of long-term unsecured notes that we issued prior to 2022. Notable effects include the following:
>for variable-rate loans, we use interest rate swaps to hedge the effect of interest rate changes. We had interest rate swaps for a $200.0 million notional amount that fixed the one-month LIBOR interest rate in 2022 at 1.9% through December 1, 2022; and, effective February 1, 2023, fixed the one-month SOFR interest rate at 3.7% for a three-year term;
>for the 5.25% Notes issuance, the interest rate was higher than our previous senior notes issuance in November 2021; and
>for net proceeds resulting from the 5.25% Notes issuance that we invested in short-term money market accounts pending use for future development activities, elevated U.S. Treasury Rates in 2023 enabled us to realize interest income at rates slightly in excess of the debt issuance rate; and
>both our operating and development activities experienced supply-chain related shortages in 2023 that, due in large part to our anticipatory efforts, did not significantly affect our ability to execute such activities.

In addition, we owned eight office properties in our Other segment as of December 31, 2023 that we do not consider strategic holdings since they do not align with our Defense/IT strategy. We intend to sell these properties when we believe that market conditions and opportunities position us to optimize our return on investment. However, we did not initiate plans for sales of these properties in 2023 due in part to the anticipated effects of increased interest rates and debt availability on potential buyers.

For our 2023 results of operations:

>our diluted earnings per share decreased from $1.53 per share in 2022 to a loss per share of $(0.67) in 2023, and our net income decreased from $178.8 million in 2022 to a loss of $(74.3) million in 2023 due primarily to $252.8 million in impairment losses that we recognized in 2023. We recognized these impairment losses on: six operating properties in our Other segment after shortening their expected holding periods; and a parcel of other land that we controlled;
>net operating income (“NOI”) from real estate operations, our segment performance measure, increased $21.8 million, or 6.0%, relative to 2022. This change was comprised primarily of:
>a $26.4 million increase from newly-developed properties placed in service; and
>a $10.5 million increase from our Same Properties, which included the effect of increased occupancy in our Defense/IT Portfolio; offset in part by
>a $15.1 million decrease from property dispositions; and
>diluted funds from operations per share, as adjusted for comparability increased 2.5% and the numerator for that measure increased $6.9 million, or 2.6%, relative to 2022, due primarily to increased NOI from real estate operations in 2023, offset in part by higher interest expense.

Additional disclosure comparing our 2023 and 2022 results of operations is provided below.

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We discuss significant factors contributing to changes in our net income between 2023 and 2022 in the section below entitled “Results of Operations.” In addition, the section below entitled “Liquidity and Capital Resources” includes discussions of, among other things:

>how we expect to generate and obtain cash for short and long-term capital needs; and
>material cash requirements for known contractual and other obligations.

We refer to the measures “annualized rental revenue” and “tenant retention rate” in various sections of the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Annual Report on Form 10-K. Annualized rental revenue is a measure that we use to evaluate the source of our rental revenue as of a point in time. It is computed by multiplying by 12 the sum of monthly contractual base rents and estimated monthly expense reimbursements under active leases as of a point in time (ignoring free rent then in effect and rent associated with tenant funded landlord assets). Our computation of annualized rental revenue excludes the effect of lease incentives. We consider annualized rental revenue to be a useful measure for analyzing revenue sources because, since it is point-in-time based, it does not contain increases and decreases in revenue associated with periods in which lease terms were not in effect; historical revenue under generally accepted accounting principles in the United States of America (“GAAP”) does contain such fluctuations. We find the measure particularly useful for leasing, tenant, segment and industry analysis. Tenant retention rate is a measure we use that represents the percentage of square feet renewed in a period relative to the total square feet scheduled to expire in that period; we include the effect of early renewals in this measure.

We also refer to the measures “cash rents”, “straight-line rents”, and “committed costs” in the “Occupancy and Leasing” section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Annual Report on Form 10-K. Cash rents include monthly contractual base rent (ignoring rent abatements and rent associated with tenant funded landlord assets) multiplied by 12, plus estimated annualized expense reimbursements (average for first 12 months of term for new or renewed leases or as of lease expiration for expiring leases). Straight-line rents include annual minimum base rents, net of abatements and lease incentives and excluding rent associated with tenant funded landlord assets, on a straight-line basis over the term of the lease, and estimated annual expense reimbursements (as of lease commencement for new or renewed leases or as of lease expiration for expiring leases). We believe that cash rents and straight-line rents are useful measures for evaluating the rental rates of our leasing activity, including changes in such rates relative to rates that may have been previously in place, with cash rents serving as a measure to evaluate rents at the time rent payments commence, and straight-line rents serving as a measure to evaluate rents over the related lease terms. Committed costs includes tenant improvement allowances (excluding tenant funded landlord assets), leasing commissions and estimated turn key costs and excludes lease incentives; we believe this is a useful measure for evaluating our costs associated with obtaining new leases.

With regard to our operating portfolio square footage, occupancy and leasing statistics included below and elsewhere in this Annual Report on Form 10-K, amounts disclosed include total information pertaining to properties owned through unconsolidated real estate joint ventures except for amounts reported for annualized rental revenue, which represent the portion attributable to our ownership interest.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP, which require us to make certain estimates and assumptions. A summary of our significant accounting policies is provided in Note 2 to our consolidated financial statements. The following section is a summary of certain aspects of those accounting policies involving estimates or assumptions that (1) involve a significant level of estimation uncertainty and (2) have had or are reasonably likely to have a material impact on our financial condition or results of operations. It is possible that the use of different reasonable estimates or assumptions could result in materially different amounts being reported in our consolidated financial statements. While reviewing this section, refer to Note 2 to our consolidated financial statements, including terms defined therein.

Assessment of Lease Term as Lessor

As discussed above, a significant portion of our portfolio is leased to the USG, and the majority of those leases provide for one-year terms, with a series of one-year renewal options (with defined rent escalations upon renewal), and/or provide for early termination rights. Applicable accounting guidance requires us to recognize minimum rental payments on operating leases, net of rent abatements, on a straight-line basis over the term of each lease. We estimate a tenant’s lease term at the lease commencement date and do not subsequently reassess such term unless the lease is modified. When estimating a tenant’s lease term, we use judgment in contemplating the significance of: any penalties a tenant may incur should it choose not to exercise any existing options to extend the lease or exercise any existing options to terminate the lease; and economic incentives to the tenant based on any existing contract, asset, entity or market-based factors associated with the lease. Factors we consider in making this assessment include the uniqueness of the purpose or location of the property, the availability of a comparable replacement property, the relative importance or significance of the property to the continuation of the lessee’s line of business and the existence of tenant leasehold improvements or other assets whose value would be impaired by the tenant vacating or discontinuing use of the leased property. For most of our leases with the USG, our estimates of lease term conclude
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that exercise of existing renewal options, or continuation of such leases without exercising early termination rights, is reasonably certain as it relates to the expected lease end date. As a result, our recognition of minimum rents on these leases includes the effect of annual rent escalations over our estimate of the lease term (including on one-year renewal options) and our depreciation and amortization of costs incurred on these leases is recognized over the lease term. An over-estimate of the term of these leases by us could result in the write-off of any recorded assets associated with straight-line rental revenue and acceleration of depreciation and amortization expense associated with costs we incurred related to these leases. We had no significant USG leases with lease terms determined to have been over-estimated during the reporting periods included herein.

Impairment of Long-Lived Assets

We assess the asset groups associated with each of our properties for indicators of impairment quarterly or when circumstances indicate that an asset group may be impaired. If our analyses indicate that the carrying values of certain properties’ asset groups may be impaired, we perform a recoverability analysis for such asset groups. If and when our plans change for a property, we revise our recoverability analyses to use the cash flows expected from the operations and eventual disposition of such property using holding periods that are consistent with our revised plans. In our accounting for impairment of long-lived assets, we estimate property fair values based on contract prices, indicative bids, discounted cash flow analyses or comparable sales analyses. We estimate cash flows used in performing impairment analyses based on our plans for the property and our views of market and economic conditions. Our estimates consider items such as current and future market rental and occupancy rates, estimated operating and capital expenditures, leasing commissions, absorption and hold periods and recent sales data for comparable properties; most of these items are influenced by market data obtained from real estate leasing and brokerage firms and our direct experience with the properties and their markets. Our determination of appropriate capitalization or discount rates for use in estimating property fair values also requires significant judgment and is typically based on many factors, including the prevailing rate for the market or submarket, as well as the quality, location and other unique attributes of the property.

Since asset groups associated with properties held for sale are carried at the lower of their carrying values (i.e., cost less accumulated depreciation and any impairment loss recognized, where applicable) or estimated fair values less costs to sell, decisions by us to sell certain properties will result in impairment losses if the carrying values of the specific properties’ asset groups classified as held for sale exceed such properties’ estimated fair values less costs to sell. Our estimates of fair value consider matters such as recent sales data for comparable properties and, where applicable, contracts or the results of negotiations with prospective purchasers. These estimates are subject to revision as market conditions, and our assessment of such conditions, change.

Historically, future market rental and occupancy rates have tended to be the most variable assumption in our impairment analyses of properties to be held and used; while changes in these assumptions can significantly affect our estimates of property undiscounted future cash flows in our recoverability analyses, such changes historically have not usually resulted in impairment losses since the resulting recoverability analyses still have tended to exceed the carrying value of the property asset groups. Historically, our recognition of impairment losses has most often occurred due to changes in our estimates of future cash flows resulting from a change in our plans for a property, such as a decision by us to sell or shorten our expected holding period for a property or to not develop a property. Changes in the estimated future cash flows due to changes in our plans for a property or significant changes in our views regarding property market and economic conditions and/or our ability to obtain development rights could result in recognition of impairment losses that could be substantial.

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Concentration of Operations

Customer Concentration of Property Operations

The table below sets forth the 20 largest tenants in our portfolio of operating properties based on percentage of annualized rental revenue:
Percentage of Annualized Rental
Revenue of Operating Properties
for 20 Largest Tenants as of December 31,
Tenant (1)202320222021
USG35.9 %35.5 %35.6 %
Fortune 100 Company8.7 %8.4 %9.2 %
General Dynamics Corporation5.0 %5.1 %5.6 %
CACI International Inc2.3 %2.4 %2.4 %
Northrop Grumman Corporation 2.3 %2.4 %1.4 %
The Boeing Company2.3 %2.4 %2.5 %
Peraton Corp.2.0 %2.1 %2.1 %
Booz Allen Hamilton, Inc.1.8 %1.9 %1.9 %
Fortune 100 Company1.8 %1.9 %N/A
Morrison & Foerster, LLP1.5 %1.4 %1.0 %
CareFirst Inc.1.4 %1.5 %1.7 %
KBR, Inc.1.2 %1.2 %N/A
Yulista Holding, LLC1.1 %1.1 %1.1 %
RTX Corporation1.1 %1.1 %1.1 %
Miles and Stockbridge, PC1.0 %1.1 %1.0 %
AT&T Corporation1.0 %1.1 %1.1 %
Mantech International Corp.1.0 %1.0 %1.0 %
Jacobs Engineering Group Inc.1.0 %1.0 %1.0 %
Wells Fargo & Company1.0 %1.1 %1.1 %
University System of Maryland0.9 %N/A0.8 %
The MITRE CorporationN/A0.8 %0.8 %
Transamerica Life Insurance CompanyN/AN/A0.9 %
Subtotal of 20 largest tenants74.3 %74.5 %73.3 %
All remaining tenants25.7 %25.5 %26.7 %
Total100.0 %100.0 %100.0 %
Total annualized rental revenue$646,660 $609,700 $589,425 
(1)Includes affiliated organizations where applicable.

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Concentration of Properties by Segment

The table below sets forth the segment allocation of our annualized rental revenue (excluding our Wholesale Data Center that we sold on January 25, 2022) as of the end of the last three calendar years:
Percentage of Annualized Rental Revenue as of December 31,Number of Properties as of
December 31,
Region202320222021202320222021
Defense/IT Portfolio:
Fort Meade/BW Corridor47.7 %46.8 %47.0 %92 91 90 
NoVA Defense/IT12.8 %13.3 %13.9 %16 16 16 
Lackland Air Force Base9.5 %9.9 %10.6 %
Navy Support5.2 %5.4 %5.9 %22 22 21 
Redstone Arsenal8.8 %7.6 %5.4 %22 21 17 
Data Center Shells5.8 %6.7 %5.3 %30 28 26 
Total Defense/IT Portfolio89.8 %89.7 %88.1 %190 186 178 
Other10.2 %10.3 %11.9 %
100.0 %100.0 %100.0 %198 194 186 

The changes in revenue concentration reflected above between year-end 2022 and 2023 were attributable primarily to the: increasing effects in 2023 of occupied properties placed in service (most notably for Fort Meade/BW Corridor, Redstone Arsenal and Data Center Shells) and occupancy from vacant space leasing for Fort Meade/BW Corridor and Redstone Arsenal; offset in part by the decreasing effect from our sale of interests in Data Center Shells in 2023.

Occupancy and Leasing
  
The tables below set forth occupancy information (excluding our Wholesale Data Center that we sold on January 25, 2022):
December 31,
202320222021
Occupancy rates at period end  
Total94.2 %92.7 %92.4 %
Defense/IT Portfolio:
Fort Meade/BW Corridor96.4 %92.7 %90.0 %
NoVA Defense/IT88.9 %90.0 %88.3 %
Lackland Air Force Base100.0 %100.0 %100.0 %
Navy Support 87.4 %89.8 %93.9 %
Redstone Arsenal97.5 %89.9 %90.8 %
Data Center Shells100.0 %100.0 %100.0 %
Total Defense/IT Portfolio96.2 %94.1 %93.0 %
Other73.2 %78.8 %87.0 %
Annualized rental revenue per occupied square foot at year end$34.14 $33.16 $32.47 

Rentable
Square Feet
Occupied
Square Feet
 (in thousands)
December 31, 202223,006 21,327 
Vacated upon lease expiration (1)— (504)
Occupancy for new leases— 818 
Development placed in service848 827 
Other changes
December 31, 202323,859 22,470 
(1)Includes lease terminations and space reductions occurring in connection with lease renewals.

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With regard to changes in occupancy from December 31, 2022 to December 31, 2023:

>Fort Meade/BW Corridor: Increase was due primarily to the commencement of occupancy from vacant space leasing in a number of properties in this sub-segment;
>Navy Support: Decreased despite an 80.5% tenant retention rate in 2023 due to minimal commencement of occupancy from vacant space leasing. As of December 31, 2023 we had scheduled lease expirations in 2024 for 352,000 square feet, or 32%, of this sub-segment’s occupied square feet, most of which we expect to renew;
>Redstone Arsenal: Increase was due primarily to the commencement of occupancy from vacant space leasing in a number of properties in this sub-segment; and
>Other: Decreased due to vacated space resulting from its 25.3% tenant retention rate and minimal vacant space leasing.

In 2023, we leased 2.9 million square feet, including 747,000 square feet of development space in our Defense/IT Portfolio, with weighted average lease terms of 14.4 years.

In 2023, we renewed leases on 1.7 million square feet, representing a tenant retention rate of 79.7%. Most of these lease renewals were for our Defense/IT Portfolio, which had a retention rate of 85.7%, while our Other segment had a retention rate of 25.3%. The cash rents for our renewals (totaling $34.69 per square foot) increased on average by approximately 1.5% and the straight-line rents (totaling $34.69 per square foot) increased on average by approximately 9.3% relative to the leases previously in place for the space. The renewed leases had a weighted average lease term of approximately 4.8 years, with average escalations per year of 2.6%, and the per annum average committed costs associated with completing the leasing was approximately $3.16 per square foot.

In 2023, we also completed leasing on 452,000 square feet of vacant space, predominantly for our Defense/IT Portfolio. The cash rents of this leasing totaled $34.87 per square foot and the straight-line rents totaled $35.10 per square foot; these leases had a weighted average lease term of approximately 8.2 years, with average escalations per year of 2.5%, and the per annum average committed costs associated with completing this leasing was approximately $9.41 per square foot.

Lease Expirations

The table below sets forth as of December 31, 2023 our scheduled lease expirations based on the non-cancelable term of tenant leases determined in accordance with generally accepted accounting principles for our properties by segment/sub-segment in terms of percentage of annualized rental revenue:
Expiration of Annualized Rental Revenue of Operating Properties
20242025202620272028ThereafterTotal
Defense/IT Portfolio:
Fort Meade/BW Corridor8.4 %11.1 %5.1 %4.0 %7.1 %11.9 %47.7 %
NoVA Defense/IT1.5 %1.8 %0.3 %1.0 %1.1 %7.0 %12.8 %
Lackland Air Force Base0.0 %6.2 %1.9 %0.0 %0.0 %1.4 %9.5 %
Navy Support1.6 %0.7 %0.9 %1.2 %0.2 %0.5 %5.2 %
Redstone Arsenal0.5 %1.1 %0.1 %0.7 %0.0 %6.4 %8.8 %
Data Center Shells0.1 %0.0 %0.1 %0.1 %0.1 %5.4 %5.8 %
Other0.7 %1.6 %0.9 %0.7 %1.4 %5.0 %10.2 %
Total12.8 %22.5 %9.5 %7.6 %10.0 %37.6 %100.0 %

The weighted average lease term as of December 31, 2023 was approximately five years. We believe that the weighted average annualized rental revenue per occupied square foot for leases expiring in 2024, on average, approximated estimated current market rents for the related space, with specific results varying by segment/sub-segment.

Results of Operations
 
For a discussion of our results of operations comparison for 2022 and 2021, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed on February 24, 2023.

We evaluate the operating performance of our properties using NOI from real estate operations, our segment performance measure, which includes: real estate revenues and property operating expenses from continuing and discontinued operations; and the net of revenues and property operating expenses of real estate operations owned through unconsolidated real estate
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joint ventures (“UJVs”) that is allocable to our ownership interest (“UJV NOI allocable to COPT Defense”).  The table below reconciles NOI from real estate operations to net (loss) income, the most directly comparable GAAP measure:
 For the Years Ended December 31,
 20232022
(in thousands)
Net (loss) income$(74,347)$178,822 
Construction contract and other service revenues(60,179)(154,632)
Depreciation and other amortization associated with real estate operations148,950 141,230 
Construction contract and other service expenses57,416 149,963 
Impairment losses252,797 — 
General, administrative, leasing and other expenses42,769 38,991 
Interest expense71,142 61,174 
Interest and other income, net(12,587)(9,070)
Gain on sales of real estate from continuing operations(49,392)(19,250)
Loss on early extinguishment of debt— 609 
Equity in loss (income) of unconsolidated entities261 (1,743)
UJV NOI allocable to COPT Defense included in equity in (loss) income of unconsolidated entities 6,659 4,327 
Income tax expense588 447 
Discontinued operations— (29,573)
Revenues from real estate operations from discontinued operations— 1,980 
Property operating expenses from discontinued operations— (971)
NOI from real estate operations$384,077 $362,304 

We view our changes in NOI from real estate operations as being comprised of the following primary categories:
 
>Same Property, which we define as properties stably owned and 100% operational throughout the two years being compared. For further discussion of the concept of “operational,” refer to the Properties section of Note 2 of the consolidated financial statements;
>developed or redeveloped properties placed into service that were not 100% operational throughout the two years being compared; and
>disposed properties.

 In addition to owning properties, we provide construction management and other services. The primary manner in which we evaluate the operating performance of our construction management and other service activities is through a measure we define as NOI from service operations, which is based on the net of the revenues and expenses from these activities.  The revenues and expenses from these activities consist primarily of subcontracted costs that are reimbursed to us by customers along with a management fee.  The operating margins from these activities are small relative to the revenue.  We believe NOI from service operations is a useful measure in assessing both our level of activity and our profitability in conducting such operations.
 
Since both of the measures discussed above exclude certain items includable in net income or loss, reliance on these measures has limitations; management compensates for these limitations by using the measures simply as supplemental measures that are considered alongside other GAAP and non-GAAP measures. A reconciliation of NOI from real estate operations and NOI from service operations to (loss) income from continuing operations reported on the consolidated statements of operations is provided in Note 13 to our consolidated financial statements.

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Comparison of Statements of Operations for the Years Ended December 31, 2023 and 2022
 For the Years Ended December 31,
 20232022Variance
 (in thousands)
Revenues   
Revenues from real estate operations$624,803 $584,398 $40,405 
Construction contract and other service revenues60,179 154,632 (94,453)
Total revenues684,982 739,030 (54,048)
Operating expenses   
Property operating expenses247,385 227,430 19,955 
Depreciation and amortization associated with real estate operations148,950 141,230 7,720 
Construction contract and other service expenses57,416 149,963 (92,547)
Impairment losses252,797 — 252,797 
General, administrative, leasing and other expenses42,769 38,991 3,778 
Total operating expenses749,317 557,614 191,703 
Interest expense(71,142)(61,174)(9,968)
Interest and other income, net12,587 9,070 3,517 
Gain on sales of real estate49,392 19,250 30,142 
Loss on early extinguishment of debt— (609)609 
Equity in (loss) income of unconsolidated entities(261)1,743 (2,004)
Income tax expense(588)(447)(141)
(Loss) income from continuing operations(74,347)149,249 (223,596)
Discontinued operations— 29,573 (29,573)
Net (loss) income $(74,347)$178,822 $(253,169)

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NOI from Real Estate Operations
 For the Years Ended December 31,
 20232022Variance
 (Dollars in thousands, except per square foot data)
Revenues   
Same Property revenues
Lease revenue, excluding lease termination revenue and collectability loss provisions$567,320 $544,312 $23,008 
Lease termination revenue, net3,745 2,237 1,508 
Collectability loss provisions included in lease revenue(1,313)(745)(568)
Other property revenue4,832 4,077 755 
Same Property total revenues574,584 549,881 24,703 
Developed and redeveloped properties placed in service42,156 10,515 31,641 
Dispositions, net of retained interest in newly-formed UJVs400 21,404 (21,004)
Other7,663 4,578 3,085 
 624,803 586,378 38,425 
Property operating expenses   
Same Property(234,052)(219,876)(14,176)
Developed and redeveloped properties placed in service(6,421)(1,177)(5,244)
Dispositions, net of retained interest in newly-formed UJVs(56)(3,665)3,609 
Other(6,856)(3,683)(3,173)
 (247,385)(228,401)(18,984)
UJV NOI allocable to COPT Defense
Same Property4,301 4,308 (7)
Retained interests in newly-formed UJVs2,358 19 2,339 
6,659 4,327 2,332 
NOI from real estate operations   
Same Property344,833 334,313 10,520 
Developed and redeveloped properties placed in service35,735 9,338 26,397 
Dispositions, net of retained interest in newly-formed UJVs2,702 17,758 (15,056)
Other807 895 (88)
 $384,077 $362,304 $21,773 
Same Property NOI from real estate operations by segment
Defense/IT Portfolio$316,701 $305,377 $11,324 
Other28,132 28,936 (804)
$344,833 $334,313 $10,520 
Same Property rent statistics   
Average occupancy rate92.7 %91.6 %1.1 %
Average straight-line rent per occupied square foot (1)$27.13 $26.94 $0.19 
(1)Includes minimum base rents, net of abatements and lease incentives and excluding lease termination revenue, on a straight-line basis for the years set forth above.

Our Same Property pool consisted of 180 properties, comprising 86.4% of our portfolio’s square footage as of December 31, 2023. This pool of properties changed from the pool used for purposes of comparing 2022 and 2021 in our 2022 Annual Report on Form 10-K due to the: addition of seven properties placed in service and 100% operational on or before January 1, 2022 and two properties owned through a UJV that was formed in 2021; and removal of three properties in which we sold a 90% interest in 2023.

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Regarding the changes in NOI from real estate operations reported above:

>the increase for our Same Property pool was due in large part to additional revenue in 2023 resulting from higher occupancy and the commencement of tenant expense reimbursements on certain recently commenced leases;
>