Easterly Government Properties, Inc. (NYSE:DEA) Q2 2023 Earnings Conference Call August 8, 2023 11:00 AM ET Company Participants Lindsay Winterhalter - Head of Investor Relations Darrell Crate - Chairman William Trimble - President and Chief Executive Officer Meghan Baivier - Executive Vice President, Chief Financial and Chief Operating Officer Conference Call Participants Michael Griffin - Citigroup Inc. Peter Abramowitz - Jefferies LLC Operator Greetings. Welcome to the Easterly Government Properties Seco ...

Financial Performance - Total revenues for Q2 2023 were $71,373,000, a decrease of 1.9% compared to $72,757,000 in Q2 2022[8] - Net income for Q2 2023 was $5,778,000, down 29.5% from $8,130,000 in Q2 2022[10] - Comprehensive income for Q2 2023 was $8,885,000, down from $11,033,000 in Q2 2022[10] - Net income for the six months ended June 30, 2023, was $10,192,000, a decrease of 37.5% compared to $16,393,000 in 2022[12] - Basic and diluted earnings per share (EPS) for Q2 2023 were both $0.05, compared to $0.08 in Q2 2022, reflecting a 37.5% decrease[74] - The company's share of net income for the six months ended June 30, 2023, was $2,820,000, compared to $1,456,000 for the same period in 2022, indicating a significant growth[34] Revenue Sources - Rental income decreased to $67,758,000 in Q2 2023 from $71,156,000 in Q2 2022, reflecting a decline of 4.5%[8] - Revenue from tenant construction projects for Q2 2023 was $2.765 million, significantly up from $1.102 million in Q2 2022, marking a 150.5% increase[82] - Asset management income for Q2 2023 was $0.5 million, an increase from $0.3 million in Q2 2022, representing a 66.7% growth[90] - The company recognized $0.1 million in parking garage income for both Q2 2023 and Q2 2022, indicating stable revenue from this source[84] Assets and Liabilities - Total assets as of June 30, 2023, were $2,807,963,000, a slight decrease from $2,829,385,000 as of December 31, 2022[6] - Total liabilities decreased to $1,385,896,000 as of June 30, 2023, from $1,418,403,000 at the end of 2022[6] - The total debt as of June 30, 2023, was $1,221,180,000, with a revolving credit facility of $53,000,000 and various term loan facilities totaling $250,000,000[35] - The balance in accounts receivable related to tenant construction projects was $8.2 million as of June 30, 2023, up from $6.8 million at the end of 2022[82] Cash Flow and Investments - The company reported a net cash provided by operating activities of $59,052,000 for the six months ended June 30, 2023[12] - Net cash used in investing activities was $20,967,000, significantly lower than $147,028,000 in the prior year[12] - Cash paid for interest increased to $23,555,000 in 2023 from $21,766,000 in 2022, reflecting a rise of 8.2%[14] Shareholder Equity and Dividends - Stockholders' equity as of June 30, 2023, was $1,422,067, reflecting a net income of $5,778 for the three months ended June 30, 2023[63] - The company declared dividends of $0.265 per common share for both Q2 2023 and Q2 2022[8] - The balance of common stock increased to 93,415,706 shares by June 30, 2023, up from 90,814,021 shares at the end of 2022[65] Real Estate and Occupancy - As of June 30, 2023, the company wholly owned 78 operating properties and had an occupancy rate of 98% across approximately 8.6 million leased square feet[19] - The total real estate properties, net, amounted to $2,270,435,000, with land valued at $213,592,000 and buildings and improvements at $2,292,532,000[26] - The U.S. Government accounted for approximately 98.5% of total annualized lease income as of June 30, 2023[88] Financial Instruments and Risk Management - The company entered into three SOFR-based interest rate swaps with a total notional value of $300.0 million, designated as cash flow hedges of interest rate risk[39] - The fair value of interest rate swaps as of June 30, 2023, was recorded as an asset of $5,114,000[45] - The company estimates that $4.3 million will be reclassified from Accumulated Other Comprehensive Income (AOCI) as a decrease to interest expense over the next 12 months[47] Compensation and Equity Awards - The total compensation expense related to restricted common stock awards was $0.3 million for the six months ended June 30, 2023[54] - The fair value of LTIP units that vested was $4.0 million during the six months ended June 30, 2023[61] - The company granted 515,465 LTIP units during the six months ended June 30, 2023[58]

Financial Data and Key Metrics Changes - For Q1 2023, net income per share was $0.04, and core FFO per share was $0.29, with cash available for distribution at $24.5 million [19] - Total indebtedness was approximately $1.2 billion at a weighted average interest rate of 3.7%, with 96% of outstanding debt fixed [19] - The net debt to annualized quarterly EBITDA ratio stood at 7.2x, with over $400 million in capacity on the line of credit and an additional $50 million available under the 2018 term loan [19] Business Line Data and Key Metrics Changes - The company owned 86 operating properties comprising approximately 8.6 million lease square feet, with a weighted average age of 14.1 years and a weighted average remaining lease term of 10.4 years [33] - The average rent renewal spread from 2020 to present is expected to be 23% with an average term of over 18 years [14] Market Data and Key Metrics Changes - The office sector is facing challenges due to work-from-home trends, occupancy rates, local rental rates, and potential layoffs across various industries [13] - Only 51% of Easterly's annualized lease income comes from office assets, which is expected to decrease with the acquisition of additional VA properties [30] Company Strategy and Development Direction - The company is focused on acquiring mission-critical assets leased to the U.S. federal government, with plans to restart growth by acquiring such assets as inflation shows signs of cooling [27] - Easterly is maintaining an active presence in the acquisition market despite a decline in transaction volume, aiming for accretive acquisitions of bullseye properties [12] - The company is positioned to take advantage of potential distress in development projects over the next 18 months due to liquidity issues faced by over-leveraged developers [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the company will not face issues during potential government shutdowns, as they are funded through the end of the fiscal year [52] - The company believes it is well-positioned to capitalize on opportunities in the market, with a strong balance sheet compared to regional developers [27] - Management highlighted the importance of their unique portfolio focused on government infrastructure, differentiating them from typical office businesses [15][24] Other Important Information - The company has transitioned to a core FFO metric for 2023, which adjusts FFO to present a clearer picture of operating performance [34] - The full-year 2023 core FFO per share guidance is maintained in the range of $1.12 to $1.15, assuming the closing of specific properties and development-related investments [48] Q&A Session Summary Question: Are there any issues around OpEx or G&A to consider for forward earnings estimates? - Management indicated that they are running at a level just shy of the mid-point of guidance, with expectations for renewals and TI work to continue, offset by expiring interest rate swaps [38] Question: Do buildings shut down concurrently with government shutdowns? - Management confirmed that buildings do not shut down concurrently with government shutdowns [53] Question: What cap rates are needed for attractive bullseye properties? - Management stated that high-6s cap rates would be acceptable, and they are prepared to act on high-quality assets as they become available [54] Question: What types of investments are being targeted currently? - Management highlighted a healthy uptick in development opportunities and a narrowing in the acquisition market, indicating a readiness to pursue various types of deals [56][57] Question: How comfortable is the company with dividend coverage? - Management expressed confidence in the strength of underlying U.S. government-backed cash flows, maintaining a consistent dividend policy [70]

Part I: Financial Information [Item 1: Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) This section presents Easterly Government Properties, Inc.'s unaudited consolidated financial statements for Q1 2023 and 2022, including balance sheets, statements of operations, and cash flows [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheet shows a slight decrease in total assets from $2.83 billion at year-end 2022 to $2.82 billion at the end of Q1 2023, with liabilities decreasing and equity increasing Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$2,819,286** | **$2,829,385** | | Real estate properties, net | $2,277,307 | $2,285,308 | | Cash and cash equivalents | $8,852 | $7,578 | | **Total Liabilities** | **$1,379,247** | **$1,418,403** | | Total debt (Revolver, Term, Notes, Mortgages) | $1,218,692 | $1,251,371 | | **Total Equity** | **$1,440,039** | **$1,410,982** | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) For Q1 2023, total revenues slightly decreased to $71.2 million, while net income available to the company significantly dropped to $3.9 million due to increased expenses Q1 2023 vs Q1 2022 Statement of Operations (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Revenues | $71,220 | $72,302 | | Total Expenses | $56,193 | $53,788 | | Interest Expense, net | $(12,015) | $(10,882) | | Net Income | $4,414 | $8,263 | | **Net Income available to Easterly** | **$3,891** | **$7,341** | | **Diluted EPS** | **$0.04** | **$0.08** | | Dividends declared per common share | $0.265 | $0.265 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities decreased to $21.6 million in Q1 2023, while investing activities saw a significant decrease in cash used, and financing activities resulted in a net cash use Q1 2023 vs Q1 2022 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,625 | $24,112 | | Net cash used in investing activities | $(10,576) | $(28,461) | | Net cash provided by (used in) financing activities | $(7,850) | $1,544 | | **Net change in Cash** | **$3,199** | **$(2,805)** | [Notes to the Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on the company's accounting policies and financial items, including its real estate portfolio, joint venture interests, debt, and equity issuances - As of March 31, 2023, the company wholly owned **78 operating properties** and held an interest in **eight operating properties** through an unconsolidated joint venture, totaling approximately **8.6 million leased square feet**, with the portfolio being **98% leased**[19](index=19&type=chunk) - The company owns a **53.0% interest** in an unconsolidated real estate venture (JV) formed to acquire a portfolio of ten VA properties, with eight properties acquired as of March 31, 2023[29](index=29&type=chunk)[30](index=30&type=chunk) - During Q1 2023, the company issued **2.3 million shares** under Forward Sale Agreements for net proceeds of **$46.8 million** and **250,000 shares** under its 2019 ATM Program for net proceeds of **$5.6 million**[58](index=58&type=chunk)[60](index=60&type=chunk) [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes Q1 2023 financial performance, covering property portfolio, operations, liquidity, and non-GAAP measures, noting decreased net income and strong liquidity [Overview](index=24&type=section&id=Overview) Easterly is an internally managed REIT focused on Class A commercial properties leased to U.S. Government agencies, with a portfolio of 86 operating properties that are 98% leased - The company's portfolio of operating properties has a weighted average age of approximately **14.1 years** and generates a weighted average annualized lease income per leased square foot of **$35.25**[93](index=93&type=chunk) - As of March 31, 2023, approximately **52.7%** of the portfolio's leased square footage, representing **58.8%** of annualized lease income, has lease expirations occurring after 2032, indicating long-term cash flow stability[99](index=99&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) For Q1 2023, total revenues decreased by $1.1 million to $71.2 million, while total expenses increased by $2.4 million to $56.2 million, leading to a $3.8 million drop in net income Comparison of Operations for Q1 2023 vs Q1 2022 (in thousands) | Item | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $71,220 | $72,302 | $(1,082) | | Total Expenses | $56,193 | $53,788 | $2,405 | | Interest Expense, net | $(12,015) | $(10,882) | $(1,133) | | **Net Income** | **$4,414** | **$8,263** | **$(3,849)** | - The **$2.3 million decrease** in Rental income was primarily due to the disposition of ten properties since March 31, 2022, partially offset by three property acquisitions[103](index=103&type=chunk) - Property operating expenses increased by **$2.4 million**, mainly from an increase in reimbursable projects and higher utility and repair costs across the portfolio[105](index=105&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with significant availability under its revolving credit facility and utilizes ATM programs for capital needs, with most debt being fixed-rate - As of March 31, 2023, the company had **$400.4 million** of available capacity under its revolving credit facility[110](index=110&type=chunk)[121](index=121&type=chunk) Debt Capital Structure as of March 31, 2023 | Metric | Value | | :--- | :--- | | Total principal outstanding | $1.22 billion | | Weighted average maturity | 5.5 years | | Weighted average interest rate | 3.7% | | % Fixed debt | 96.0% | | % Variable debt | 4.0% | - As of March 31, 2023, the company had approximately **$300.0 million** of gross sales available under the 2021 ATM Program and **$87.4 million** available under the 2019 ATM Program[117](index=117&type=chunk) [Non-GAAP Financial Measures](index=36&type=section&id=Non-GAAP%20Financial%20Measures) The company uses FFO, Core FFO, and FFO, as Adjusted, as supplemental performance measures, all of which decreased in Q1 2023 consistent with the decline in GAAP net income Reconciliation of Net Income to FFO Measures (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net income | $4,414 | $8,263 | | **FFO** | **$29,120** | **$33,053** | | **Core FFO** | **$29,500** | **$33,321** | | **FFO, as Adjusted** | **$29,013** | **$31,977** | [Item 3: Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate exposure on its debt, largely mitigated by a high proportion of fixed-rate obligations - As of March 31, 2023, **96.0%** of the company's debt had fixed interest rates, with only **4.0%** subject to variable rates[146](index=146&type=chunk) [Item 4: Controls and Procedures](index=38&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[148](index=148&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[149](index=149&type=chunk) Part II: Other Information [Item 1: Legal Proceedings](index=38&type=section&id=Item%201%3A%20Legal%20Proceedings) The company reports that it is not currently involved in any material litigation, nor is it aware of any threatened material litigation - The company is not currently involved in any material litigation[150](index=150&type=chunk) [Item 1A: Risk Factors](index=38&type=section&id=Item%201A%3A%20Risk%20Factors) There were no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors were reported for the quarter[151](index=151&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[152](index=152&type=chunk) [Item 6: Exhibits](index=40&type=section&id=Item%206%3A%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files

Financial Data and Key Metrics Changes - For Q4 2022, net income per share was $0.18, FFO per share was $0.30, and FFO as adjusted per share was $0.29. For the full year 2022, net income per share was $0.35, FFO per share was $1.27, and FFO as adjusted per share was $1.26 [21][54] - Cash available for distribution was $21.7 million for Q4 2022 and $108.5 million for the year ended December 31, 2022 [21] Business Line Data and Key Metrics Changes - The company acquired seven properties in 2022, totaling over 800,000 square feet of government-leased space, focusing on newer buildings with strong cash flow visibility [14] - The company executed 13 renewals in 2022, achieving an average rent spread of 8% on the remaining 11 renewals, with an average total renewal term of 15 years [25] Market Data and Key Metrics Changes - The company noted a widening bid-ask spread in the market due to rising interest rates, affecting asset pricing [12] - The company has a total indebtedness of approximately $1.3 billion, with a net debt to annualized quarterly pro forma EBITDA ratio of 7.1 times [49] Company Strategy and Development Direction - The company is maintaining an active presence in the acquisition market but remains cautious due to rising capital costs, focusing only on accretive deals [15] - The company executed its first portfolio disposition, selling 10 buildings to enhance the quality and NAV of its remaining portfolio [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying fundamentals of the business despite short-term challenges from rising capital costs and a slow transaction market [20] - The company anticipates increased demand for its facilities as the population grows, benefiting occupancy needs over time [11] Other Important Information - The company has over $434 million in debt capacity and nearly $93 million in unsettled forward equity, providing ample opportunity for accretive deals [24] - The company is transitioning its guidance to a core FFO metric for 2023, with guidance for core FFO per share in the range of $1.12 to $1.15 [26][54] Q&A Session Questions and Answers Question: Can you provide color around operating expenses and interest expense for 2023? - Management indicated that inflationary expectations in commodities and labor costs are influencing the bridge to 2023 guidance [57] Question: Where would cap rates need to be for more accretive acquisitions? - Management noted that cap rates in the high-6s to low-7s range would be more favorable for acquisitions, but the market has not yet reached that point [60] Question: Have you closed on the Jacksonville property? - Management confirmed that the Jacksonville property has not yet closed and is assumed to be later on [70]

Property Ownership and Operations - As of December 31, 2022, the company wholly owned 78 operating properties and had a total of approximately 8.7 million leased square feet, with an occupancy rate of 99%[17] - The weighted average age of the company's properties was approximately 13.8 years, and the weighted average remaining lease term was about 10.3 years[19] - The company has developed approximately 4.6 million square feet of U.S. Government-leased properties, including 40 build-to-suit projects[19] - As of December 31, 2022, U.S. Government tenant agencies accounted for 97.1% of the company's annualized lease income[24] - The company has properties leased to various government agencies, ensuring a stable tenant base and reduced vacancy risk[157] - The total square footage of properties leased to government agencies is 7,639,583, which constitutes 87.2% of the total portfolio[158] - The company’s portfolio is primarily leased to U.S. Government agencies, ensuring a stable tenant base[165] - The company has a diverse portfolio with properties located in various states, including California, Texas, and Virginia, enhancing geographic risk mitigation[157] Financial Performance - Total revenues increased by $18.7 million to $293.6 million for the year ended December 31, 2022, compared to $274.9 million for the year ended December 31, 2021[197] - Rental income rose by $17.1 million, primarily due to revenues from three operating properties acquired since December 31, 2021, and favorable lease renewals[198] - The company recognized a gain on the sale of operating properties of $13.6 million for the year ended December 31, 2022, compared to a gain of $1.3 million for the year ended December 31, 2021[208] - Total expenses increased by $18.2 million to $222.1 million for the year ended December 31, 2022, compared to $203.8 million for the year ended December 31, 2021[201] - Interest expense, net increased by $8.7 million to $47.4 million for the year ended December 31, 2022, primarily due to issuances of $250.0 million of outstanding fixed-rate, senior unsecured notes in 2021[207] Debt and Financing - The company had total indebtedness of approximately $1.3 billion as of December 31, 2022, including $65.5 million outstanding under its revolving credit facility[20] - The company had $240.6 million of combined U.S. property mortgages and other secured debt as of December 31, 2022, which includes restrictive covenants that could limit operational flexibility[113] - The company had $81.2 million of outstanding consolidated debt bearing interest at variable rates, exposing it to interest rate risk that could increase expenses and affect cash flow[114] - The company had six interest rate swaps in place with an aggregate notional value of $250.0 million to mitigate exposure to interest rate fluctuations[116] - High mortgage rates or unavailability of mortgage debt may hinder the company's ability to finance or refinance properties, affecting cash distributions[120] Employee Relations and Corporate Governance - The company had 54 employees as of December 31, 2022, with a good relationship with its workforce[22] - The company maintains cash- and equity-based compensation programs to attract and retain employees, emphasizing diversity and inclusion[24] - The company has implemented a remote working policy to promote employee retention and flexibility[24] - The company has a gift-matching program to encourage employee volunteerism and philanthropy[31] - The board of directors has the authority to change policies without stockholder approval, including investment and dividend policies[103] Risks and Challenges - The company is exposed to risks from natural disasters, with properties in areas vulnerable to earthquakes, wildfires, and floods, which could significantly impact financial results[55] - Economic conditions, including job losses, inflation, and rising interest rates, may adversely affect occupancy levels, rental rates, and overall market value of assets[49] - The company may struggle to collect rents from private tenants who file for bankruptcy, affecting cash flow[70] - Properties leased to U.S. Government agencies are at higher risk of terrorist attacks and civil unrest, potentially damaging assets[72] - Competition for attractive investment opportunities may increase property prices, adversely affecting profitability[73] Compliance and Regulatory Matters - Compliance with governmental regulations impacts the company's capital expenditures, earnings, and competitive position[27] - The company is organized to qualify as a REIT for U.S. federal income tax purposes, which affects its operational strategies[33] - The company must distribute at least 90% of its taxable income to maintain REIT status, or face corporate tax rates on undistributed income[126] - Noncompliance with U.S. Government contractor requirements could result in fines and loss of revenue[81] - The company may face a 100% penalty tax on prohibited transactions, which could limit its operational flexibility[137] Sustainability and Environmental Initiatives - The company is committed to sustainability and has published its inaugural Environmental, Social, and Governance (ESG) report in 2022[29] - The company has 15 ENERGY STAR certified buildings and over 45% of its assets have achieved at least one sustainability-related certification[30] - The company may face increased capital expenditures to improve energy efficiency in response to climate change regulations, impacting financial condition[58] Market and Stock Performance - The market price and trading volume of the company's common stock may be volatile, influenced by various economic and operational factors[121] - Future issuances of common stock could adversely affect the market price per share, with substantial sales potentially leading to a decrease in stock value[125] - The company has a share repurchase program that may affect stock price volatility and liquidity, potentially diminishing cash reserves for future growth[124]

Solaris Oilfield Infrastructure, Inc. (SOI) Q3 2022 Earnings Conference Call November 1, 2022 11:00 AM ET Company Participants Lindsay Winterhalter - VP, IR Darrell Crate - Executive Chairman Bill Trimble - President, CEO and Director Meghan Baivier - EVP, CFO and COO Conference Call Participants Michael Griffin - Citi John Kim - BMO Capital Markets Michael Carroll - RBC Capital Markets Michael Lewis - Truist Operator Greetings and welcome to Easterly Government Properties' Third Quarter 2022 Earnings Confe ...

Part I: Financial Information [Financial Statements](index=3&type=section&id=Item%201%3A%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the period ended September 30, 2022, including Balance Sheets, Statements of Operations, Cash Flows, and detailed notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The balance sheets show total assets increased to **$2.96 billion** and total liabilities rose to **$1.54 billion** by September 30, 2022, driven by property and credit facility changes Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$2,961,650** | **$2,826,112** | | Real estate properties, net | $2,463,961 | $2,399,188 | | Investment in unconsolidated real estate venture | $199,338 | $131,840 | | **Total Liabilities** | **$1,542,855** | **$1,384,531** | | Revolving credit facility | $177,750 | $14,500 | | Notes payable, net | $695,935 | $695,589 | | **Total Equity** | **$1,418,795** | **$1,441,581** | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Total revenues increased to **$220.1 million**, but net income decreased to **$17.1 million** due to an impairment loss and higher interest expenses, impacting diluted EPS Statement of Operations Summary (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | **Total Revenues** | **$220,100** | **$203,223** | | Rental income | $214,238 | $197,713 | | **Total Expenses** | **$164,975** | **$150,615** | | Depreciation and amortization | $73,552 | $67,615 | | Impairment loss | $5,540 | $0 | | **Net Income** | **$17,142** | **$26,176** | | Net income available to Easterly | $15,180 | $23,169 | | **Diluted EPS** | **$0.16** | **$0.27** | | Dividends declared per common share | $0.795 | $0.785 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to **$103.8 million**, while investing activities used **$189.3 million**, and financing activities provided **$86.9 million** Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $103,783 | $94,459 | | Net cash used in investing activities | ($189,313) | ($127,452) | | Net cash provided by financing activities | $86,881 | $42,072 | [Notes to the Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Detailed notes cover accounting policies, **$108.1 million** in property acquisitions, a **$5.5 million** impairment loss, joint venture formation, and a subsequent **$205.3 million** property portfolio sale - The company is an internally managed REIT focused on acquiring, developing, and managing Class A commercial properties leased to U.S. Government agencies[22](index=22&type=chunk) - During the first nine months of 2022, the company acquired three operating properties for an aggregate purchase price of **$108.1 million**[31](index=31&type=chunk) - A **$5.5 million** impairment loss was recognized for the ICE – Otay property due to changes in expected cash flows related to a 2022 lease expiration[33](index=33&type=chunk) - Subsequent to the quarter's end, on October 12, 2022, the company agreed to sell a portfolio of ten properties for approximately **$205.3 million** The sale of nine of these properties was completed on October 27, 2022[103](index=103&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=25&type=section&id=Item%202%3A%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, including revenue growth from acquisitions, net income decline due to impairment and interest costs, liquidity, capital resources, and non-GAAP FFO reconciliation - As of September 30, 2022, the company wholly owned **88 operating properties** and seven through a joint venture, totaling **9.1 million leased square feet**, with a **99% lease rate**[110](index=110&type=chunk) - Subsequent to the quarter, the company completed the sale of nine properties from a ten-property disposition portfolio for an aggregate price of approximately **$205.3 million**[115](index=115&type=chunk)[116](index=116&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) Total revenues increased by **$16.9 million** to **$220.1 million**, while net income decreased by **$9.0 million** to **$17.1 million** due to higher expenses and an impairment loss Comparison of Operations for the Nine Months Ended September 30 (in thousands) | Item | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | **$220,100** | **$203,223** | **$16,877** | | Rental income | $214,238 | $197,713 | $16,525 | | **Total Expenses** | **$164,975** | **$150,615** | **$14,360** | | Property operating | $48,811 | $41,578 | $7,233 | | Interest expense, net | ($34,729) | ($27,739) | ($6,990) | | Impairment loss | ($5,540) | $0 | ($5,540) | | **Net Income** | **$17,142** | **$26,176** | **($9,034)** | [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity via operating cash flow, a revolving credit facility with **$272.1 million** available, and **$1.37 billion** in total debt with a **5.6-year** weighted average maturity - Primary sources of capital include operating cash flow, the revolving credit facility, debt and equity issuances, and asset sales[169](index=169&type=chunk) Debt Capital Structure as of September 30, 2022 | Metric | Value | | :--- | :--- | | Total principal outstanding | $1,375.3 million | | Weighted average maturity | 5.6 years | | Weighted average interest rate | 3.7% | | % Fixed debt (incl. swaps) | 85.9% | | % Variable debt | 14.1% | - As of September 30, 2022, the company had unsettled forward sales transactions for **1,950,000 shares** under its 2019 ATM Program, with expected net proceeds of approximately **$42.6 million** upon physical settlement[176](index=176&type=chunk) [Non-GAAP Financial Measures](index=40&type=section&id=Non-GAAP%20Financial%20Measures) The company reports FFO of **$98.8 million** and FFO, as Adjusted, of **$98.9 million** for the nine months ended September 30, 2022, reflecting growth from property acquisitions FFO and FFO, as Adjusted Reconciliation (in thousands) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net income | $17,142 | $26,176 | | Depreciation of real estate assets | $72,810 | $67,561 | | Impairment loss | $5,540 | $0 | | **FFO** | **$98,844** | **$92,430** | | Adjustments (Acquisition costs, non-cash items, etc.) | $5,089 | ($5,754) | | **FFO, as Adjusted** | **$98,933** | **$86,676** | [Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with **85.9%** of debt fixed, and it is managing the transition from LIBOR to SOFR for its credit facilities - As of September 30, 2022, **85.9%** of the company's **$1.2 billion** in debt had fixed interest rates, with the remaining **14.1%** (**$193.5 million**) at variable rates[217](index=217&type=chunk) - A hypothetical **25 basis point** fluctuation in market interest rates on variable-rate debt would change annual interest expense by approximately **$0.5 million**[217](index=217&type=chunk) - The company is preparing for the discontinuation of LIBOR after June 30, 2023, and its credit facilities include provisions for replacing LIBOR with an alternative rate like SOFR[219](index=219&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[221](index=221&type=chunk) - No material changes to the company's internal control over financial reporting were identified during the third quarter of 2022[224](index=224&type=chunk) Part II: Other Information [Legal Proceedings](index=44&type=section&id=Item%201%3A%20Legal%20Proceedings) The company is not currently involved in any material litigation and is unaware of any threatened material legal actions - As of the filing date, the company is not a party to any material legal proceedings[225](index=225&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A%3A%20Risk%20Factors) No material changes to risk factors were noted, except for a new risk concerning the share repurchase program's potential impact on stock price and cash reserves - A new risk factor was added regarding the company's share repurchase program, stating that repurchases are not guaranteed and could affect stock price, liquidity, and cash reserves[227](index=227&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities in the quarter[228](index=228&type=chunk) [Exhibits](index=45&type=section&id=Item%206%3A%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, credit agreements, and CEO/CFO certifications - Exhibits filed include the First Amendment to the Second Amended and Restated Credit Agreement, and certifications from the CEO and CFO as required by the Securities Exchange Act of 1934[232](index=232&type=chunk)

Easterly Government Properties Inc. (NYSE:DEA) Q2 2022 Earnings Conference Call August 2, 2022 11:00 AM ET Company Participants Lindsay Winterhalter - Vice President of Investor Relations Darrell Crate - Executive Chairman of the Board Bill Trimble - President, CEO and Director Meghan Baivier - Executive VP, CFO and COO Conference Call Participants Michael Griffin - Citi Michael Carroll - RBC Capital Markets John Kim - BMO Capital Markets Peter Abramowitz - Jefferies Michael Lewis - Truist Bill Crow - Raymo ...

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 June 30, 2022 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 Incorporati ...