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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

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: 001-36834

 

EASTERLY GOVERNMENT PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

 

47-2047728

(State of Incorporation)

 

(IRS Employer Identification No.)

2001 K Street NW, Suite 775 North, Washington, D.C.

 

20006

(Address of Principal Executive Offices)

 

(Zip Code)

(202) 595-9500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

DEA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

 

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 No

As of April 23, 2024, the registrant had 102,998,979 shares of common stock, $0.01 par value per share, outstanding.

 


 

INDEX TO FINANCIAL STATEMENTS

 

 

Page

Part I: Financial Information

 

 

 

   Item 1: Financial Statements:

 

Consolidated Financial Statements

 

 

 

Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 (unaudited)

1

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (unaudited)

2

 

 

Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2024 and 2023 (unaudited)

3

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited)

4

 

 

Notes to the Consolidated Financial Statements

6

 

 

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

Item 3: Quantitative and Qualitative Disclosures About Market Risk

32

 

 

Item 4: Controls and Procedures

32

 

 

Part II: Other Information

 

 

 

Item 1: Legal Proceedings

32

 

 

Item 1A: Risk Factors

32

 

 

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

32

 

 

Item 3: Defaults Upon Senior Securities

32

 

 

Item 4: Mine Safety Disclosures

32

 

 

Item 5: Other Information

33

 

 

Item 6: Exhibits

33

 

 

Signatures

 

 

 

 


 

Easterly Government Properties, Inc.

Consolidated Balance Sheets (unaudited)

(Amounts in thousands, except share amounts)

 

 

March 31, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Real estate properties, net

 

$

2,337,307

 

 

$

2,319,143

 

Cash and cash equivalents

 

 

43,545

 

 

 

9,381

 

Restricted cash

 

 

12,557

 

 

 

12,558

 

Tenant accounts receivable

 

 

73,092

 

 

 

66,274

 

Investment in unconsolidated real estate venture

 

 

282,879

 

 

 

284,544

 

Intangible assets, net

 

 

143,044

 

 

 

148,453

 

Interest rate swaps

 

 

2,897

 

 

 

1,994

 

Prepaid expenses and other assets

 

 

47,494

 

 

 

37,405

 

Total assets

 

$

2,942,815

 

 

$

2,879,752

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Revolving credit facility

 

 

144,500

 

 

 

79,000

 

Term loan facilities, net

 

 

298,917

 

 

 

299,108

 

Notes payable, net

 

 

696,655

 

 

 

696,532

 

Mortgage notes payable, net

 

 

218,916

 

 

 

220,195

 

Intangible liabilities, net

 

 

11,593

 

 

 

12,480

 

Deferred revenue

 

 

88,746

 

 

 

82,712

 

Accounts payable, accrued expenses and other liabilities

 

 

95,642

 

 

 

80,209

 

Total liabilities

 

 

1,554,969

 

 

 

1,470,236

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Common stock, par value $0.01, 200,000,000 shares authorized,
  
102,354,702 and 100,973,247 shares issued and outstanding at
   March 31, 2024 and December 31, 2023, respectively

 

 

1,024

 

 

 

1,010

 

Additional paid-in capital

 

 

1,801,304

 

 

 

1,783,338

 

Retained earnings

 

 

116,927

 

 

 

112,301

 

Cumulative dividends

 

 

(603,443

)

 

 

(576,319

)

Accumulated other comprehensive income

 

 

2,753

 

 

 

1,871

 

Total stockholders’ equity

 

 

1,318,565

 

 

 

1,322,201

 

Non-controlling interest in Operating Partnership

 

 

69,281

 

 

 

87,315

 

Total equity

 

 

1,387,846

 

 

 

1,409,516

 

Total liabilities and equity

 

$

2,942,815

 

 

$

2,879,752

 

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)

 

 

For the three months ended March 31,

 

 

 

2024

 

 

2023

 

Revenues

 

 

 

 

 

 

Rental income

 

$

70,746

 

 

$

68,148

 

Tenant reimbursements

 

 

1,017

 

 

 

2,075

 

Asset management income

 

 

550

 

 

 

517

 

Other income

 

 

487

 

 

 

480

 

Total revenues

 

 

72,800

 

 

 

71,220

 

Expenses

 

 

 

 

 

 

Property operating

 

 

16,592

 

 

 

17,888

 

Real estate taxes

 

 

8,229

 

 

 

7,468

 

Depreciation and amortization

 

 

23,800

 

 

 

23,081

 

Acquisition costs

 

 

419

 

 

 

461

 

Corporate general and administrative

 

 

6,455

 

 

 

7,295

 

Total expenses

 

 

55,495

 

 

 

56,193

 

Other income (expense)

 

 

 

 

 

 

Income from unconsolidated real estate venture

 

 

1,415

 

 

 

1,402

 

Interest expense, net

 

 

(13,836

)

 

 

(12,015

)

Net income

 

 

4,884

 

 

 

4,414

 

Non-controlling interest in Operating Partnership

 

 

(258

)

 

 

(523

)

Net income available to Easterly Government
   Properties, Inc.

 

$

4,626

 

 

$

3,891

 

Net income available to Easterly Government
   Properties, Inc. per share:

 

 

 

 

 

 

Basic

 

$

0.04

 

 

$

0.04

 

Diluted

 

$

0.04

 

 

$

0.04

 

Weighted-average common shares outstanding

 

 

 

 

 

 

Basic

 

 

101,993,143

 

 

 

91,099,357

 

Diluted

 

 

102,235,012

 

 

 

91,329,140

 

Dividends declared per common share

 

0.265

 

 

$

0.265

 

 

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)

 

 

 

For the three months ended March 31,

 

 

 

2024

 

 

2023

 

Net income

 

$

4,884

 

 

$

4,414

 

Other comprehensive gain (loss):

 

 

 

 

 

 

Unrealized gain (loss) on interest rate swaps, net

 

 

902

 

 

 

(2,013

)

Other comprehensive gain (loss)

 

 

902

 

 

 

(2,013

)

Comprehensive income

 

 

5,786

 

 

 

2,401

 

Non-controlling interest in Operating Partnership

 

 

(258

)

 

 

(523

)

Other comprehensive (gain) loss attributable to
   non-controlling interest

 

 

(20

)

 

 

240

 

Comprehensive income attributable to
   Easterly Government Properties, Inc.

 

$

5,508

 

 

$

2,118

 

 

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)

 

 

For the three months ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

4,884

 

 

$

4,414

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

23,800

 

 

 

23,081

 

Straight line rent

 

 

(856

)

 

 

(463

)

Income from unconsolidated real estate venture

 

 

(1,415

)

 

 

(1,402

)

Amortization of above- / below-market leases

 

 

(594

)

 

 

(700

)

Amortization of unearned revenue

 

 

(1,604

)

 

 

(1,484

)

Amortization of loan premium / discount

 

 

(275

)

 

 

(270

)

Amortization of deferred financing costs

 

 

582

 

 

 

514

 

Amortization of lease inducements

 

 

258

 

 

 

216

 

Distributions from investment in unconsolidated real estate venture

 

 

3,079

 

 

 

2,158

 

Non-cash compensation

 

 

1,229

 

 

 

1,668

 

Net change in:

 

 

 

 

 

 

Tenant accounts receivable

 

 

1,339

 

 

 

734

 

Prepaid expenses and other assets

 

 

(6,458

)

 

 

(4,313

)

Deferred revenue associated with operating leases

 

 

510

 

 

 

55

 

Principal payments on operating lease obligations

 

 

(166

)

 

 

(127

)

Accounts payable, accrued expenses and other liabilities

 

 

(422

)

 

 

(2,456

)

Net cash provided by operating activities

 

 

23,891

 

 

 

21,625

 

Cash flows from investing activities

 

 

 

 

 

 

Real estate acquisitions and deposits

 

 

(612

)

 

 

124

 

Additions to operating properties

 

 

(7,906

)

 

 

(7,756

)

Additions to development properties

 

 

(12,945

)

 

 

(2,944

)

Investment in loan receivable

 

 

(3,440

)

 

 

 

Net cash used in investing activities

 

 

(24,903

)

 

 

(10,576

)

Cash flows from financing activities

 

 

 

 

 

 

Payment of deferred financing costs

 

 

(350

)

 

 

 

Issuance of common shares

 

 

 

 

 

52,414

 

Credit facility draws

 

 

73,000

 

 

 

20,750

 

Credit facility repayments

 

 

(7,500

)

 

 

(36,750

)

Repayments of mortgage notes payable

 

 

(1,117

)

 

 

(16,744

)

Dividends and distributions paid

 

 

(28,686

)

 

 

(27,464

)

Payment of offering costs

 

 

(172

)

 

 

(56

)

Net cash provided by (used in) financing activities

 

 

35,175

 

 

 

(7,850

)

Net increase in Cash and cash equivalents and Restricted cash

 

 

34,163

 

 

 

3,199

 

Cash and cash equivalents and Restricted cash, beginning of period

 

 

21,939

 

 

 

17,274

 

Cash and cash equivalents and Restricted cash, end of period

 

$

56,102

 

 

$

20,473

 

 

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:

 

 

For the three months ended March 31,

 

 

 

2024

 

 

2023

 

Cash paid for interest (net of capitalized interest of $672 and $339 in 2024 and 2023, respectively)

 

$

12,276

 

 

$

11,080

 

Supplemental disclosure of non-cash information

 

 

 

 

 

 

Additions to operating properties accrued, not paid

 

$

9,832

 

 

$

2,255

 

Additions to development properties accrued, not paid

 

 

22,078

 

 

 

5,380

 

Offering costs accrued, not paid

 

 

28

 

 

 

10

 

Deferred asset acquisition costs accrued, not paid

 

 

115

 

 

 

1

 

Unrealized gain (loss) on interest rate swaps, net

 

 

902

 

 

 

(2,013

)

Properties acquired for Common Units

 

 

 

 

 

219

 

Exchange of Common Units for Shares of Common Stock

 

 

 

 

 

 

Non-controlling interest in Operating Partnership

 

$

(18,088

)

 

$

(140

)

Common stock

 

 

14

 

 

 

 

Additional paid-in capital

 

 

18,074

 

 

 

140

 

Total

 

$

 

 

$

 

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 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, 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 (“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.

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):

 

 

Total

 

Real estate properties, net

 

 

 

Land

 

$

221,999

 

Building and improvements

 

 

2,359,074

 

Acquired tenant improvements

 

 

85,949

 

Construction in progress

 

 

79,776

 

Accumulated depreciation

 

 

(409,491

)

Total Real estate properties, net

 

 

2,337,307

 

Intangible assets, net

 

 

 

In-place leases

 

 

280,604

 

Acquired leasing commissions

 

 

72,560

 

Above market leases

 

 

14,620

 

Payment in lieu of taxes

 

 

6,394

 

Accumulated amortization

 

 

(231,134

)

Total Intangible assets, net

 

 

143,044

 

Intangible liabilities, net

 

 

 

Below market leases

 

 

(72,037

)

Accumulated amortization

 

 

60,444

 

Total Intangible liabilities, net

 

 

(11,593

)

No operating properties were acquired or disposed of during the three months ended March 31, 2024.

During the three months ended March 31, 2024, we incurred $0.4 million of acquisition-related expenses mainly consisting of internal costs associated with future property acquisitions.

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):

 

 

Acquired Above-Market Lease Intangibles

 

 

Acquired Below-Market Lease Intangibles

 

2024 (1)

 

$

836

 

 

$

(2,051

)

2025

 

 

1,097

 

 

 

(2,246

)

2026

 

 

1,096

 

 

 

(2,008

)

2027

 

 

1,096

 

 

 

(1,783

)

2028

 

 

725

 

 

 

(1,238

)

(1)
Represents the nine months ending December 31, 2024.

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):

 

 

 

 

As of March 31,

 

Joint Venture

 

Ownership Interest

 

2024

 

MedBase Venture

 

53.0%

 

$

282,879

 

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 ten properties anticipated to encompass 1,214,165 leased square feet (the “VA Portfolio”). We own a 53.0% interest in the JV, subject to preferred allocations as provided in the JV agreement. We have joint approval rights with our JV partner on major decisions, including those regarding property operations. As such, the Company holds a non-controlling interest in the joint venture and accounts for the JV under the equity method of accounting.

No operating properties were acquired by the JV during the three months ended March 31, 2024. As of March 31, 2024, nine of the ten properties in the VA Portfolio had been acquired by the JV.

8

 


 

5. Debt

At March 31, 2024, our consolidated borrowings consisted of the following (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

 

 

 

 

 

 

(1)
At March 31, 2024, the USD SOFR with a five day lookback (“S”) was 5.31%. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums. The spread over the applicable rate for each of our $450.0 million senior unsecured revolving credit facility (our “revolving credit facility”), our $200.0 million senior unsecured term loan facility (as amended, our “2018 term loan facility”) and our $100.0 million senior unsecured term loan facility (our “2016 term loan facility”) is based on our consolidated leverage ratio, as set forth in the respective loan agreements.
(2)
Our revolving credit facility had available capacity of $305.4 million at March 31, 2024 with an accordion feature that permits us to request additional lender commitments for up to $250.0 million of additional capacity, subject to the satisfaction of customary terms and conditions.
(3)
Our revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee.
(4)
Our 2016 term loan facility is subject to one interest rate swap with an effective date of September 29, 2023 and a notional value of $100.0 million, which effectively fixes the interest rate at 5.05% annually, based on our consolidated leverage ratio, as defined in our 2016 term loan facility agreement.

9

 


 

(5)
Our 2018 term loan facility is subject to two interest rate swaps with an effective date of June 23, 2023 and an aggregate notional value of $200.0 million, which effectively fixes the interest rate at 5.38% annually, based on our consolidated leverage ratio, as defined in our 2018 term loan facility agreement.
(6)
Effective interest rates are as follows: VA – Golden 5.03%, USFS II – Albuquerque 3.92%, ICE – Charleston 3.93%, VA – Loma Linda 3.78%, CBP – Savannah 4.12%, USCIS – Kansas City 2.05%.
(7)
On April 1, 2024, we used $8.4 million of available cash to extinguish the mortgage note obligation on VA – Golden.

As of March 31, 2024, the net carrying value of real estate collateralizing our mortgages payable totaled $323.5 million. See Note 7 for the fair value of our debt instruments.

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 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.

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

 

$

100,000

 

 

 

4.01

%

 

USD-SOFR with -5 Day Lookback

 

June 23, 2023

 

March 23, 2025

 

$

904

 

$

100,000

 

 

 

4.18

%

 

USD-SOFR with -5 Day Lookback

 

June 23, 2023

 

December 23, 2024

 

$

648

 

$

100,000

 

 

 

3.70

%

 

USD-SOFR with -5 Day Lookback

 

September 29, 2023

 

June 29, 2025

 

$

1,345

 

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

 

$

2,897

 

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 $3.7 million will be reclassified from AOCI as a decrease to interest expense over the next 12 months.

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

 

$

1,932

 

 

$

(506

)

 Gain reclassified from AOCI into interest expense

 

 

1,030

 

 

 

1,507

 

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 not in a net liability position with any derivative counterparty. As of March 31, 2024, we were in compliance with these agreements and had not posted any collateral related to these agreements.

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

 

$

 

 

$

2,897

 

 

$

 

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

 

$

144,500

 

 

$

144,500

 

2016 term loan facility

 

$

100,000

 

 

$

100,000

 

2018 term loan facility

 

$

200,000

 

 

$

200,000

 

Notes payable

 

$

700,000

 

 

$

612,213

 

Mortgages payable

 

$

219,479

 

 

$

207,483

 

(1)
The carrying amount consists of principal only.
(2)
We deem the fair value measurement of the financial liability instrument a Level 3 measurement.

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

 

 

1,229

 

 

$

1,668

 

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 201,150 service-based LTIP units and 193,993 performance-based LTIP units to members of management pursuant to the 2015 Equity Incentive Plan (the “2015 Plan”). The service-based LTIP units vest on December 31, 2026 subject to the grantee's continued employment and the other terms of the awards. The performance-based LTIP units consisted of (i) 77,256 LTIP units that are subject to us achieving certain total shareholder return performance thresholds (on both an absolute and relative basis) and (ii) 116,737 LTIP units that are subject to us achieving certain operational performance hurdles, in each case through a performance period ending on December 31, 2026. The performance-based LTIP units will vest to the extent earned following the end of the performance period on December 31, 2026, conditioned on the board of directors approval.

On January 19, 2024, we granted 69,419 performance-based LTIP units to members of management pursuant to the 2015 Plan that are subject to us achieving certain total shareholder return performance thresholds (on a relative basis) through a performance period ending on December 31, 2026. The performance-based LTIP units will vest to the extent earned following the end of the performance period on December 31, 2026, conditioned on the board of directors approval.

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 (24.0%), dividend yield (6.6% - 6.7%), risk-free interest rate (4.1%) and expected life (3 years).

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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
Stock
Par
Value

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Cumulative
Dividends

 

 

Accumulated
Other
Comprehensive
Income

 

 

Non-
controlling
Interest in
Operating
Partnership

 

 

Total
Equity

 

Three months ended March 31, 2024

 

Balance at December 31, 2023

 

 

100,973,247

 

 

$

1,010

 

 

$

1,783,338

 

 

$

112,301

 

 

$

(576,319

)

 

$

1,871

 

 

$

87,315

 

 

$

1,409,516

 

Stock based compensation

 

 

 

 

 

 

 

 

123

 

 

 

 

 

 

 

 

 

 

 

 

1,106

 

 

 

1,229

 

Dividends and distributions paid
   ($
0.265 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,124

)

 

 

 

 

 

(1,561

)

 

 

(28,685

)

Redemption of common units for
   shares of common stock

 

 

1,381,455

 

 

 

14

 

 

 

18,074

 

 

 

 

 

 

 

 

 

 

 

 

(18,088

)

 

 

 

Unrealized gain on interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

882

 

 

 

20

 

 

 

902

 

Net income

 

 

 

 

 

 

 

 

 

 

 

4,626

 

 

 

 

 

 

 

 

 

258

 

 

 

4,884

 

Allocation of non-controlling interest
   in Operating Partnership

 

 

 

 

 

 

 

 

(231

)

 

 

 

 

 

 

 

 

 

 

 

231

 

 

 

 

Balance at March 31, 2024

 

 

102,354,702

 

 

$

1,024

 

 

$

1,801,304

 

 

$

116,927

 

 

$

(603,443

)

 

$

2,753

 

 

$

69,281

 

 

$

1,387,846

 

Three months ended March 31, 2023

 

Balance at December 31, 2022

 

 

90,814,021

 

 

$

908

 

 

$

1,622,913

 

 

$

93,497

 

 

$

(475,983

)

 

$

3,546

 

 

$

166,101

 

 

$

1,410,982

 

Stock based compensation

 

 

 

 

 

 

 

 

145

 

 

 

 

 

 

 

 

 

 

 

 

1,523

 

 

 

1,668

 

Dividends and distributions paid
   ($
0.265 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,068

)

 

 

 

 

 

(3,395

)

 

 

(27,463

)

Grant of unvested restricted stock

 

 

6,686

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redemption of common units for shares of common stock

 

 

10,199

 

 

 

 

 

 

140

 

 

 

 

 

 

 

 

 

 

 

 

(140

)

 

 

 

Issuance of common stock, net

 

 

2,559,000

 

 

 

26

 

 

 

52,206

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,232

 

Contribution of property for
   common units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

219

 

 

 

219

 

Unrealized loss on interest rate
    swaps, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,773

)

 

 

(240

)

 

 

(2,013

)

Net income

 

 

 

 

 

 

 

 

 

 

 

3,891

 

 

 

 

 

 

 

 

 

523

 

 

 

4,414

 

Allocation of non-controlling interest
   in Operating Partnership

 

 

 

 

 

 

 

 

(2,937

)

 

 

 

 

 

 

 

 

 

 

 

2,937

 

 

 

 

Balance at March 31, 2023

 

 

93,389,906

 

 

$

934

 

 

$

1,672,467

 

 

$

97,388

 

 

$

(500,051

)

 

$

1,773

 

 

$

167,528

 

 

$

1,440,039

 

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

 

April 25, 2024

 

May 9, 2024

 

May 21, 2024

 

0.265

(1)
Prior to the end of the performance period as set forth in the applicable LTIP unit award, holders of performance-based LTIP units are entitled to receive dividends per LTIP unit equal to 10% of the dividend paid per common unit. After the end of the performance period, the number of LTIP units, both vested and unvested, that LTIP award recipients have earned, if any, are entitled to receive dividends in an amount per LTIP unit equal to dividends, both regular and special, payable per common unit. Holders of LTIP units that are not subject to the attainment of performance goals are entitled to receive dividends per LTIP unit equal to 100% of the dividend paid per common unit beginning on the grant date.

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 of 1933, as amended (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.

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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.

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

 

$

4,884

 

 

$

4,414

 

Less: Non-controlling interest in Operating Partnership

 

 

(258

)

 

 

(523

)

Net income available to Easterly Government Properties, Inc.

 

 

4,626

 

 

 

3,891

 

Less: Dividends on participating securities

 

 

(148

)

 

 

(148

)

Net income available to common stockholders

 

$

4,478

 

 

$

3,743

 

Denominator for basic EPS

 

 

101,993,143

 

 

 

91,099,357

 

Dilutive effect of share-based compensation awards

 

 

27,143

 

 

 

23,556

 

Dilutive effect of LTIP units (1)

 

 

214,726

 

 

 

206,227

 

Dilutive effect of shares issuable under forward sale agreements (2)

 

 

 

 

 

 

Denominator for diluted EPS

 

 

102,235,012

 

 

 

91,329,140

 

Basic EPS

 

$

0.04

 

 

$

0.04

 

Diluted EPS

 

$

0.04

 

 

$

0.04

 

 

(1)
During the three months ended March 31, 2024 and 2023, there were 491,498 and 347,419 unvested performance-based LTIP units, respectively, that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period.
(2)
During the three months ended March 31, 2024 and 2023, there were 589,647 and 1,700,000 shares, respectively, of underlying unsettled forward sales transactions that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period.

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 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. Certain lease agreements include variable lease payments that, in the future, will vary based on changes in inflationary measures, real estate tax rates, usage, or share of expenditures of the leased premises.

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

 

$

65,436

 

 

$

62,924

 

Variable

 

 

5,310

 

 

 

5,224

 

Rental income

 

 

70,746

 

 

 

68,148

 

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 $2.8 million. We used our incremental borrowing rate, which was arrived at utilizing prevailing market rates and the spread on our revolving credit facility, in order to determine the net present value of the minimum lease payments.

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

 

$

191

 

 

$

131

 

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)

 

 

578

 

2025

 

 

793

 

2026

 

 

661

 

2027

 

 

368

 

2028

 

 

385

 

Thereafter

 

 

333

 

Total future minimum lease payments

 

$

3,118

 

Imputed interest

 

 

(306

)

Total

 

$

2,812

 

(1)
Represents the nine months ending December 31, 2024.

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”)

 

$

588

 

 

$

933

 

 

U.S. Joint Staff Command (“JSC”)

 

 

164

 

 

 

602

 

 

Customs and Border Protection (“CBP”)

 

 

139

 

 

 

79

 

 

Food and Drug Administration (“FDA”)

 

 

124

 

 

 

9

 

 

Federal Bureau of Investigation (“FBI”)

 

 

61

 

 

 

323

 

 

The Judiciary of the U.S. Government (“JUD”)

 

 

36

 

 

 

4

 

 

General Services Administration - Other

 

 

6

 

 

 

 

 

Department of Transportation (“DOT”)

 

 

3

 

 

 

120

 

 

Internal Revenue Service (“IRS”)

 

 

1

 

 

 

3

 

 

U.S. Coast Guard (“USCG”)

 

 

 

 

 

147

 

 

Immigration and Customs Enforcement (“ICE”)

 

 

 

 

 

71

 

 

Federal Emergency Management Agency (“FEMA”)

 

 

 

 

 

19

 

 

 

 

$

1,122

 

 

$

2,310

 

 

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 $7.7 million and $9.6 million, respectively.

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 $0.1 million in parking garage income. The monthly and transient daily parking revenue falls within the scope of Revenue from Contracts with Customers (“ASC 606”) and is accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied. As of both March 31, 2024 and December 31, 2023, the balance in Accounts receivable related to parking garage income was less than $0.1 million.

There were no contract assets or liabilities as of March 31, 2024 or December 31, 2023.

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 97.4% of our total annualized lease income, state and local government tenants accounted for approximately 1.1% of our annualized lease income and non-governmental tenants accounted for the remaining approximately 1.5%.

Eighteen of our 90 wholly-owned and unconsolidated operating properties are located in California, accounting for approximately 15.6% of our total leased square feet and approximately 20.2% of our total annualized lease income as of March 31, 2024. To the extent that weak economic or real estate conditions or natural disasters affect California more severely than other areas of the country, our business, financial condition and results of operations could be significantly impacted.

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 $0.1 million and received reimbursement for costs of less than $0.1 million.

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 $0.6 million and $0.5 million, respectively, and reimbursement for certain costs that we paid on their behalf of $0.4 million and $0.2 million, respectively.

As of March 31, 2024, Accounts receivable from related parties was $0.2 million. As of March 31, 2024, there were no Accounts payable, accrued expenses and other liabilities owed to related parties.

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 $8.4 million of available cash to extinguish the mortgage note obligation on VA – Golden.

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.

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:

the factors included under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and the factors included under the heading “Risk Factors” in our other public filings;
risks associated with our dependence on the U.S. Government and its agencies for substantially all of our revenues, including credit risk and risk that the U.S. Government reduces its spending on real estate or that it changes its preference away from leased properties;
risks associated with ownership and development of real estate;
the risk of decreased rental rates or increased vacancy rates;
the loss of key personnel;
general volatility of the capital and credit markets and the market price of our common stock;
the risk we may lose one or more major tenants;
difficulties in completing and successfully integrating acquisitions;
failure of acquisitions or development projects to occur at anticipated levels or yield anticipated results;
risks associated with actual or threatened terrorist attacks;
risks associated with our joint venture activities;
intense competition in the real estate market that may limit our ability to attract or retain tenants or re-lease space;
insufficient amounts of insurance or exposure to events that are either uninsured or underinsured;
uncertainties and risks related to adverse weather conditions, natural disasters and climate change;
exposure to liability relating to environmental and health and safety matters;
limited ability to dispose of assets because of the relative illiquidity of real estate investments and the nature of our assets;
exposure to litigation or other claims;
risks associated with breaches of our data security;
risks associated with our indebtedness, including failure to refinance current or future indebtedness on favorable terms, or at all; failure to meet the restrictive covenants and requirements in our existing and new debt agreements, fluctuations in interest rates and increased costs to refinance or issue new debt;
risks associated with derivatives or hedging activity;
risks associated with mortgage debt or unsecured financing or the unavailability thereof, which could make it difficult to finance or refinance properties and could subject us to foreclosure; and

18

 


 

adverse impacts from any future pandemic, epidemic or outbreak of any highly infectious disease on the U.S., regional and global economies and our financial condition and results of operations.

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
Type
(1)

 

Tenant Lease
Expiration
Year
(2)

 

 

Leased
Square

Feet

 

 

Annualized
Lease
 Income

 

 

Percentage
of Total
Annualized
Lease

Income

 

 

Annualized
Lease

Income per
Leased
Square
Foot

 

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
Type
(1)

 

Tenant Lease
Expiration
Year
(2)

 

 

Leased
Square

Feet

 

 

Annualized
Lease
 Income

 

 

Percentage
of Total
Annualized
Lease

Income

 

 

Annualized
Lease

Income per
Leased
Square
Foot

 

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
Type
(1)

 

Tenant Lease
Expiration
Year
(2)

 

 

Leased
Square

Feet

 

 

Annualized
Lease
 Income

 

 

Percentage
of Total
Annualized
Lease

Income

 

 

Annualized
Lease

Income per
Leased
Square
Foot

 

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

 

(1)
OC=Outpatient Clinic; O=Office; C=Courthouse; L=Laboratory; W=Warehouse; D=Distribution.
(2)
The year of lease expiration does not include renewal options.
(3)
Private tenants occupy 100,081 leased square feet.
(4)
Private tenants occupy 36,610 leased square feet.
(5)
A state government tenant occupies 14,274 leased square feet.
(6)
A private tenant occupies 11,402 leased square feet.
(7)
A private tenant occupies 17,373 leased square feet.
(8)
A private tenant occupies 5,000 leased square feet.
(9)
We own 53.0% of the property through an unconsolidated joint venture.
(10)
Asset is subject to a ground lease where we are the lessee.

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
Leases
Expiring

 

 

Leased Square
Footage
Expiring

 

 

Percentage of
Portfolio Leased Square
 Footage Expiring

 

 

Annualized
Lease Income
Expiring

 

 

Percentage
of Total
Annualized
Lease Income
Expiring

 

 

Annualized
Lease Income
per Leased
Square Foot
Expiring

 

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

 

 

(1)
The year of lease expiration is pursuant to current contract terms. Some tenants have the right to vacate their space during a specified period, or “soft term,” before the stated terms of their leases expire. As of March 31, 2024, 11 tenants occupying approximately 7.1% of our leased square feet and contributing approximately 6.9% of our annualized lease income have exercisable rights to terminate their lease before the stated term of their respective lease expires.

Information about our development property as of March 31, 2024 is set forth in the table below:

Property Name

 

Location

 

Tenant

 

Property
Type
(1)

 

Lease Term

 

Estimated Leased
Square

Feet

 

FDA - Atlanta

 

Atlanta, GA

 

 Food and Drug Administration

 

L

 

20-year

 

 

 

162,000

 

(1)
L=Laboratory.

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:

cash and cash equivalents;
operating cash flow;
distribution of cash flows from the JV;
available borrowings under our revolving credit facility;
issuance of long-term debt;
issuance of equity, including under our ATM Programs (as described below); and
asset sales.

Our short-term liquidity requirements consist primarily of funds to pay for the following:

development and redevelopment activities, including major redevelopment, renovation or expansion programs at FDA - Atlanta and other individual properties;
property acquisitions under contract, including our pro rata share of the one remaining VA Portfolio property;
tenant improvements, allowances and leasing costs;
recurring maintenance and capital expenditures;
debt repayment requirements;
corporate and administrative costs;
interest payments on our outstanding indebtedness;
interest swap payments;
distribution payments; and
potential repurchases of common stock under our share repurchase program.

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

 

 

 

 

 

 

(1)
At March 31, 2024, the USD SOFR with a five day lookback (“S”) was 5.31%. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums. The spread over the applicable rate for each of our $450.0 million senior unsecured revolving credit facility (our “revolving credit facility”), our $200.0 million senior unsecured term loan facility (as amended, our “2018 term loan facility”) and our $100.0 million senior unsecured term loan facility (our “2016 term loan facility”) is based on our consolidated leverage ratio, as set forth in the respective loan agreements.
(2)
Our revolving credit facility had available capacity of $305.4 million at March 31, 2024 with an accordion feature that permits us to request additional lender commitments for up to $250.0 million of additional capacity, subject to the satisfaction of customary terms and conditions.
(3)
Our revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee.

27

 


 

(4)
Our 2016 term loan facility is subject to one interest rate swap with an effective date of September 29, 2023 and a notional value of $100.0 million, which effectively fixes the interest rate at 5.05% annually, based on our consolidated leverage ratio, as defined in our 2016 term loan facility agreement.
(5)
Our 2018 term loan facility is subject to two interest rate swaps with an effective date of June 23, 2023 and an aggregate notional value of $200.0 million, which effectively fixes the interest rate at 5.38% annually, based on our consolidated leverage ratio, as defined in our 2018 term loan facility agreement.
(6)
Effective interest rates are as follows: VA – Golden 5.03%, USFS II – Albuquerque 3.92%, ICE – Charleston 3.93%, VA – Loma Linda 3.78%, CBP – Savannah 4.12%, USCIS – Kansas City 2.05%.
(7)
On April 1, 2024, we used $8.4 million of available cash to extinguish the mortgage obligation on VA – Golden.

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

%

(1)
Our 2016 term loan facility and 2018 term loan facility are swapped to be fixed and as such are included as fixed rate debt in the table above.

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

(1)
Prior to the end of the performance period as set forth in the applicable LTIP unit award, holders of performance-based LTIP units are entitled to receive dividends per LTIP unit equal to 10% of the dividend paid per common unit. After the end of the performance period, the number of LTIP units, both vested and unvested, that LTIP award recipients have earned, if any, are entitled to receive dividends in an amount per LTIP unit equal to dividends, both regular and special, payable per common unit. Holders of LTIP units that are not subject to the attainment of performance goals are entitled to receive dividends per LTIP unit equal to 100% of the dividend paid per common unit beginning on the grant date.

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:

Depreciation and amortization related to real estate.
Gains and losses from the sale of certain real estate assets.
Gains and losses from change in control.
Impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

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.

 

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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

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.

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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) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

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

 

Amended and Restated Articles of Amendment and Restatement of Easterly Government Properties, Inc. (previously filed as Exhibit 3.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 on January 30, 2015 and incorporated herein by reference)

 

 

 

3.2

 

Amended and Restated Bylaws of Easterly Government Properties, Inc. (previously filed as Exhibit 3.2 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 on January 30, 2015 and incorporated herein by reference)

 

 

 

3.3

 

First Amendment to Amended and Restated Bylaws of Easterly Government Properties, Inc. (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on February 27, 2019 and incorporated herein by reference)

 

 

 

3.4

 

Second Amendment to Amended and Restated Bylaws of Easterly Government Properties, Inc. (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on May 20, 2021 and incorporated herein by reference)

 

 

 

4.1

 

Specimen Certificate of Common Stock of Easterly Government Properties, Inc. (previously filed as Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 on January 30, 2015 and incorporated herein by reference)

 

 

 

10.1

 

Seventh Amendment to Term Loan Agreement, dated as of January 23, 2024, by and among Easterly Government Properties Inc., Easterly Government Properties LP, the Guarantors named therein, PNC Bank, National Association, as Administrative Agent and a Lender, and U.S. Bank National Association and Truist Bank, as Lenders (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K on January 25, 2024 and incorporated herein by reference)

 

 

 

31.1*

 

Certification of Chief Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

 

 

 

31.2*

 

Certification of Chief Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

 

 

 

32.1**

 

Certification of Chief Executive Officer and Chief Financial Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended

 

 

 

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)