SEC Form 10-Q filed by Easterly Government Properties Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 23, 2024, the registrant had
INDEX TO FINANCIAL STATEMENTS
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Part I: Financial Information |
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Item 1: Financial Statements: |
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Consolidated Financial Statements |
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Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (unaudited) |
1 |
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Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (unaudited) |
2 |
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3 |
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Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited) |
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6 |
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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
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Item 3: Quantitative and Qualitative Disclosures About Market Risk |
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32 |
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32 |
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32 |
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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds |
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32 |
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32 |
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33 |
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33 |
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Easterly Government Properties, Inc.
Consolidated Balance Sheets (unaudited)
(Amounts in thousands, except share amounts)
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March 31, 2024 |
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December 31, 2023 |
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Assets |
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Real estate properties, net |
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$ |
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$ |
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Cash and cash equivalents |
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Restricted cash |
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Tenant accounts receivable |
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Investment in unconsolidated real estate venture |
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Intangible assets, net |
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Interest rate swaps |
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Prepaid expenses and other assets |
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Total assets |
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$ |
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$ |
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Liabilities |
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Revolving credit facility |
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Term loan facilities, net |
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Notes payable, net |
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Mortgage notes payable, net |
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Intangible liabilities, net |
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Deferred revenue |
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Accounts payable, accrued expenses and other liabilities |
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Total liabilities |
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Equity |
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Common stock, par value $ |
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Additional paid-in capital |
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Retained earnings |
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Cumulative dividends |
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Accumulated other comprehensive income |
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Total stockholders’ equity |
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Non-controlling interest in Operating Partnership |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
1
Easterly Government Properties, Inc.
Consolidated Statements of Operations (unaudited)
(Amounts in thousands, except share and per share amounts)
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For the three months ended March 31, |
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2024 |
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2023 |
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Revenues |
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Rental income |
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$ |
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$ |
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Tenant reimbursements |
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Asset management income |
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Other income |
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Total revenues |
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Expenses |
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Property operating |
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Real estate taxes |
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Depreciation and amortization |
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Acquisition costs |
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Corporate general and administrative |
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Total expenses |
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Other income (expense) |
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Income from unconsolidated real estate venture |
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Interest expense, net |
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Net income |
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Non-controlling interest in Operating Partnership |
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Net income available to Easterly Government |
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$ |
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$ |
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Net income available to Easterly Government |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average common shares outstanding |
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Basic |
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Diluted |
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Dividends declared per common share |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
2
Easterly Government Properties, Inc.
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(Amounts in thousands)
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For the three months ended March 31, |
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2024 |
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2023 |
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Net income |
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$ |
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$ |
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Other comprehensive gain (loss): |
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Unrealized gain (loss) on interest rate swaps, net |
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Other comprehensive gain (loss) |
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Comprehensive income |
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Non-controlling interest in Operating Partnership |
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( |
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Other comprehensive (gain) loss attributable to |
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( |
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Comprehensive income attributable to |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
3
Easterly Government Properties, Inc.
Consolidated Statements of Cash Flows (unaudited)
(Amounts in thousands)
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For the three months ended March 31, |
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2024 |
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2023 |
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Cash flows from operating activities |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities |
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Depreciation and amortization |
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Straight line rent |
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Income from unconsolidated real estate venture |
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Amortization of above- / below-market leases |
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Amortization of unearned revenue |
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Amortization of loan premium / discount |
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Amortization of deferred financing costs |
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Amortization of lease inducements |
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Distributions from investment in unconsolidated real estate venture |
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Non-cash compensation |
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Net change in: |
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Tenant accounts receivable |
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Prepaid expenses and other assets |
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Deferred revenue associated with operating leases |
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Principal payments on operating lease obligations |
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Accounts payable, accrued expenses and other liabilities |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Real estate acquisitions and deposits |
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Additions to operating properties |
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Additions to development properties |
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( |
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( |
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Investment in loan receivable |
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( |
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— |
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Net cash used in investing activities |
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( |
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Cash flows from financing activities |
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Payment of deferred financing costs |
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— |
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Issuance of common shares |
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— |
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Credit facility draws |
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Credit facility repayments |
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Repayments of mortgage notes payable |
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Dividends and distributions paid |
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( |
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Payment of offering costs |
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( |
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Net cash provided by (used in) financing activities |
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Net increase in Cash and cash equivalents and Restricted cash |
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Cash and cash equivalents and Restricted cash, beginning of period |
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Cash and cash equivalents and Restricted cash, end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
4
Easterly Government Properties, Inc.
Consolidated Statements of Cash Flows (unaudited)
(Amounts in thousands)
Supplemental disclosure of cash flow information is as follows:
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For the three months ended March 31, |
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2024 |
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2023 |
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Cash paid for interest (net of capitalized interest of $ |
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$ |
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$ |
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Supplemental disclosure of non-cash information |
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Additions to operating properties accrued, not paid |
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$ |
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$ |
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Additions to development properties accrued, not paid |
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Offering costs accrued, not paid |
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Deferred asset acquisition costs accrued, not paid |
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Unrealized gain (loss) on interest rate swaps, net |
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( |
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Properties acquired for Common Units |
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— |
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Exchange of Common Units for Shares of Common Stock |
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Non-controlling interest in Operating Partnership |
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$ |
( |
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$ |
( |
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Common stock |
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— |
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Additional paid-in capital |
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Total |
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$ |
— |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
5
Easterly Government Properties, Inc.
Notes to the Consolidated Financial Statements (unaudited)
1. Organization and Basis of Presentation
The information contained in the following notes to the consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2023, and related notes thereto, included in the Annual Report on Form 10-K of Easterly Government Properties, Inc. (the “Company”) for the year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 27, 2024.
The Company is a Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2015. The operations of the Company are carried out primarily through Easterly Government Properties LP (the “Operating Partnership”) and the wholly owned subsidiaries of the Operating Partnership. As used herein, the “Company,” “we,” “us,” or “our” refer to Easterly Government Properties, Inc. and its consolidated subsidiaries and partnerships, including the Operating Partnership, except where context otherwise requires.
We are an internally managed REIT, focused primarily on the acquisition, development and management of Class A commercial properties that are leased to U.S. Government agencies that serve essential functions. We generate substantially all of our revenue by leasing our properties to such agencies, either directly or through the U.S. General Services Administration (“GSA”). Our objective is to generate attractive risk-adjusted returns for our stockholders over the long-term through dividends and capital appreciation.
We focus primarily on acquiring, developing and managing U.S. Government leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the U.S. Government, working closely with the tenant agency to meet its needs and objectives. We may also consider other potential opportunities to add properties to our portfolio, including acquiring properties leased to state and local governments with strong creditworthiness and other opportunities that directly or indirectly support the mission of select government agencies. As of March 31, 2024, we wholly owned
The Operating Partnership holds substantially all of our assets and conducts substantially all of our business. We are the sole general partner of the Operating Partnership and owned approximately
Principles of Consolidation
The accompanying consolidated financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company, Easterly Government Properties TRS, LLC, Easterly Government Services, LLC, the Operating Partnership and its other subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation
The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the consolidated financial position of the Company at March 31, 2024 and December 31, 2023, the consolidated results of operations for the three months ended March 31, 2024 and 2023, and the consolidated cash flows for the three months ended March 31, 2024 and 2023. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
6
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the balance sheet, and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the impact of extraordinary events, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
2. Summary of Significant Accounting Policies
The significant accounting policies used in the preparation of our condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recent Accounting Pronouncements Not Yet Adopted
In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”). ASU 2023-06 adds interim and annual disclosure requirements to GAAP at the request of the Securities and Exchange Commission (the “SEC”). The guidance in ASU 2023-06 is required to be applied prospectively and the GAAP requirements will be effective when the removal of the related SEC disclosure requirements is effective. If the SEC does not act to remove its related requirement by June 30, 2027, any related FASB amendments will be removed from the ASC and will not be effective. We do not anticipate that the adoption of ASU 2023-06 will have a material impact on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard is intended to enhance the transparency and decision usefulness of income tax disclosures through changes to the rate reconciliation and income taxes paid information. The new standard is effective for annual periods beginning after December 15, 2024. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.
3. Real Estate and Intangibles
Consolidated Real Estate and Intangibles
Real estate and intangibles consisted of the following as of March 31, 2024 (amounts in thousands):
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Total |
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Real estate properties, net |
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Land |
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$ |
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Building and improvements |
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Acquired tenant improvements |
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Construction in progress |
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Accumulated depreciation |
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Total Real estate properties, net |
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Intangible assets, net |
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In-place leases |
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Acquired leasing commissions |
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Above market leases |
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Payment in lieu of taxes |
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Accumulated amortization |
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Total Intangible assets, net |
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Intangible liabilities, net |
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Below market leases |
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( |
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Accumulated amortization |
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Total Intangible liabilities, net |
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( |
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During the three months ended March 31, 2024, we incurred $
7
The following table summarizes the scheduled amortization of our acquired above- and below-market lease intangibles for each of the five succeeding years as of March 31, 2024 (amounts in thousands):
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Acquired Above-Market Lease Intangibles |
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Acquired Below-Market Lease Intangibles |
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2024 (1) |
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$ |
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$ |
( |
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2025 |
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( |
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2026 |
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( |
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2027 |
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( |
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2028 |
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Above-market lease amortization reduces Rental income on our Consolidated Statements of Operations and below-market lease amortization increases Rental income on our Consolidated Statements of Operations.
4. Investment in Unconsolidated Real Estate Venture
The following is a summary of our investment in the JV (dollars in thousands):
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As of March 31, |
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Joint Venture |
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Ownership Interest |
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2024 |
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MedBase Venture |
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$ |
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On October 13, 2021, we formed an unconsolidated real estate venture, which we refer to as the JV, with a global investor to fund the acquisition of a portfolio of
8
5. Debt
At March 31, 2024, our consolidated borrowings consisted of the following (amounts in thousands):
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Principal Outstanding |
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Interest |
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Current |
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Loan |
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March 31, 2024 |
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Rate (1) |
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Maturity |
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Revolving credit facility: |
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Revolving credit facility (2) |
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$ |
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Total revolving credit facility |
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Term loan facilities: |
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2016 term loan facility |
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2018 term loan facility |
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Total term loan facilities |
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Less: Total unamortized deferred financing fees |
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( |
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Total term loan facilities, net |
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Notes payable: |
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2017 series A senior notes |
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2017 series B senior notes |
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2017 series C senior notes |
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2019 series A senior notes |
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2019 series B senior notes |
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2019 series C senior notes |
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2021 series A senior notes |
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2021 series B senior notes |
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Total notes payable |
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Less: Total unamortized deferred financing fees |
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( |
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Total notes payable, net |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable: |
|
|
|
|
|
|
|
|
|
VA – Golden |
|
|
|
|
|
|
|||
USFS II – Albuquerque |
|
|
|
|
|
|
|||
ICE – Charleston |
|
|
|
|
|
|
|||
VA – Loma Linda |
|
|
|
|
|
|
|||
CBP – Savannah |
|
|
|
|
|
|
|||
USCIS – Kansas City |
|
|
|
|
|
|
|||
Total mortgage notes payable |
|
|
|
|
|
|
|
|
|
Less: Total unamortized deferred financing fees |
|
|
( |
) |
|
|
|
|
|
Less: Total unamortized premium/discount |
|
|
|
|
|
|
|
|
|
Total mortgage notes payable, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
|
|
|
|
|
|
|
9
As of March 31, 2024, the net carrying value of real estate collateralizing our mortgages payable totaled $
On January 2, 2024, the margin spreads under the second amended senior unsecured credit agreement, that governs our revolving credit facility and 2018 term loan facility, were reduced by
On January 23, 2024, we entered into the seventh amendment to the senior unsecured term loan agreement, dated as of September 29, 2016, that governs our 2016 term loan facility to extend the maturity date of our 2016 term loan facility from March 29, 2024 to January 30, 2025.
Financial Covenant Considerations
As of March 31, 2024, we were in compliance with all financial and other covenants related to our debt.
6. Derivatives and Hedging Activities
The following table sets forth the key terms and fair values of our interest rate swap derivatives, each of which was designated as a cash flow hedge as of March 31, 2024. We entered into these interest rate swap derivatives to reduce our exposure to the variability in future cash flows attributable to changes in our 2016 term loan facility and 2018 term loan facility (amounts in thousands):
Notional Amount |
|
|
Fixed Rate |
|
|
Floating Rate Index |
|
Effective Date |
|
Expiration Date |
|
Fair Value |
|
|||
$ |
|
|
|
% |
|
|
|
|
$ |
|
||||||
$ |
|
|
|
% |
|
|
|
|
$ |
|
||||||
$ |
|
|
|
% |
|
|
|
|
$ |
|
||||||
The table below sets forth the fair value of our interest rate derivatives as well as their classification on our Consolidated Balance Sheet (amounts in thousands):
Balance Sheet Line Item |
|
As of March 31, 2024 |
|
|
Interest rate swaps |
|
$ |
|
|
Cash Flow Hedges of Interest Rate Risk
The gains or losses on derivatives designated and that qualify as cash flow hedges are recorded in Accumulated other comprehensive income (“AOCI”) and will be reclassified to interest expense in the period that the hedged forecasted transactions affect earnings on our variable rate debt.
We estimate that $
10
The table below presents the effects of our interest rate derivatives on our Consolidated Statements of Operations and Comprehensive Income (Loss) (amounts in thousands):
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Unrealized gain (loss) recognized in AOCI |
|
$ |
|
|
$ |
( |
) |
|
Gain reclassified from AOCI into interest expense |
|
|
|
|
|
|
||
Credit-Risk-Related Contingent Features
We have agreements with each of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on such indebtedness. As of March 31, 2024, we were
7. Fair Value Measurements
Accounting standards define fair value as the exit price, or the amount that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standards also establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy of these inputs is broken down into three levels: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Categorization within the valuation hierarchy is based upon the lowest level of input that is most significant to the fair value measurement.
Recurring fair value measurements
The fair values of our interest rate swaps are determined using widely accepted valuation techniques, including discounted cash flow analysis, on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities in such interest rates. While we determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. We have determined that the significance of the impact of the credit valuation adjustments made to our derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives held as of March 31, 2024 were classified as Level 2 of the fair value hierarchy.
The carrying values of cash and cash equivalents, restricted cash, accounts receivable, other assets and accounts payable and accrued expenses are reasonable estimates of fair values because of the short maturities of these instruments. The table below presents our assets measured at fair value on a recurring basis as of March 31, 2024, aggregated by the level in the fair value hierarchy within which those measurements fall (amounts in thousands):
|
|
As of March 31, 2024 |
|
|||||||||
Balance Sheet Line Item |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Interest rate swaps |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
For our disclosure of debt fair values, we estimated the fair value of our 2016 term loan facility and our 2018 term loan facility based on the variable interest rate and credit spreads (categorized within Level 3 of the fair value hierarchy) and estimated the fair value of our other debt based on the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments included scheduled principal and interest payments. Fair value estimates are made as of a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement at such fair value amounts may not be possible and may not be a prudent management decision.
11
Financial assets and liabilities not measured at fair value
As of March 31, 2024, all financial instruments and liabilities were reflected in our balance sheets at amounts which, in our estimation, reasonably approximated their fair values, except for the following:
|
|
As of March 31, 2024 |
|
|||||
Financial liabilities |
|
Carrying Amount (1) |
|
|
Fair Value (2) |
|
||
|
|
|
|
|
|
|
||
Revolving credit facility |
|
$ |
|
|
$ |
|
||
2016 term loan facility |
|
$ |
|
|
$ |
|
||
2018 term loan facility |
|
$ |
|
|
$ |
|
||
Notes payable |
|
$ |
|
|
$ |
|
||
Mortgages payable |
|
$ |
|
|
$ |
|
||
8. Equity Incentive Plan
The following is a summary of our stock-based compensation expense for the three months ended March 31, 2024 and 2023, respectively:
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Stock-based compensation expense |
|
|
|
|
$ |
|
||
Stock-based compensation expense is included within corporate general and administrative expenses on our Consolidated Statements of Operations.
On January 2, 2024, we granted an aggregate of
On January 19, 2024, we granted
Pursuant to the 2015 Plan, the significant assumptions used to value the performance-based LTIP units using a Monte Carlo Simulation (risk -neutral approach) include expected volatility (
12
9. Equity
The following table summarizes the changes in our stockholders’ equity for the three months ended March 31, 2024 and 2023 (amounts in thousands, except share amounts):
|
|
Shares |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Cumulative |
|
|
Accumulated |
|
|
Non- |
|
|
Total |
|
||||||||
Three months ended March 31, 2024 |
|
|||||||||||||||||||||||||||||||
Balance at December 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Dividends and distributions paid |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Redemption of common units for |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|||
Unrealized gain on interest rate swaps |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Allocation of non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Balance at March 31, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Three months ended March 31, 2023 |
|
|||||||||||||||||||||||||||||||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Stock based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Dividends and distributions paid |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Grant of unvested restricted stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Redemption of common units for shares of common stock |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
||
Issuance of common stock, net |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Contribution of property for |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Unrealized loss on interest rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Allocation of non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
A summary of dividends declared by our board of directors per share of common stock and per common unit at the date of record is as follows:
Quarter |
|
Declaration Date |
|
Record Date |
|
Payment Date |
|
Dividend (1) |
Q1 2024 |
|
|
|
|
ATM Programs
We entered into separate equity distribution agreements on each of December 20, 2019 (the “2019 ATM Program”) and June 22, 2021 (the “2021 ATM Program” and, together with the 2019 ATM Program, the “ATM Programs”) with various financial institutions pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $
As of March 31, 2024, we had forward sales transactions outstanding under the 2019 ATM Program for the sale of
On April 10, 2024, we settled the
13
As of March 31, 2024, we had approximately $
Share Repurchase Program
On April 28, 2022, our Board of Directors authorized a share repurchase program whereby we may repurchase up to
10. Earnings Per Share
Basic earnings or loss per share of common stock (“EPS”) is calculated by dividing net income attributable to common stockholders by the weighted average shares of common stock outstanding for the periods presented. Diluted EPS is computed after adjusting the basic EPS computation for the effect of dilutive common equivalent shares outstanding during the periods presented. Unvested restricted shares of common stock and unvested LTIP units are considered participating securities, which require the use of the two-class method for the computation of basic and diluted earnings per share.
The following table sets forth the computation of our basic and diluted earnings per share of common stock for the three months ended March 31, 2024 and 2023 (amounts in thousands, except per share amounts):
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Numerator |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Less: Non-controlling interest in Operating Partnership |
|
|
( |
) |
|
|
( |
) |
Net income available to Easterly Government Properties, Inc. |
|
|
|
|
|
|
||
Less: Dividends on participating securities |
|
|
( |
) |
|
|
( |
) |
Net income available to common stockholders |
|
$ |
|
|
$ |
|
||
Denominator for basic EPS |
|
|
|
|
|
|
||
Dilutive effect of share-based compensation awards |
|
|
|
|
|
|
||
Dilutive effect of LTIP units (1) |
|
|
|
|
|
|
||
Dilutive effect of shares issuable under forward sale agreements (2) |
|
|
— |
|
|
|
— |
|
Denominator for diluted EPS |
|
|
|
|
|
|
||
Basic EPS |
|
$ |
|
|
$ |
|
||
Diluted EPS |
|
$ |
|
|
$ |
|
||
11. Leases
Lessor
We lease commercial space to the U.S. Government through the GSA or other federal agencies or nongovernmental tenants. These leases may contain extension options that are predominately at the sole discretion of the tenant. Certain of our leases contain a “soft-term” period of the lease, meaning that the U.S. Government tenant agency has the right to terminate the lease prior to its stated lease end date. While certain of our leases are contractually subject to early termination, we do not believe that our tenant agencies are likely to terminate these leases early given the build-to-suit features at the properties subject to the leases, the weighted average age of
14
these properties based on the date the property was built or renovated-to-suit, where applicable (approximately
The table below sets forth our composition of lease revenue recognized between fixed and variable components (amounts in thousands):
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Fixed |
|
$ |
|
|
$ |
|
||
Variable |
|
|
|
|
|
|
||
Rental income |
|
|
|
|
|
|
||
Lessee
We lease corporate office space under operating lease arrangements in Washington, D.C. and San Diego, CA. The leases include variable lease payments that, in the future, will vary based on changes in real estate tax rates, usage, or share of expenditures of the leased premises. We have elected not to separate lease and non-lease components for our corporate office leases.
As of March 31, 2024, the unamortized balances associated with our right-of-use operating lease asset and operating lease liability were both $
The following table provides quantitative information for our commenced operating leases for the three months ended March 31, 2024 and 2023 (amounts in thousands):
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash flows from operating lease costs |
|
$ |
|
|
$ |
|
||
In addition, the maturity of fixed lease payments under our commenced corporate office leases as of March 31, 2024 is summarized in the table below (amounts in thousands):
Corporate office leases |
|
Payments due by period |
|
|
2024 (1) |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total future minimum lease payments |
|
$ |
|
|
Imputed interest |
|
|
( |
) |
Total |
|
$ |
|
|
15
12. Revenue
The table below sets forth revenue from tenant construction projects and the associated project management income disaggregated by tenant agency for the three months ended March 31, 2024 and 2023 (amounts in thousands):
|
|
For the three months ended March 31, |
|
|
|||||
Tenant |
|
2024 |
|
|
2023 |
|
|
||
|
|
|
|
|
|
|
|
||
Department of Veteran Affairs (“VA”) |
|
$ |
|
|
$ |
|
|
||
U.S. Joint Staff Command (“JSC”) |
|
|
|
|
|
|
|
||
Customs and Border Protection (“CBP”) |
|
|
|
|
|
|
|
||
Food and Drug Administration (“FDA”) |
|
|
|
|
|
|
|
||
Federal Bureau of Investigation (“FBI”) |
|
|
|
|
|
|
|
||
The Judiciary of the U.S. Government (“JUD”) |
|
|
|
|
|
|
|
||
General Services Administration - Other |
|
|
|
|
|
— |
|
|
|
Department of Transportation (“DOT”) |
|
|
|
|
|
|
|
||
Internal Revenue Service (“IRS”) |
|
|
|
|
|
|
|
||
U.S. Coast Guard (“USCG”) |
|
|
— |
|
|
|
|
|
|
Immigration and Customs Enforcement (“ICE”) |
|
|
— |
|
|
|
|
|
|
Federal Emergency Management Agency (“FEMA”) |
|
|
— |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
||
As of March 31, 2024 and December 31, 2023, the balance in Accounts receivable related to tenant construction projects and the associated project management income was $
The duration of the majority of tenant construction project reimbursement arrangements is less than a year and payment is typically due once a project is complete and work has been accepted by the tenant. There were no projects on-going as of March 31, 2024 with a duration of greater than one year.
During each of the three months ended March 31, 2024 and 2023, we recognized $
There were
13. Concentrations Risk
Concentrations of credit risk arise for us when multiple of our tenants are engaged in similar business activities, are located in the same geographic region or have similar economic features that impact in a similar manner their ability to meet contractual obligations, including obligations owed to us. We regularly monitor our tenant base to assess potential concentrations of credit risk.
As stated in Note 1 above, we lease commercial space to the U.S. Government or non-governmental tenants. At March 31, 2024, the U.S. Government accounted for approximately
16
14. Related Parties
We have reimbursement arrangements with entities controlled by our former Chairman, who was appointed Chief Executive Officer effective January 1, 2024, and Vice Chairman, which provide for reimbursement of costs paid on our behalf, or those we pay on their behalf. During each of the three months ended March 31, 2024 and 2023, we were responsible for reimbursing costs of $
We provide asset management services to properties owned by the JV. For the three months ended March 31, 2024 and 2023, we recognized Asset management income of $
As of March 31, 2024, Accounts receivable from related parties was $
15. Subsequent Events
For our consolidated financial statements as of March 31, 2024, we evaluated subsequent events and noted the following significant events.
On April 1, 2024, we used $
On April 4, 2024, we acquired land to develop a
On April 12, 2024, we acquired a
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We caution investors that forward-looking statements are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “potential”, “project”, “result”, “seek”, “should”, “target”, “will”, and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, investors should use caution in relying on forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:
18
For a further discussion of these and other factors that could affect us and the statements contained herein, see the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as may be supplemented or amended from time to time.
Overview
References to “we,” “our,” “us” and “the Company” refer to Easterly Government Properties, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Easterly Government Properties LP, a Delaware limited partnership, which we refer to herein as the “operating partnership.” We present certain financial information and metrics “at Easterly Share,” which is calculated on an entity-by-entity basis. “At Easterly Share” information, which we also refer to as being “at share,” “pro rata,” “our pro rata share” or “our share” is not, and is not intended to be, a presentation in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
We are an internally managed real estate investment trust (“REIT”), focused primarily on the acquisition, development and management of Class A commercial properties that are leased to U.S. Government agencies that serve essential functions. We generate substantially all of our revenue by leasing our properties to such agencies, either directly or through the U.S. General Services Administration (“GSA”). Our objective is to generate attractive risk-adjusted returns for our stockholders over the long term through dividends and capital appreciation.
We focus primarily on acquiring, developing and managing U.S. Government-leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the U.S. Government, working closely with the tenant agency to meet its needs and objectives. We may also consider other potential opportunities to add properties to our portfolio, including acquiring properties leased to state and local governments with strong creditworthiness and other opportunities that directly or indirectly support the mission of select government agencies. As of March 31, 2024, we wholly owned 81 operating properties and nine operating properties through an unconsolidated joint venture (the “JV”) in the United States, encompassing approximately 8.9 million leased square feet (8.4 million pro rata), including 88 operating properties that were leased primarily to U.S. Government tenant agencies, one operating property entirely leased to tenant agencies of a U.S. state government and one operating property that was entirely leased to a private tenant. As of March 31, 2024, our operating properties were 97% leased. For purposes of calculating percentage leased, we exclude from the denominator total square feet that was unleased and to which we attributed no value at the time of acquisition. In addition, we wholly owned one property under development that we expect will encompass approximately 0.2 million leased square feet upon completion.
The operating partnership holds substantially all of our assets and conducts substantially all of our business. We are the sole general partner of the operating partnership and owned approximately 95.0% of the aggregate limited partnership interests in the operating partnership, which we refer to herein as common units, as of March 31, 2024. We have elected to be taxed as a REIT and believe that we have operated and have been organized in conformity with the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2015.
2024 Activity
Acquisitions
On April 4, 2024, we acquired land to develop a 50,777 square foot Federal courthouse in Flagstaff, Arizona. The courthouse will be primarily leased to the GSA for beneficial use of the Judiciary of the U.S. Government (“JUD”) over a 20 year non-cancelable term.
On April 12, 2024, we acquired a 129,046 leased square foot U.S. Immigration and Customs Enforcement (“ICE”) facility near Dallas, Texas. The building was renovated to suit in 2020. The facility is primarily leased to the GSA for beneficial use of ICE and has lease expirations ranging from 2032 to 2040.
19
Operating Properties
As of March 31, 2024, our operating properties were 97% leased with a weighted average annualized lease income per leased square foot of $35.99 ($35.66 pro rata) and a weighted average age of approximately 14.8 years based on the date the property was built or renovated-to-suit, where applicable. We calculate annualized lease income as annualized contractual base rent for the last month in a specified period, plus the annualized straight line rent adjustments for the last month in such period and the annualized net expense reimbursements earned by us for the last month in such period.
The table set forth below shows information relating to the properties we owned, or in which we had an ownership interest, at March 31, 2024, and it includes properties held by the JV:
Property Name |
|
Location |
|
Property |
|
Tenant Lease |
|
|
Leased |
|
|
Annualized |
|
|
Percentage |
|
|
Annualized |
|
|||||
Wholly Owned U.S. Government Leased Properties |
|
|
|
|
|
|
|
|||||||||||||||||
VA - Loma Linda |
|
Loma Linda, CA |
|
OC |
|
|
2036 |
|
|
|
327,614 |
|
|
$ |
16,812,723 |
|
|
|
5.4 |
% |
|
$ |
51.32 |
|
USCIS - Kansas City (3) |
|
Lee's Summit, MO |
|
O/W |
|
2024 - 2042 |
|
|
|
416,399 |
|
|
|
10,343,455 |
|
|
|
3.3 |
% |
|
|
24.84 |
|
|
JSC - Suffolk |
|
Suffolk, VA |
|
O |
|
|
2028 |
|
|
|
403,737 |
|
|
|
8,427,298 |
|
|
|
2.7 |
% |
|
|
20.87 |
|
Various GSA - Chicago |
|
Des Plaines, IL |
|
O |
|
|
2026 |
|
|
|
188,768 |
|
|
|
7,765,015 |
|
|
|
2.4 |
% |
|
|
41.14 |
|
IRS - Fresno |
|
Fresno, CA |
|
O |
|
|
2033 |
|
|
|
180,481 |
|
|
|
6,967,590 |
|
|
|
2.2 |
% |
|
|
38.61 |
|
FBI - Salt Lake |
|
Salt Lake City, UT |
|
O |
|
|
2032 |
|
|
|
169,542 |
|
|
|
6,897,319 |
|
|
|
2.2 |
% |
|
|
40.68 |
|
Various GSA - Portland (4) |
|
Portland, OR |
|
O |
|
2024 - 2039 |
|
|
|
205,478 |
|
|
|
6,893,310 |
|
|
|
2.2 |
% |
|
|
33.55 |
|
|
Various GSA - Buffalo (5) |
|
Buffalo, NY |
|
O |
|
2025 - 2039 |
|
|
|
273,678 |
|
|
|
6,816,136 |
|
|
|
2.1 |
% |
|
|
24.91 |
|
|
VA - San Jose |
|
San Jose, CA |
|
OC |
|
|
2038 |
|
|
|
90,085 |
|
|
|
5,809,456 |
|
|
|
1.8 |
% |
|
|
64.49 |
|
EPA - Lenexa |
|
Lenexa, KS |
|
O |
|
|
2027 |
|
|
|
169,585 |
|
|
|
5,732,732 |
|
|
|
1.8 |
% |
|
|
33.80 |
|
FBI - Tampa |
|
Tampa, FL |
|
O |
|
|
2040 |
|
|
|
138,000 |
|
|
|
5,313,546 |
|
|
|
1.7 |
% |
|
|
38.50 |
|
FBI - San Antonio |
|
San Antonio, TX |
|
O |
|
|
2025 |
|
|
|
148,584 |
|
|
|
5,207,961 |
|
|
|
1.6 |
% |
|
|
35.05 |
|
PTO - Arlington |
|
Arlington, VA |
|
O |
|
|
2035 |
|
|
|
190,546 |
|
|
|
4,914,173 |
|
|
|
1.5 |
% |
|
|
25.79 |
|
FDA - Alameda |
|
Alameda, CA |
|
L |
|
|
2039 |
|
|
|
69,624 |
|
|
|
4,898,064 |
|
|
|
1.5 |
% |
|
|
70.35 |
|
FEMA - Tracy |
|
Tracy, CA |
|
W |
|
|
2038 |
|
|
|
210,373 |
|
|
|
4,650,064 |
|
|
|
1.5 |
% |
|
|
22.10 |
|
FBI / DEA - El Paso |
|
El Paso, TX |
|
O/W |
|
|
2028 |
|
|
|
203,683 |
|
|
|
4,637,075 |
|
|
|
1.5 |
% |
|
|
22.77 |
|
FBI - Omaha |
|
Omaha, NE |
|
O |
|
|
2024 |
|
|
|
112,196 |
|
|
|
4,435,692 |
|
|
|
1.4 |
% |
|
|
39.54 |
|
TREAS - Parkersburg |
|
Parkersburg, WV |
|
O |
|
|
2041 |
|
|
|
182,500 |
|
|
|
4,367,718 |
|
|
|
1.4 |
% |
|
|
23.93 |
|
DOT - Lakewood |
|
Lakewood, CO |
|
O |
|
|
2039 |
|
|
|
122,225 |
|
|
|
4,287,654 |
|
|
|
1.3 |
% |
|
|
35.08 |
|
FDA - Lenexa |
|
Lenexa, KS |
|
L |
|
|
2040 |
|
|
|
59,690 |
|
|
|
4,254,685 |
|
|
|
1.3 |
% |
|
|
71.28 |
|
VA - South Bend |
|
Mishakawa, IN |
|
OC |
|
|
2032 |
|
|
|
86,363 |
|
|
|
4,104,501 |
|
|
|
1.3 |
% |
|
|
47.53 |
|
FBI - Pittsburgh |
|
Pittsburgh, PA |
|
O |
|
|
2027 |
|
|
|
100,054 |
|
|
|
4,037,239 |
|
|
|
1.3 |
% |
|
|
40.35 |
|
USCIS - Lincoln |
|
Lincoln, NE |
|
O |
|
|
2025 |
|
|
|
137,671 |
|
|
|
3,937,828 |
|
|
|
1.2 |
% |
|
|
28.60 |
|
FBI - New Orleans |
|
New Orleans, LA |
|
O |
|
|
2029 |
|
|
|
137,679 |
|
|
|
3,918,628 |
|
|
|
1.2 |
% |
|
|
28.46 |
|
VA - Mobile |
|
Mobile, AL |
|
OC |
|
|
2033 |
|
|
|
79,212 |
|
|
|
3,908,603 |
|
|
|
1.2 |
% |
|
|
49.34 |
|
FBI - Birmingham |
|
Birmingham, AL |
|
O |
|
|
2042 |
|
|
|
96,278 |
|
|
|
3,610,167 |
|
|
|
1.1 |
% |
|
|
37.50 |
|
FBI - Knoxville |
|
Knoxville, TN |
|
O |
|
|
2025 |
|
|
|
99,130 |
|
|
|
3,607,448 |
|
|
|
1.1 |
% |
|
|
36.39 |
|
EPA - Kansas City |
|
Kansas City, KS |
|
L |
|
|
2043 |
|
|
|
55,833 |
|
|
|
3,518,326 |
|
|
|
1.1 |
% |
|
|
63.02 |
|
ICE - Charleston |
|
North Charleston, SC |
|
O |
|
|
2027 |
|
|
|
65,124 |
|
|
|
3,362,481 |
|
|
|
1.1 |
% |
|
|
51.63 |
|
USFS II - Albuquerque |
|
Albuquerque, NM |
|
O |
|
|
2026 |
|
|
|
98,720 |
|
|
|
3,340,671 |
|
|
|
1.0 |
% |
|
|
33.84 |
|
FBI - Richmond |
|
Richmond, VA |
|
O |
|
|
2041 |
|
|
|
96,607 |
|
|
|
3,336,888 |
|
|
|
1.0 |
% |
|
|
34.54 |
|
VA - Chico |
|
Chico, CA |
|
OC |
|
|
2034 |
|
|
|
51,647 |
|
|
|
3,324,138 |
|
|
|
1.0 |
% |
|
|
64.36 |
|
JUD - Del Rio |
|
Del Rio, TX |
|
C/O |
|
|
2041 |
|
|
|
89,880 |
|
|
|
3,291,972 |
|
|
|
1.0 |
% |
|
|
36.63 |
|
20
Property Name |
|
Location |
|
Property |
|
Tenant Lease |
|
|
Leased |
|
|
Annualized |
|
|
Percentage |
|
|
Annualized |
|
|||||
Wholly Owned U.S. Government Leased Properties (Cont.) |
|
|||||||||||||||||||||||
DEA - Sterling |
|
Sterling, VA |
|
L |
|
|
2038 |
|
|
|
57,692 |
|
|
|
3,222,789 |
|
|
|
1.0 |
% |
|
|
55.86 |
|
FBI - Little Rock |
|
Little Rock, AR |
|
O |
|
|
2041 |
|
|
|
102,377 |
|
|
|
3,217,259 |
|
|
|
1.0 |
% |
|
|
31.43 |
|
USCIS - Tustin |
|
Tustin, CA |
|
O |
|
|
2034 |
|
|
|
66,818 |
|
|
|
3,212,163 |
|
|
|
1.0 |
% |
|
|
48.07 |
|
FBI - Albany |
|
Albany, NY |
|
O |
|
|
2036 |
|
|
|
69,476 |
|
|
|
3,209,365 |
|
|
|
1.0 |
% |
|
|
46.19 |
|
USFS I - Albuquerque |
|
Albuquerque, NM |
|
O |
|
|
2026 |
|
|
|
92,455 |
|
|
|
3,194,573 |
|
|
|
1.0 |
% |
|
|
34.55 |
|
DEA - Vista |
|
Vista, CA |
|
L |
|
|
2035 |
|
|
|
52,293 |
|
|
|
3,130,468 |
|
|
|
1.0 |
% |
|
|
59.86 |
|
VA - Orange |
|
Orange, CT |
|
OC |
|
|
2034 |
|
|
|
56,330 |
|
|
|
2,991,992 |
|
|
|
0.9 |
% |
|
|
53.12 |
|
VA - Indianapolis |
|
Brownsburg, IN |
|
OC |
|
|
2041 |
|
|
|
80,000 |
|
|
|
2,954,619 |
|
|
|
0.9 |
% |
|
|
36.93 |
|
ICE - Albuquerque |
|
Albuquerque, NM |
|
O |
|
|
2027 |
|
|
|
71,100 |
|
|
|
2,841,468 |
|
|
|
0.9 |
% |
|
|
39.96 |
|
SSA - Charleston |
|
Charleston, WV |
|
O |
|
|
2029 |
|
|
|
110,000 |
|
|
|
2,806,152 |
|
|
|
0.9 |
% |
|
|
25.51 |
|
FBI - Mobile |
|
Mobile, AL |
|
O |
|
|
2029 |
|
|
|
76,112 |
|
|
|
2,802,776 |
|
|
|
0.9 |
% |
|
|
36.82 |
|
JUD - El Centro |
|
El Centro, CA |
|
C/O |
|
|
2034 |
|
|
|
43,345 |
|
|
|
2,800,986 |
|
|
|
0.9 |
% |
|
|
64.62 |
|
DEA - Dallas Lab |
|
Dallas, TX |
|
L |
|
|
2038 |
|
|
|
49,723 |
|
|
|
2,786,394 |
|
|
|
0.9 |
% |
|
|
56.04 |
|
DEA - Pleasanton |
|
Pleasanton, CA |
|
L |
|
|
2035 |
|
|
|
42,480 |
|
|
|
2,774,284 |
|
|
|
0.9 |
% |
|
|
65.31 |
|
DEA - Upper Marlboro |
|
Upper Marlboro, MD |
|
L |
|
|
2037 |
|
|
|
50,978 |
|
|
|
2,746,542 |
|
|
|
0.9 |
% |
|
|
53.88 |
|
NARA - Broomfield |
|
Broomfield, CO |
|
O/W |
|
|
2032 |
|
|
|
161,730 |
|
|
|
2,679,193 |
|
|
|
0.8 |
% |
|
|
16.57 |
|
TREAS - Birmingham |
|
Birmingham, AL |
|
O |
|
|
2029 |
|
|
|
83,676 |
|
|
|
2,620,237 |
|
|
|
0.8 |
% |
|
|
31.31 |
|
USAO - Louisville |
|
Louisville, KY |
|
O |
|
|
2031 |
|
|
|
60,000 |
|
|
|
2,550,159 |
|
|
|
0.8 |
% |
|
|
42.50 |
|
JUD - Charleston |
|
Charleston, SC |
|
C/O |
|
|
2040 |
|
|
|
52,339 |
|
|
|
2,522,971 |
|
|
|
0.8 |
% |
|
|
48.20 |
|
JUD - Jackson |
|
Jackson, TN |
|
C/O |
|
|
2043 |
|
|
|
75,043 |
|
|
|
2,386,456 |
|
|
|
0.7 |
% |
|
|
31.80 |
|
DEA - Dallas |
|
Dallas, TX |
|
O |
|
|
2041 |
|
|
|
71,827 |
|
|
|
2,270,184 |
|
|
|
0.7 |
% |
|
|
31.61 |
|
CBP - Savannah |
|
Savannah, GA |
|
L |
|
|
2033 |
|
|
|
35,000 |
|
|
|
2,267,962 |
|
|
|
0.7 |
% |
|
|
64.80 |
|
Various GSA - Cleveland (6) |
|
Brooklyn Heights, OH |
|
O |
|
2028 - 2040 |
|
|
|
61,384 |
|
|
|
2,237,124 |
|
|
|
0.7 |
% |
|
|
36.44 |
|
|
NWS - Kansas City |
|
Kansas City, MO |
|
O |
|
|
2033 |
|
|
|
94,378 |
|
|
|
2,151,911 |
|
|
|
0.7 |
% |
|
|
22.80 |
|
DHS - Atlanta (7) |
|
Atlanta, GA |
|
O |
|
2031 - 2038 |
|
|
|
91,185 |
|
|
|
2,138,276 |
|
|
|
0.7 |
% |
|
|
23.45 |
|
|
NPS - Omaha |
|
Omaha, NE |
|
O |
|
|
2029 |
|
|
|
62,772 |
|
|
|
2,084,215 |
|
|
|
0.7 |
% |
|
|
33.20 |
|
DEA - Santa Ana |
|
Santa Ana, CA |
|
O |
|
|
2029 |
|
|
|
39,905 |
|
|
|
1,999,280 |
|
|
|
0.6 |
% |
|
|
50.10 |
|
DEA - North Highlands |
|
Sacramento, CA |
|
O |
|
|
2033 |
|
|
|
37,975 |
|
|
|
1,914,312 |
|
|
|
0.6 |
% |
|
|
50.41 |
|
GSA - Clarksburg |
|
Clarksburg, WV |
|
O |
|
|
2039 |
|
|
|
70,495 |
|
|
|
1,880,219 |
|
|
|
0.6 |
% |
|
|
26.67 |
|
VA - Golden |
|
Golden, CO |
|
O/W |
|
|
2026 |
|
|
|
56,753 |
|
|
|
1,772,202 |
|
|
|
0.6 |
% |
|
|
31.23 |
|
JUD - Newport News |
|
Newport News, VA |
|
C/O |
|
|
2033 |
|
|
|
35,005 |
|
|
|
1,670,583 |
|
|
|
0.5 |
% |
|
|
47.72 |
|
USCG - Martinsburg |
|
Martinsburg, WV |
|
O |
|
|
2027 |
|
|
|
59,547 |
|
|
|
1,619,785 |
|
|
|
0.5 |
% |
|
|
27.20 |
|
JUD - Aberdeen |
|
Aberdeen, MS |
|
C/O |
|
|
2025 |
|
|
|
46,979 |
|
|
|
1,562,188 |
|
|
|
0.5 |
% |
|
|
33.25 |
|
VA - Charleston (8) |
|
North Charleston, SC |
|
W |
|
2024 / 2040 |
|
|
|
102,718 |
|
|
|
1,553,988 |
|
|
|
0.5 |
% |
|
|
15.13 |
|
|
DEA - Albany |
|
Albany, NY |
|
O |
|
|
2041 |
|
|
|
31,976 |
|
|
|
1,405,541 |
|
|
|
0.4 |
% |
|
|
43.96 |
|
USAO - Springfield |
|
Springfield, IL |
|
O |
|
|
2038 |
|
|
|
43,600 |
|
|
|
1,381,505 |
|
|
|
0.4 |
% |
|
|
31.69 |
|
21
Property Name |
|
Location |
|
Property |
|
Tenant Lease |
|
|
Leased |
|
|
Annualized |
|
|
Percentage |
|
|
Annualized |
|
|||||
Wholly Owned U.S. Government Leased Properties (Cont.) |
|
|||||||||||||||||||||||
DEA - Riverside |
|
Riverside, CA |
|
O |
|
|
2032 |
|
|
|
34,354 |
|
|
|
1,318,815 |
|
|
|
0.4 |
% |
|
|
38.39 |
|
JUD - Council Bluffs |
|
Council Bluffs, IA |
|
C/O |
|
|
2041 |
|
|
|
28,900 |
|
|
|
1,288,308 |
|
|
|
0.4 |
% |
|
|
44.58 |
|
DEA - Birmingham |
|
Birmingham, AL |
|
O |
|
|
2038 |
|
|
|
35,616 |
|
|
|
1,251,695 |
|
|
|
0.4 |
% |
|
|
35.14 |
|
SSA - Dallas |
|
Dallas, TX |
|
O |
|
|
2035 |
|
|
|
27,200 |
|
|
|
1,061,702 |
|
|
|
0.3 |
% |
|
|
39.03 |
|
JUD - South Bend |
|
South Bend, IN |
|
C/O |
|
|
2027 |
|
|
|
30,119 |
|
|
|
801,615 |
|
|
|
0.3 |
% |
|
|
26.61 |
|
ICE - Louisville |
|
Louisville, KY |
|
O |
|
|
2036 |
|
|
|
17,420 |
|
|
|
654,219 |
|
|
|
0.2 |
% |
|
|
37.56 |
|
DEA - San Diego |
|
San Diego, CA |
|
W |
|
|
2032 |
|
|
|
16,100 |
|
|
|
556,881 |
|
|
|
0.2 |
% |
|
|
34.59 |
|
DEA - Bakersfield |
|
Bakersfield, CA |
|
O |
|
|
2038 |
|
|
|
9,800 |
|
|
|
487,590 |
|
|
|
0.2 |
% |
|
|
49.75 |
|
SSA - San Diego |
|
San Diego, CA |
|
O |
|
|
2032 |
|
|
|
10,059 |
|
|
|
448,019 |
|
|
|
0.1 |
% |
|
|
44.54 |
|
ICE - Otay |
|
San Diego, CA |
|
O |
|
|
2027 |
|
|
|
7,434 |
|
|
|
259,066 |
|
|
|
0.1 |
% |
|
|
34.85 |
|
Subtotal |
|
|
|
|
|
|
|
|
|
7,669,454 |
|
|
$ |
272,218,587 |
|
|
|
85.4 |
% |
|
$ |
35.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Wholly Owned State and Local Government Property |
|
|
|
|
|
|
|
|||||||||||||||||
CA - Anaheim |
|
Anaheim, CA |
|
O |
|
2033 / 2034 |
|
|
|
95,273 |
|
|
|
3,364,379 |
|
|
|
1.1 |
% |
|
|
35.31 |
|
|
Subtotal |
|
|
|
|
|
|
|
|
|
95,273 |
|
|
$ |
3,364,379 |
|
|
|
1.1 |
% |
|
$ |
35.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Wholly Owned Privately Leased Property |
|
|
|
|
|
|
|
|||||||||||||||||
501 East Hunter Street - Lummus Corporation |
|
Lubbock, TX |
|
W/D |
|
|
2028 |
|
|
|
70,078 |
|
|
|
412,024 |
|
|
|
0.1 |
% |
|
|
5.88 |
|
Subtotal |
|
|
|
|
|
|
|
|
|
70,078 |
|
|
$ |
412,024 |
|
|
|
0.1 |
% |
|
$ |
5.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Wholly Owned Properties Total / Weighted Average |
|
|
|
7,834,805 |
|
|
$ |
275,994,990 |
|
|
|
86.6 |
% |
|
$ |
35.23 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Unconsolidated Real Estate Venture U.S. Government Leased Properties |
|
|
|
|
||||||||||||||||||||
VA - Phoenix (9) |
|
Phoenix, AZ |
|
OC |
|
|
2042 |
|
|
|
257,294 |
|
|
|
10,735,555 |
|
|
|
3.4 |
% |
|
|
41.72 |
|
VA - San Antonio (9) |
|
San Antonio, TX |
|
OC |
|
|
2041 |
|
|
|
226,148 |
|
|
|
9,222,201 |
|
|
|
2.9 |
% |
|
|
40.78 |
|
VA - Chattanooga (9) |
|
Chattanooga, TN |
|
OC |
|
|
2035 |
|
|
|
94,566 |
|
|
|
4,369,452 |
|
|
|
1.4 |
% |
|
|
46.21 |
|
VA - Lubbock (9) (10) |
|
Lubbock, TX |
|
OC |
|
|
2040 |
|
|
|
120,916 |
|
|
|
4,245,688 |
|
|
|
1.3 |
% |
|
|
35.11 |
|
VA - Marietta (9) |
|
Marietta, GA |
|
OC |
|
|
2041 |
|
|
|
76,882 |
|
|
|
3,845,846 |
|
|
|
1.2 |
% |
|
|
50.02 |
|
VA - Birmingham (9) |
|
Irondale, AL |
|
OC |
|
|
2041 |
|
|
|
77,128 |
|
|
|
3,175,571 |
|
|
|
1.0 |
% |
|
|
41.17 |
|
VA - Corpus Christi (9) |
|
Corpus Christi, TX |
|
OC |
|
|
2042 |
|
|
|
69,276 |
|
|
|
2,938,590 |
|
|
|
0.9 |
% |
|
|
42.42 |
|
VA - Columbus (9) |
|
Columbus, GA |
|
OC |
|
|
2042 |
|
|
|
67,793 |
|
|
|
2,917,896 |
|
|
|
0.9 |
% |
|
|
43.04 |
|
VA - Lenexa (9) |
|
Lenexa, KS |
|
OC |
|
|
2041 |
|
|
|
31,062 |
|
|
|
1,319,625 |
|
|
|
0.4 |
% |
|
|
42.48 |
|
Subtotal |
|
|
|
|
|
|
|
|
|
1,021,065 |
|
|
$ |
42,770,424 |
|
|
|
13.4 |
% |
|
$ |
41.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total / Weighted Average |
|
|
|
|
|
|
|
|
|
8,855,870 |
|
|
$ |
318,765,414 |
|
|
|
100.0 |
% |
|
$ |
35.99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total / Weighted Average at Easterly's Share |
|
|
|
|
|
|
|
8,375,969 |
|
|
$ |
298,663,315 |
|
|
|
|
|
$ |
35.66 |
|
||||
22
Certain of our leases are currently in the “soft-term” period of the lease, meaning that the U.S. Government tenant agency has the right to terminate the lease prior to its stated lease end date. We believe that, from the U.S. Government’s perspective, leases with such provisions are helpful for budgetary purposes. While some of our leases are contractually subject to early termination, we do not believe that our tenant agencies are likely to terminate these leases early given the build-to-suit features at the properties subject to the leases, the weighted average age of these properties based on the date the property was built or renovated-to-suit, where applicable (approximately 19.4 years as of March 31, 2024), the mission-critical focus of the properties subject to the leases and the current level of operations at such properties.
The following table sets forth a schedule of lease expirations for leases in place (including for wholly owned properties and properties held by the JV) as of March 31, 2024:
Year of Lease Expiration (1) |
|
Number of |
|
|
Leased Square |
|
|
Percentage of |
|
|
Annualized |
|
|
Percentage |
|
|
Annualized |
|
||||||
2024 |
|
|
4 |
|
|
|
152,063 |
|
|
|
1.7 |
% |
|
$ |
5,408,796 |
|
|
|
1.7 |
% |
|
$ |
35.57 |
|
2025 |
|
|
13 |
|
|
|
597,180 |
|
|
|
6.7 |
% |
|
|
19,211,401 |
|
|
|
6.0 |
% |
|
|
32.17 |
|
2026 |
|
|
6 |
|
|
|
483,013 |
|
|
|
5.5 |
% |
|
|
17,395,649 |
|
|
|
5.5 |
% |
|
|
36.01 |
|
2027 |
|
|
9 |
|
|
|
506,510 |
|
|
|
5.7 |
% |
|
|
18,782,864 |
|
|
|
5.9 |
% |
|
|
37.08 |
|
2028 |
|
|
11 |
|
|
|
802,397 |
|
|
|
9.1 |
% |
|
|
17,504,467 |
|
|
|
5.5 |
% |
|
|
21.82 |
|
2029 |
|
|
6 |
|
|
|
510,144 |
|
|
|
5.8 |
% |
|
|
16,231,288 |
|
|
|
5.1 |
% |
|
|
31.82 |
|
2030 |
|
|
1 |
|
|
|
1,536 |
|
|
|
0.0 |
% |
|
|
58,907 |
|
|
|
0.0 |
% |
|
|
38.35 |
|
2031 |
|
|
3 |
|
|
|
117,875 |
|
|
|
1.3 |
% |
|
|
4,608,435 |
|
|
|
1.4 |
% |
|
|
39.10 |
|
2032 |
|
|
7 |
|
|
|
531,001 |
|
|
|
6.0 |
% |
|
|
17,094,058 |
|
|
|
5.4 |
% |
|
|
32.19 |
|
2033 |
|
|
10 |
|
|
|
566,197 |
|
|
|
6.4 |
% |
|
|
21,690,127 |
|
|
|
6.8 |
% |
|
|
38.31 |
|
Thereafter |
|
|
55 |
|
|
|
4,587,954 |
|
|
|
51.8 |
% |
|
|
180,779,422 |
|
|
|
56.7 |
% |
|
|
39.40 |
|
Total / Weighted Average |
|
|
125 |
|
|
|
8,855,870 |
|
|
|
100.0 |
% |
|
$ |
318,765,414 |
|
|
|
100.0 |
% |
|
$ |
35.99 |
|
Information about our development property as of March 31, 2024 is set forth in the table below:
Property Name |
|
Location |
|
Tenant |
|
Property |
|
Lease Term |
|
Estimated Leased |
|
||
FDA - Atlanta |
|
Atlanta, GA |
|
Food and Drug Administration |
|
L |
|
20-year |
|
|
|
162,000 |
|
23
Results of Operations
Comparison of Results of Operations for the three months ended March 31, 2024 and 2023
The financial information presented below summarizes our results of operations for the three months ended March 31, 2024 and 2023 (amounts in thousands).
|
|
For the three months ended March 31, |
|
|||||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
Revenues |
|
|
|
|
|
|
|
|
|
|||
Rental income |
|
$ |
70,746 |
|
|
$ |
68,148 |
|
|
$ |
2,598 |
|
Tenant reimbursements |
|
|
1,017 |
|
|
|
2,075 |
|
|
|
(1,058 |
) |
Asset management income |
|
|
550 |
|
|
|
517 |
|
|
|
33 |
|
Other income |
|
|
487 |
|
|
|
480 |
|
|
|
7 |
|
Total revenues |
|
|
72,800 |
|
|
|
71,220 |
|
|
|
1,580 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|||
Property operating |
|
|
16,592 |
|
|
|
17,888 |
|
|
|
(1,296 |
) |
Real estate taxes |
|
|
8,229 |
|
|
|
7,468 |
|
|
|
761 |
|
Depreciation and amortization |
|
|
23,800 |
|
|
|
23,081 |
|
|
|
719 |
|
Acquisition costs |
|
|
419 |
|
|
|
461 |
|
|
|
(42 |
) |
Corporate general and administrative |
|
|
6,455 |
|
|
|
7,295 |
|
|
|
(840 |
) |
Total expenses |
|
|
55,495 |
|
|
|
56,193 |
|
|
|
(698 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|||
Income from unconsolidated real estate venture |
|
|
1,415 |
|
|
|
1,402 |
|
|
|
13 |
|
Interest expense, net |
|
|
(13,836 |
) |
|
|
(12,015 |
) |
|
|
(1,821 |
) |
Net income |
|
$ |
4,884 |
|
|
$ |
4,414 |
|
|
$ |
470 |
|
Revenues
Total revenues increased $1.6 million to $72.8 million for the three months ended March 31, 2024 compared to $71.2 million for the three months ended March 31, 2023.
The $2.6 million increase in Rental income is primarily attributable to the three operating properties acquired since March 31, 2023.
The $1.1 million decrease in Tenant reimbursements is primarily attributable to a decrease in tenant project reimbursements.
The less than $0.1 million increase in Asset management income is primarily attributable to the fee earned by us for asset management of the JV from the one property acquired since March 31, 2023.
The less than $0.1 million increase in Other income is primarily attributable to an increase in interest income offset by a decrease in project overhead income from our tenant reimbursable projects.
Expenses
Total expenses decreased $0.7 million to $55.5 million for the three months ended March 31, 2024 compared to $56.2 million for the three months ended March 31, 2023.
The $1.3 million decrease in Property operating expenses is primarily attributable to a decrease in tenant reimbursable projects.
The $0.8 million increase in Real estate taxes is primarily attributable to the three operating properties acquired since March 31, 2023 as well as an increase in real estate taxes across our portfolio.
The $0.7 million increase in Depreciation and amortization is primarily attributable to the three operating properties acquired since March 31, 2023.
The $0.8 million decrease in Corporate general and administrative is primarily due to a decrease in employee services and amortization on stock-based compensation.
24
Income from unconsolidated real estate venture
The less than $0.1 million increase in Income from unconsolidated real estate venture is primarily attributable to our pro rata share of operations from the one operating property acquired by the JV since March 31, 2023.
Interest expense, net
The $1.8 million increase in Interest expense, net is primarily attributable to higher weighted average borrowings and interest rates on our swapped term loans.
Liquidity and Capital Resources
We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses, including all scheduled principal and interest payments on our outstanding indebtedness, current and anticipated tenant improvements, development activities at FDA – Atlanta, planned and possible acquisitions of properties, including the one remaining property in the portfolio of ten properties anticipated to be acquired through the JV (the “VA Portfolio”), stockholder distributions to maintain our qualification as a REIT, potential repurchases of common stock under our share repurchase program and other capital obligations associated with conducting our business. At March 31, 2024, we had approximately $56.1 million available in cash and cash equivalents and there was approximately $305.4 million available under our revolving credit facility.
Our primary expected sources of capital are as follows:
Our short-term liquidity requirements consist primarily of funds to pay for the following:
Our long-term liquidity needs, in addition to recurring short-term liquidity needs as discussed above, consist primarily of funds necessary to pay for acquisitions, non-recurring capital expenditures, and scheduled debt maturities. Although we may be able to anticipate and plan for certain of our liquidity needs, unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise, or our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or required. As of the date of this filing, there were no known commitments or events that would have a material impact on our liquidity.
25
Equity
ATM Programs
We entered into separate equity distribution agreements on each of December 20, 2019 (the “2019 ATM Program”) and June 22, 2021 (the “2021 ATM Program” and, together with the 2019 ATM Program, the “ATM Programs”) with various financial institutions pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $300.0 million under each ATM Program from time to time in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act. Under each of the ATM Programs, we may enter into one or more forward transactions (each, a “forward sale transaction”) under separate master forward sale confirmations and related supplemental confirmations with each of the various financial institutions party to the respective ATM Program for the sale of shares of our common stock on a forward basis.
As of March 31, 2024, we had forward sales transactions outstanding under the 2019 ATM Program for the sale of 589,647 shares of our common stock that had not yet been settled.
On April 10, 2024, we settled the 589,647 shares under our 2019 ATM Program and received $7.9 million of net proceeds. We accounted for the forward sale transactions as equity.
No sales of shares of our common stock were made under the 2021 ATM Program during the three months ended March 31, 2024.
As of March 31, 2024, we had approximately $300.0 million of gross sales of our common stock available under the 2021 ATM Program and $79.3 million of gross sales of common stock available under the 2019 ATM Program.
Share Repurchase Program
On April 28, 2022, our Board of Directors authorized a share repurchase program whereby we may repurchase up to 4,538,994 shares of our common stock, or approximately 5% of our outstanding shares as of the authorization date. We are not required to purchase shares under the share repurchase program but may choose to do so in the open market or through privately negotiated transactions at times and amounts based on our evaluation of market conditions and other factors.
No repurchases of shares of our common stock were made under the share repurchase program during the three months ended March 31, 2024.
26
Debt
Indebtedness Outstanding
The following table sets forth certain information with respect to our outstanding indebtedness as of March 31, 2024 (amounts in thousands):
|
|
Principal Outstanding |
|
|
Interest |
|
Current |
|
|
Loan |
|
March 31, 2024 |
|
|
Rate (1) |
|
Maturity |
|
|
Revolving credit facility: |
|
|
|
|
|
|
|
|
|
Revolving credit facility (2) |
|
$ |
144,500 |
|
|
S + 134 bps |
|
July 2025 (3) |
|
Total revolving credit facility |
|
|
144,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan facilities: |
|
|
|
|
|
|
|
|
|
2016 term loan facility |
|
|
100,000 |
|
|
5.05% (4) |
|
January 2025 |
|
2018 term loan facility |
|
|
200,000 |
|
|
5.38% (5) |
|
July 2026 |
|
Total term loan facilities |
|
|
300,000 |
|
|
|
|
|
|
Less: Total unamortized deferred financing fees |
|
|
(1,083 |
) |
|
|
|
|
|
Total term loan facilities, net |
|
|
298,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable: |
|
|
|
|
|
|
|
|
|
2017 series A senior notes |
|
|
95,000 |
|
|
4.05% |
|
May 2027 |
|
2017 series B senior notes |
|
|
50,000 |
|
|
4.15% |
|
May 2029 |
|
2017 series C senior notes |
|
|
30,000 |
|
|
4.30% |
|
May 2032 |
|
2019 series A senior notes |
|
|
85,000 |
|
|
3.73% |
|
September 2029 |
|
2019 series B senior notes |
|
|
100,000 |
|
|
3.83% |
|
September 2031 |
|
2019 series C senior notes |
|
|
90,000 |
|
|
3.98% |
|
September 2034 |
|
2021 series A senior notes |
|
|
50,000 |
|
|
2.62% |
|
October 2028 |
|
2021 series B senior notes |
|
|
200,000 |
|
|
2.89% |
|
October 2030 |
|
Total notes payable |
|
|
700,000 |
|
|
|
|
|
|
Less: Total unamortized deferred financing fees |
|
|
(3,345 |
) |
|
|
|
|
|
Total notes payable, net |
|
|
696,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable: |
|
|
|
|
|
|
|
|
|
VA – Golden |
|
|
8,395 |
|
|
5.00% (6) |
|
April 2024(7) |
|
USFS II – Albuquerque |
|
|
11,122 |
|
|
4.46% (6) |
|
July 2026 |
|
ICE – Charleston |
|
|
11,627 |
|
|
4.21% (6) |
|
January 2027 |
|
VA – Loma Linda |
|
|
127,500 |
|
|
3.59% (6) |
|
July 2027 |
|
CBP – Savannah |
|
|
9,335 |
|
|
3.40% (6) |
|
July 2033 |
|
USCIS – Kansas City |
|
|
51,500 |
|
|
3.68% (6) |
|
August 2024 |
|
Total mortgage notes payable |
|
|
219,479 |
|
|
|
|
|
|
Less: Total unamortized deferred financing fees |
|
|
(830 |
) |
|
|
|
|
|
Less: Total unamortized premium/discount |
|
|
267 |
|
|
|
|
|
|
Total mortgage notes payable, net |
|
|
218,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
1,358,988 |
|
|
|
|
|
|
27
On January 2, 2024, the margin spreads under the second amended senior unsecured credit agreement that governs our revolving credit facility were reduced by 1 basis point as a result of achieving our sustainability metric percentage.
On January 23, 2024, we entered into the seventh amendment to the senior unsecured term loan agreement, dated as of September 29, 2016, that governs our 2016 term loan facility to extend the maturity date of our 2016 term loan facility from March 29, 2024 to January 30, 2025.
On April 1, 2024, we used $8.4 million of available cash to extinguish the mortgage note obligation on VA – Golden.
Our revolving credit facility, term loan facilities, notes payable, and mortgage notes payable are subject to ongoing compliance with a number of financial and other covenants. As of March 31, 2024, we were in compliance with all applicable financial covenants.
The chart below details our debt capital structure as of March 31, 2024 (dollar amounts in thousands):
Debt Capital Structure |
|
March 31, 2024 |
|
|
Total principal outstanding |
|
$ |
1,363,979 |
|
Weighted average maturity |
|
4.3 years |
|
|
Weighted average interest rate |
|
|
4.3 |
% |
% Variable debt |
|
|
10.6 |
% |
% Fixed debt (1) |
|
|
89.4 |
% |
% Secured debt |
|
|
16.0 |
% |
Material Cash Commitments
During the three months ended March 31, 2024, there were no material changes to the cash commitment information presented in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2023.
Unconsolidated Real Estate Venture
We consolidate entities in which we have a controlling interest or are the primary beneficiary in a variable interest entity. From time to time, we may have off-balance sheet unconsolidated real estate ventures and other unconsolidated arrangements with varying structures.
As of March 31, 2024, we had invested $282.9 million in the JV. As of March 31, 2024, we had committed capital, net of return of over committed capital, to the JV totaling $292.8 million and had a remaining capital commitment of $46.6 million. None of the properties owned by the JV are encumbered by mortgage indebtedness.
For a more complete description of the JV, see Note 4 to the Consolidated Financial Statements.
Dividend Policy
In order to qualify as a REIT, we are required to distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We anticipate distributing all of our taxable income. We expect to make quarterly distributions to our stockholders in a manner intended to satisfy this requirement. Prior to making any distributions for U.S. federal tax purposes or otherwise, we must first satisfy our operating and debt service obligations. It is possible that it would be necessary to utilize cash reserves, liquidate assets at unfavorable prices or incur
28
additional indebtedness in order to make required distributions. It is also possible that our board of directors could decide to make required distributions in part by using shares of our common stock.
A summary of dividends declared by the board of directors per share of common stock and per common unit at the date of record is as follows:
Quarter |
|
Declaration Date |
|
Record Date |
|
Payment Date |
|
Dividend (1) |
Q1 2024 |
|
April 25, 2024 |
|
May 9, 2024 |
|
May 21, 2024 |
|
0.265 |
Inflation
Substantially all of our leases provide for operating expense escalations. We believe inflationary increases in expenses may be at least partially offset by the operating expenses that are passed through to our tenants and by contractual rent increases. We do not believe inflation has had a material impact on our historical financial position or results of operations.
Cash Flows
The following table sets forth a summary of cash flows for the three months ended March 31, 2024 and 2023 (amounts in thousands):
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
23,891 |
|
|
$ |
21,625 |
|
Investing activities |
|
|
(24,903 |
) |
|
|
(10,576 |
) |
Financing activities |
|
|
35,175 |
|
|
|
(7,850 |
) |
Operating Activities
We generated $23.9 million and $21.6 million of cash from operating activities during the three months ended March 31, 2024 and 2023, respectively. Net cash provided by operating activities for the three months ended March 31, 2024 includes $26.0 million in net cash from rental activities net of expenses, $3.1 million related to distributions from investment in unconsolidated real estate venture, offset by $5.2 million related to the change in tenant accounts receivable, prepaid expenses and other assets, deferred revenue associated with operating leases, principal payments on operating lease obligations, and accounts payable, accrued expenses and other liabilities. Net cash provided by operating activities for the three months ended March 31, 2023 includes $25.6 million in net cash from rental activities net of expenses, $2.2 million related to distributions from investment in unconsolidated real estate venture, offset by $6.1 million related to the change in tenant accounts receivable, prepaid expenses and other assets, deferred revenue associated with operating leases, principal payments on operating lease obligations, and accounts payable, accrued expenses and other liabilities.
Investing Activities
We used $24.9 million and $10.6 million in cash for investing activities during the three months ended March 31, 2024 and 2023, respectively. Net cash used in investing activities for the three months ended March 31, 2024 includes $12.9 million in additions to development properties, $7.9 million in additions to operating properties, $3.4 million in investment in loan receivable and $0.6 million in real estate acquisitions and deposits. Net cash used in investing activities for the three months ended March 31, 2023 includes $7.8 million in additions to operating properties and $2.9 million in additions to development properties, offset by $0.1 million in real estate acquisitions and deposits.
29
Financing Activities
We generated $35.2 million and used $7.9 million in cash from financing activities during the three months ended March 31, 2024 and 2023, respectively. Net cash generated in financing activities for the three months ended March 31, 2024 includes $65.5 million in net draws under our revolving credit facility, offset by $28.7 million in dividend payments, $1.1 million in mortgage notes payable repayment, $0.4 million in deferred financing costs and $0.2 million in the payment of offering costs. Net cash used by financing activities for the three months ended March 31, 2023 includes $27.5 million in dividend payments, $16.7 million in mortgage notes payable repayment, $16.0 million in net pay downs under our revolving credit facility and $0.1 million in the payment of offering costs, offset by $52.4 million in gross proceeds from issuance of shares of our common stock.
Non-GAAP Financial Measures
We use and present Funds From Operations (“FFO”) and Core FFO as supplemental measures of our performance. The summary below describes our use of FFO and Core FFO and provides information regarding why we believe these measures are meaningful supplemental measures of our performance and reconciles these measures from net income, presented in accordance with GAAP.
Funds From Operations and Core Funds From Operations
FFO is a supplemental measure of our performance. We present FFO calculated in accordance with the current National Association of Real Estate Investment Trusts (“Nareit”) definition set forth in the Nareit FFO White Paper – Restatement 2018. FFO includes the REIT’s share of FFO generated by unconsolidated affiliates. In addition, we present Core FFO for certain other adjustments that we believe enhance the comparability of our FFO across periods and to the FFO reported by other publicly traded REITs. FFO is a supplemental performance measure that is commonly used in the real estate industry to assist investors and analysts in comparing results of REITs.
FFO is defined by Nareit as net income (calculated in accordance with GAAP), excluding:
We present FFO because we consider it an important supplemental measure of our operating performance, and we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting results.
We adjust FFO to present Core FFO as an alternative measure of our operating performance, which, when applicable, excludes items which we believe are not representative of ongoing operating results, such as liability management related costs (including losses on extinguishment of debt and modification costs), catastrophic event charges, depreciation of non-real estate assets, and the unconsolidated real estate venture's allocated share of these adjustments. In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results. We believe Core FFO more accurately reflects the ongoing operational and financial performance of our core business.
FFO and Core FFO are presented as supplemental financial measures and do not fully represent our operating performance. Other REITs may use different methodologies for calculating FFO and Core FFO or use other definitions of FFO and Core FFO and, accordingly, our presentation of these measures may not be comparable to other REITs. Neither FFO nor Core FFO is intended to be a measure of cash flow or liquidity. Please refer to our financial statements, prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations and cash flows.
30
The following table sets forth a reconciliation of our net income to FFO and Core FFO for the three months ended March 31, 2024 and 2023 (amounts in thousands):
|
|
For the three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net income |
|
$ |
4,884 |
|
|
$ |
4,414 |
|
Depreciation of real estate assets |
|
|
23,549 |
|
|
|
22,831 |
|
Unconsolidated real estate venture allocated share of above adjustments |
|
|
2,002 |
|
|
|
1,875 |
|
FFO |
|
|
30,435 |
|
|
|
29,120 |
|
Adjustments to FFO: |
|
|
|
|
|
|
||
Loss on extinguishment of debt |
|
|
— |
|
|
|
14 |
|
Natural disaster event expense, net of recovery |
|
|
53 |
|
|
|
100 |
|
Depreciation of non-real estate assets |
|
|
251 |
|
|
|
250 |
|
Unconsolidated real estate venture allocated share of above adjustments |
|
|
17 |
|
|
|
16 |
|
Core FFO |
|
|
30,756 |
|
|
|
29,500 |
|
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base these estimates, judgments, and assumptions on historical experience, current trends, and various other factors that we believe to be reasonable under the circumstances. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or a different presentation of our financial statements.
Our Annual Report on Form 10-K for the year ended December 31, 2023 contains a discussion of our significant accounting policies, which utilize relevant critical accounting estimates. During the three months ended March 31, 2024, there were no material changes to the discussion of our significant accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2023.
31
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Our primary market risk results from our indebtedness, which bears interest at both fixed and variable rates. We manage and may continue to manage our market risk on variable rate debt by entering into swap arrangements to, in effect, fix the rate on all or a portion of the debt for varying periods up to maturity. This in turn, reduces the risks of variability of cash flows created by variable rate debt and mitigates the risk of increases in interest rates. Our objective when undertaking such arrangements is to reduce our floating rate exposure and we do not intend to enter into hedging arrangements for speculative purposes. For more information on our interest rate swaps, see Note 6 to the Consolidated Financial Statements.
As of March 31, 2024, $1.2 billion, or 89.4% of our debt, excluding unamortized premiums and discounts, had fixed interest rates and $144.5 million, or 10.6%, had variable interest rates based on SOFR. If market rates of interest on our variable rate debt fluctuate by 25 basis points, our interest expense would increase or decrease, depending on rate movement, by $0.4 million annually.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a -15(e) and Rule 15d-15 of the Exchange Act, as of March 31, 2024. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II
Item 1. Legal Proceedings
We are not currently involved in any material litigation nor, to our knowledge, is any material litigation currently threatened against us.
Item 1A. Risk Factors
Except to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
32
Item 5. Other Information
During the three months ended March 31, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act)
Item 6. Exhibits
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q:
Exhibit |
|
Exhibit Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
3.3 |
|
|
|
|
|
3.4 |
|
|
|
|
|
4.1 |
|
|
|
|
|
10.1 |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1** |
|
|
|
|
|
101.INS* |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
|
|
|
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
* Filed herewith
** Furnished herewith
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Easterly Government Properties, Inc. |
|
|
|
|
|
Date: April 30, 2024 |
|
/s/ Darrell W. Crate |
|
|
|
Darrell W. Crate |
|
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
|
|
|
Date: April 30, 2024 |
|
/s/ Allison E. Marino |
|
|
|
Allison E. Marino |
|
|
|
Executive Vice President, Chief Financial Officer and Chief Accounting Officer (Principal Financial and Accounting Officer) |
|