EX-99.2 4 dea-ex992_7.htm EX-99.2 dea-ex992_7.htm

Exhibit 99.2

Easterly Government Properties, Inc.

Unaudited Pro Forma Consolidated Financial Statements

 

The unaudited pro forma consolidated financial statements (including notes thereto) of Easterly Government Properties, Inc. (the “Company”) are qualified in their entirety and should be read in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2017, and related notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission (the “ SEC”) on March 1, 2018 and the consolidated financial statements for the nine months ended September 30, 2018, and related notes thereto, included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 filed with the SEC on November 5, 2018.

 

On June 15, 2018, the Company, through wholly-owned subsidiaries of its operating partnership, Easterly Government Properties LP (the “Operating Partnership”), entered into a purchase and sale agreement with affiliates of Saban Real Estate LLC, an unaffiliated third party, to acquire a portfolio of 14 properties (collectively, these 14 properties are referred to herein as the “portfolio properties”). On September 13, 2018, the Company completed the acquisition of eight of the portfolio properties (the “First Closing Properties”) and on October 16, 2018, the Company completed the acquisition of three of the remaining six portfolio properties (the “Second Closing Properties” and, together with the First Closing Properties, the “Acquired Properties”).

 

The Acquired Properties were acquired in asset acquisitions and consist of the following:

First Closing Properties

Various GSA - Buffalo, NY

Various GSA - Buffalo, a 267,766-square foot multi-tenanted Class A office building completed in 2004, is primarily occupied by two federal agencies: the Department of Veterans Affairs (VA) and the Internal Revenue Service (IRS). It also houses one of the National Labor Relations Board’s 26 regional offices. The U.S. Government leases 94% of the 100% leased building.

Various GSA - Chicago, IL

Various GSA - Chicago, a multi-tenanted office building fully renovated in 1999, is strategically located next to Chicago O’Hare International Airport and serves as the Federal Aviation Administration’s (FAA) Great Lakes Regional Office, which oversees operations in eight states. The U.S. Department of Agriculture (USDA) also maintains a presence within the facility. The 239,331-square foot building is 96% leased.

TREAS - Parkersburg, WV

TREAS - Parkersburg, a 182,500-square foot build-to-suit property, was built in multiple phases in 2004 and 2006 and is 100% leased to the General Services Administration (GSA) for the beneficial use of the Bureau of Fiscal Service (BFS). This mission critical agency within the U.S. Department of Treasury has been located in Parkersburg since 1957 and currently occupies three buildings in the vicinity.

SSA - Charleston, WV

SSA - Charleston, a 110,000-square foot single tenant facility fully renovated in 2000, is occupied by the Office of Hearings Operations (OHO), a part of the Social Security Administration (SSA). The Charleston hearing office services three SSA field offices in Ohio and nine SSA field offices in West Virginia. The 100% leased facility features courtrooms, administrative offices and public service areas.

FBI - Pittsburgh, PA

FBI - Pittsburgh serves as one of 56 Federal Bureau of Investigation (FBI) field offices located throughout the country. The 100,054-square foot facility was built-to-suit for the FBI in 2001 and is 100% leased. This facility oversees operations for nine surrounding resident agencies located throughout Pennsylvania and the entirety of West Virginia.

GSA - Clarksburg, WV

GSA - Clarksburg serves as a multi-tenanted federal center for various federal tenants within the market area, including the FBI, Drug Enforcement Agency (DEA), SSA, Offices of the U.S. Attorneys, and Small Business Association (SBA). This 100% leased 63,760-square foot build-to-suit facility was constructed in 1999 and serves the five tenant agencies through a single GSA lease.

ICE - Pittsburgh, PA

ICE - Pittsburgh, a state-of-the-art, build-to-suit facility constructed in 2004, is occupied by the U.S. Immigration and Customs Enforcement (ICE), which works to promote homeland security and public safety with respect to border control, customs,

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trade and immigration for the surrounding Pittsburgh region. The Class A facility houses the Homeland Security Investigations (HSI) division, dedicated to combating criminal organizations illegally exploiting America’s travel, trade, financial and immigration systems. This 33,425-square foot facility is located adjacent to the FBI - Pittsburgh field office and is 76% leased.

SSA - Dallas, TX

SSA - Dallas is a 27,200-square foot build-to-suit facility 100% leased to the GSA for the beneficial use of the SSA. Built in 2005, this facility integrates state-of-the-art systems to serve as a local field office with superb access from one of Dallas’s busiest thoroughfares.

Second Closing Properties

Courthouse - Charleston, SC

Courthouse - Charleston, an historic townhouse with a modern annex that, together with two adjacent federally-owned buildings, constitutes the federal judicial complex in Charleston. The original building dates to 1795 and was fully renovated in 1999 when the annex was constructed. The building, known as the Josiah House, contains three district judge courtrooms and four judges’ chambers. It is physically connected on the second floor to the J. Waties Waring Judicial Center. This 50,888-square foot federal courthouse is 100% leased.

VA - Baton Rouge, LA

VA - Baton Rouge, constructed in 2004, serves as a VA outpatient facility for Baton Rouge and the surrounding veteran population. This facility is one of two VA medical treatment facilities in Baton Rouge. Situated close to the largest private medical center in Louisiana, VA - Baton Rouge is 30,000-square feet in size and currently 100% leased to the VA.

DEA - Bakersfield, CA

DEA - Bakersfield is a build-to-suit facility that houses the Bakersfield Resident Office for the DEA’s San Francisco Division. This 9,800-square foot facility houses two holding cells, provides for secure and enclosed first floor parking and offers second story office space with secured rooms for weapons and drug storage. The facility was constructed in 2000 and is 100% leased.

The Acquired Properties had an aggregate purchase price of $278.7 million which was funded by the proceeds from the issuance of 7,226,756 shares of the Company’s common stock with a fair value of $139.1 million, borrowings of $106.3 million under the Company’s $150.0 million senior unsecured term loan facility, borrowings of $32.0 million under the Company’s $450.0 million senior unsecured revolving credit facility, a previously funded deposit of $1.1 million and closing prorations of $0.2 million.

 

The unaudited pro forma consolidated statements of operations for the year ended December 31, 2017 and the nine months ended September 30, 2018 are presented as if the acquisition of the Acquired Properties by the Company had occurred on January 1, 2017.

 

In management’s opinion, all adjustments necessary to reflect the acquisition of the Acquired Properties have been made.

 

The unaudited pro forma consolidated financial statements for the year ended December 31, 2017 and the nine months ended September 30, 2018 are not necessarily indicative of what the Company’s actual results of operations would have been assuming the transactions had occurred as of January 1, 2017, nor do they purport to represent the Company’s financial condition or results of operation for future periods.

 

 

 

2

Easterly Government Properties, Inc.

Unaudited Pro Forma Consolidated Balance Sheet

As of September 30, 2018

(Amounts in thousands, except share and per share amounts)

 

 

 

Easterly Government Properties, Inc.

 

 

Second Closing Properties

 

 

Company Pro Forma

 

 

 

(A)

 

 

(B)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Real estate properties, net

 

$

1,546,600

 

 

$

30,791

 

 

$

1,577,391

 

Cash and cash equivalents

 

 

6,922

 

 

 

—

 

 

 

6,922

 

Restricted cash

 

 

4,388

 

 

 

—

 

 

 

4,388

 

Deposits on acquisitions

 

 

7,225

 

 

 

(1,155

)

 

 

6,070

 

Rents receivable

 

 

17,394

 

 

 

—

 

 

 

17,394

 

Accounts receivable

 

 

9,186

 

 

 

106

 

 

 

9,292

 

Deferred financing, net

 

 

2,636

 

 

 

—

 

 

 

2,636

 

Intangible assets, net

 

 

167,044

 

 

 

2,522

 

 

 

169,566

 

Interest rate swaps

 

 

6,958

 

 

 

—

 

 

 

6,958

 

Prepaid expenses and other assets

 

 

10,158

 

 

 

7

 

 

 

10,165

 

Total assets

 

$

1,778,511

 

 

$

32,271

 

 

$

1,810,782

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facility

 

 

33,000

 

 

 

31,962

 

 

 

64,962

 

Term loan facilities, net

 

 

248,413

 

 

 

—

 

 

 

248,413

 

Notes payable, net

 

 

173,752

 

 

 

—

 

 

 

173,752

 

Mortgage notes payable, net

 

 

210,388

 

 

 

—

 

 

 

210,388

 

Intangible liabilities, net

 

 

33,038

 

 

 

11

 

 

 

33,049

 

Accounts payable and accrued liabilities

 

 

38,618

 

 

 

298

 

 

 

38,916

 

Total liabilities

 

 

737,209

 

 

 

32,271

 

 

 

769,480

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, par value $0.01, 200,000,000 shares authorized,

   60,818,841 shares issued and outstanding at September 30, 2018.

 

 

608

 

 

 

—

 

 

 

608

 

Additional paid-in capital

 

 

1,015,603

 

 

 

—

 

 

 

1,015,603

 

Retained (deficit)

 

 

12,241

 

 

 

—

 

 

 

12,241

 

Cumulative dividends

 

 

(123,282

)

 

 

—

 

 

 

(123,282

)

Accumulated other comprehensive income

 

 

6,089

 

 

 

—

 

 

 

6,089

 

Total stockholders' equity

 

 

911,259

 

 

 

—

 

 

 

911,259

 

Non-controlling interest in Operating Partnership

 

 

130,043

 

 

 

—

 

 

 

130,043

 

Total equity

 

 

1,041,302

 

 

 

—

 

 

 

1,041,302

 

Total liabilities and equity

 

$

1,778,511

 

 

$

32,271

 

 

$

1,810,782

 

 

The accompanying notes are an integral part of these proforma consolidated financial statements.


3

Easterly Government Properties, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

For the Nine Months Ended September 30, 2018

(Amounts in thousands, except share and per share amounts)

 

 

 

 

Easterly Government Properties, Inc.

 

 

Acquired Properties

 

 

Pro Forma

Adjustments

 

 

 

 

Company

Pro Forma

 

 

 

(AA)

 

 

(BB)

 

 

 

 

 

 

 

 

(CC)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

99,967

 

 

$

19,885

 

 

$

27

 

 

(DD)

 

$

119,879

 

Tenant reimbursements

 

 

11,658

 

 

 

2,030

 

 

 

—

 

 

 

 

 

13,688

 

Other income

 

 

758

 

 

 

415

 

 

 

—

 

 

 

 

 

1,173

 

Total revenues

 

 

112,383

 

 

 

22,330

 

 

 

27

 

 

 

 

 

134,740

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating

 

 

21,563

 

 

 

4,961

 

 

 

—

 

 

 

 

 

26,524

 

Real estate taxes

 

 

11,773

 

 

 

2,889

 

 

 

—

 

 

 

 

 

14,662

 

Depreciation and amortization

 

 

45,331

 

 

 

—

 

 

 

10,554

 

 

(EE)

 

 

55,885

 

Acquisition costs

 

 

1,023

 

 

 

—

 

 

 

—

 

 

 

 

 

1,023

 

Corporate general and administrative

 

 

10,696

 

 

 

—

 

 

 

—

 

 

 

 

 

10,696

 

Total expenses

 

 

90,386

 

 

 

7,850

 

 

 

10,554

 

 

 

 

 

108,790

 

Operating income

 

 

21,997

 

 

 

14,480

 

 

 

(10,527

)

 

 

 

 

25,950

 

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(15,981

)

 

 

—

 

 

 

(3,301

)

 

(FF)

 

 

(19,282

)

Net income (loss)

 

 

6,016

 

 

 

14,480

 

 

 

(13,828

)

 

 

 

 

6,668

 

Non-controlling interest in Operating Partnership

 

 

(902

)

 

 

—

 

 

 

(28

)

 

(GG)

 

 

(930

)

Net income (loss) available to Easterly Government

   Properties, Inc.

 

$

5,114

 

 

$

14,480

 

 

$

(13,856

)

 

 

 

$

5,738

 

Net income (loss) available to Easterly Government

   Properties, Inc. per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.08

 

 

 

 

 

 

 

 

 

 

 

 

$

0.09

 

Diluted

 

$

0.08

 

 

 

 

 

 

 

 

 

 

 

 

$

0.09

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

51,051,388

 

 

 

 

 

 

 

 

 

 

 

 

 

55,578,037

 

Diluted

 

 

52,600,858

 

 

 

 

 

 

 

 

 

 

 

 

 

57,127,507

 

 

The accompanying notes are an integral part of these proforma consolidated financial statements.

4

Easterly Government Properties, Inc.

Unaudited Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2017

(Amounts in thousands, except share and per share amounts)

 

 

 

 

Easterly Government Properties, Inc.

 

 

Acquired Properties

 

 

Pro Forma

Adjustments

 

 

 

 

Company

Pro Forma

 

 

 

(AA)

 

 

(BB)

 

 

 

 

 

 

 

 

(CC)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

116,002

 

 

$

28,198

 

 

$

49

 

 

(DD)

 

$

144,249

 

Tenant reimbursements

 

 

13,929

 

 

 

3,708

 

 

 

—

 

 

 

 

 

17,637

 

Other income

 

 

742

 

 

 

608

 

 

 

—

 

 

 

 

 

1,350

 

Total revenues

 

 

130,673

 

 

 

32,514

 

 

 

49

 

 

 

 

 

163,236

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating

 

 

24,907

 

 

 

7,358

 

 

 

—

 

 

 

 

 

32,265

 

Real estate taxes

 

 

13,730

 

 

 

4,191

 

 

 

—

 

 

 

 

 

17,921

 

Depreciation and amortization

 

 

54,873

 

 

 

—

 

 

 

15,480

 

 

(EE)

 

 

70,353

 

Acquisition costs

 

 

1,493

 

 

 

—

 

 

 

—

 

 

 

 

 

1,493

 

Corporate general and administrative

 

 

12,900

 

 

 

—

 

 

 

—

 

 

 

 

 

12,900

 

Total expenses

 

 

107,903

 

 

 

11,549

 

 

 

15,480

 

 

 

 

 

134,932

 

Operating income

 

 

22,770

 

 

 

20,965

 

 

 

(15,431

)

 

 

 

 

28,304

 

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(17,071

)

 

 

—

 

 

 

(4,677

)

 

(FF)

 

 

(21,748

)

Loss on the sale of operating property

 

 

(310

)

 

 

—

 

 

 

—

 

 

 

 

 

(310

)

Net income (loss)

 

 

5,389

 

 

 

20,965

 

 

 

(20,108

)

 

 

 

 

6,246

 

Non-controlling interest in Operating Partnership

 

 

(941

)

 

 

—

 

 

 

(7

)

 

(GG)

 

 

(948

)

Net income (loss) available to Easterly Government

   Properties, Inc.

 

$

4,448

 

 

$

20,965

 

 

$

(20,115

)

 

 

 

$

5,298

 

Net income (loss) available to Easterly Government

   Properties, Inc. per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

 

 

 

 

 

 

 

 

 

 

 

$

0.11

 

Diluted

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

$

0.11

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

39,607,740

 

 

 

 

 

 

 

 

 

 

 

 

 

46,834,496

 

Diluted

 

 

41,563,540

 

 

 

 

 

 

 

 

 

 

 

 

 

48,790,296

 

 

The accompanying notes are an integral part of these proforma consolidated financial statements.

 

5

Easterly Government Properties, Inc.

Notes to the Unaudited Pro Forma Consolidated Financial Statements

 

1. Adjustments to the Unaudited Pro Forma Consolidated Balance Sheet

The adjustments to the unaudited pro forma consolidated balance sheet as of September 30, 2018 are as follows:

(A)

Reflects the unaudited consolidated balance sheet of Easterly Government Properties, Inc. as of September 30, 2018. This balance includes the acquisitions of the First Closing Properties, that closed on September 13, 2018.

(B)

Reflects the acquisition of the Second Closing Properties which closed on October 16, 2018. This acquisition was funded using borrowings of $32.0 million under the Company’s $450.0 million senior unsecured revolving credit facility. The following pro forma adjustments are necessary to reflect the initial allocation of the estimated purchase price of this acquisition. The allocation of purchase price shown in the table below is based on the Company’s best estimate and is subject to change based on the final determination of the fair value of assets and liabilities acquired.

 

Real estate properties, net

 

 

 

 

Land

 

$

2,107

 

Building

 

 

28,655

 

Acquired tenant improvements

 

 

29

 

Total Real estate properties, net

 

$

30,791

 

Intangible assets, net

 

 

 

 

In-place leases

 

$

2,393

 

Acquired leasing commissions

 

 

90

 

Above market leases

 

 

39

 

Total Intangible assets, net

 

$

2,522

 

Intangible liabilities, net

 

 

 

 

Below market leases

 

$

(11

)

Total Intangible liabilities, net

 

$

(11

)

2. Adjustments to the Unaudited Pro Forma Consolidated Statements of Operations

 

The adjustments to the unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2018 and for the year ended December 31, 2017 are as follows:

 

(AA)

Reflects the historical results of Easterly Government Properties, Inc. for the nine months ended September 30, 2018 (unaudited) and year ended December 31, 2017, respectively.

(BB)

Reflects the combined statement of revenues and certain expenses of the Acquired Properties for the period ended September 12, 2018 (unaudited) and year ended December 31, 2017, respectively. The nine months ended September 30, 2018 includes the operations of the First Closing Properties for the period from January 1, 2018 through September 12, 2018 and the operations of the Second Closing Properties for the period from January 1, 2018 through September 30, 2018. Operations of the First Closing Properties for the period from September 13, 2018 through September 30, 2018 are included in the Easterly Government Properties, Inc. Quarterly Report on Form 10-Q for the period ended September 30, 2018 filed with the Securities and Exchange Commission on November 5, 2018.

(CC)

The pro forma weighted average common shares outstanding are calculated as if 7,226,756 shares of the Company’s June 2018 underwritten public offering used to purchase the Acquired Properties had occurred on January 1, 2017.

(DD)

The pro forma adjustment for rental income represents straight-line rent adjustments and above/below market lease amortization assuming the Acquired Properties were acquired on January 1, 2017.

(EE)

The pro forma adjustment for depreciation expense is based on the Company’s basis in the assets that would have been recorded assuming the Acquired Properties were acquired on January 1, 2017. Depreciation and amortization amounts were determined in accordance with the Company’s policies and are based on management’s evaluation of the estimated useful lives of the properties and intangibles. The amounts allocated to buildings are depreciated over 40 years. The amounts allocated to lease intangibles are amortized over the remaining life of the related leases.

6

(FF)

Reflects the additional estimated interest expense assuming the Acquired Properties were acquired on January 1, 2017. The table below provides a summary of interest-bearing debt used to finance the Acquired Properties:

 

 

Fixed/ Floating

 

Interest Rate

 

 

Principal Balance

 

2018 term loan facility

 

Floating

 

 

3.34

%

 

$

106,264

 

Revolving credit facility

 

Floating

 

 

3.53

%

 

$

31,962

 

(GG)

Non-controlling interest in Operating Partnership is adjusted based on the additional pro forma earnings due to the acquisition of the Acquired Properties.

 

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