Easterly Government Properties(DEA) - 2024 Q2 - Quarterly Results

Disclaimers This report contains forward-looking statements subject to risks and uncertainties, including dependence on the U.S. Government and market volatility, with no obligation for updates - The report contains forward-looking statements covered by the safe harbor provisions of the Securities Act and Exchange Act, which involve risks and uncertainties, and actual results may differ materially[47] - Key risks include dependence on the U.S. Government, real estate market volatility, competition, and interest rate fluctuations, with the company assuming no obligation to update these statements[47] Supplemental Definitions This section defines key non-GAAP financial measures and other terms, such as Core FFO, CAD, EBITDA, NOI, and Net Debt, to provide insights into the company's financial performance - This section defines non-GAAP financial measures and other terms used in the report to provide investors with useful information about the company's financial condition and operations, noting these measures should not be considered in isolation or as a substitute for GAAP measures[1][2] - Key defined terms include: - Core Funds from Operations (Core FFO): Adjusts FFO for items not representative of ongoing operating results[1][2] - Cash Available for Distribution (CAD): A measure of the company's ability to fund dividends[1][2] - EBITDA: Net income before interest, taxes, depreciation, and amortization, used to assess the ability to service debt[1][2] - Net Operating Income (NOI) and Cash NOI: Measures of the operating performance of properties[1][2] - Net Debt and Adjusted Net Debt: Estimates of contractual borrowed capital to be repaid, net of available cash and certain adjustments for development projects[1][2] Overview This section provides corporate information, key leadership, analyst coverage, and an executive summary of the company's Q2 2024 financial performance and capitalization Corporate Information and Analyst Coverage This section details the company's corporate information, including its NYSE listing, key leadership, and equity research coverage - Key leadership includes Darrell Crate as CEO, Michael Ibe as Vice-Chairman & EVP, and Meghan Baivier as COO & President[4] - The company is covered by several equity research firms, including Citigroup, Raymond James & Associates, RBC Capital Markets, Jefferies, Truist Securities, BMO Capital Markets, and Compass Point Research & Trading, LLC[5] Executive Summary This summary presents a high-level overview of the company's Q2 2024 financial performance, including stable Core FFO per share, market capitalization, debt ratios, and liquidity Q2 2024 Key Earnings Metrics (in thousands, except per share) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | | :--- | :--- | :--- | | Net income | $4,850 | $5,778 | | Net income, per share - fully diluted | $0.04 | $0.05 | | Funds From Operations (FFO) | $30,690 | $30,021 | | FFO, per share - fully diluted | $0.28 | $0.28 | | Core FFO | $31,373 | $30,267 | | Core FFO, per share - fully diluted | $0.29 | $0.29 | | Cash Available for Distribution (CAD) | $24,806 | $24,562 | Capitalization and Ratios (as of June 30, 2024) | Metric | Value | | :--- | :--- | | Total equity market capitalization | $1,340,589 (in thousands) | | Net Debt | $1,391,867 (in thousands) | | Total enterprise value | $2,732,457 (in thousands) | | Net debt to total enterprise value | 50.9% | | Net debt to annualized quarterly EBITDA | 7.6x | | Adjusted Net Debt to annualized quarterly pro forma EBITDA | 6.9x | Liquidity (as of June 30, 2024, in thousands) | Source | Amount | | :--- | :--- | | Cash and cash equivalents | $15,640 | | Available under senior unsecured revolving credit facility | $327,375 | Corporate Financials This section presents the company's detailed financial statements, including balance sheets, income statements, and reconciliations for NOI, EBITDA, FFO, and CAD Balance Sheets The balance sheet highlights growth in total assets to nearly $3.0 billion and an increase in total liabilities to $1.62 billion as of June 30, 2024 Balance Sheet Comparison (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Real estate properties, net | $2,417,749 | $2,319,143 | | Total assets | $2,996,038 | $2,879,752 | | Liabilities & Equity | | | | Total liabilities | $1,623,564 | $1,470,236 | | Total equity | $1,372,474 | $1,409,516 | | Total liabilities and equity | $2,996,038 | $2,879,752 | Income Statements The income statement shows increased total revenues but a decrease in Q2 2024 net income to $4.9 million, impacted by higher expenses Q2 Income Statement Highlights (in thousands) | Account | Three months ended June 30, 2024 | Three months ended June 30, 2023 | | :--- | :--- | :--- | | Total revenues | $76,221 | $71,373 | | Total expenses | $57,583 | $55,335 | | Interest expense, net | ($15,165) | ($11,678) | | Net income | $4,850 | $5,778 | | Diluted EPS | $0.04 | $0.05 | Net Operating Income NOI increased to $53.7 million and Cash NOI grew to $50.6 million in Q2 2024, reflecting improved property-level performance NOI and Cash NOI (in thousands) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | | :--- | :--- | :--- | | Net Operating Income (NOI) | $53,707 | $49,501 | | Cash Net Operating Income (Cash NOI) | $50,585 | $46,238 | EBITDA EBITDA increased to $45.9 million in Q2 2024, with pro forma EBITDA reaching $46.2 million EBITDA Reconciliation (in thousands) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | | :--- | :--- | :--- | | Net income | $4,850 | $5,778 | | Depreciation and amortization | $24,086 | $22,619 | | Interest expense | $15,165 | $11,678 | | EBITDA | $45,889 | $42,369 | FFO and CAD FFO increased to $30.7 million and Core FFO to $31.4 million in Q2 2024, with Core FFO per share remaining stable at $0.29 FFO and CAD Reconciliation (in thousands) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | | :--- | :--- | :--- | | FFO | $30,690 | $30,021 | | Core FFO | $31,373 | $30,267 | | Cash Available for Distribution (CAD) | $24,806 | $24,562 | Per Share Metrics | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | | :--- | :--- | :--- | | FFO, per share - fully diluted | $0.28 | $0.28 | | Core FFO, per share - fully diluted | $0.29 | $0.29 | Unconsolidated Real Estate Venture This section details the financial results of the unconsolidated real estate venture, where Easterly holds a 53.0% interest, including its share of net income and Core FFO Venture Balance Sheet (as of June 30, 2024, in thousands) | Account | Total Venture | Easterly's Share | | :--- | :--- | :--- | | Real estate properties - net | $444,667 | $235,674 | | Total assets | $538,210 | $285,252 | | Total equity | $527,873 | $280,085 | Easterly's Share of Venture Performance - Q2 2024 (in thousands) | Metric | Amount | | :--- | :--- | | Net income | $1,377 | | FFO | $3,383 | | Core FFO | $3,399 | | Cash Available for Distribution (CAD) | $3,399 | Debt This section provides a comprehensive overview of the company's debt composition, key statistics, and maturity schedule as of June 30, 2024 Debt Schedules The debt schedules show total debt of approximately $1.41 billion, with 85.1% unsecured, 96.6% fixed-rate, and a 4.9-year weighted average maturity Debt Composition (as of June 30, 2024) | Debt Type | Balance (in thousands) | % of Total | | :--- | :--- | :--- | | Unsecured debt | $1,197,500 | 85.1% | | Secured mortgage debt | $210,007 | 14.9% | | Total Debt | $1,407,507 | 100.0% | Debt Statistics (as of June 30, 2024) | Metric | Value | | :--- | :--- | | % Fixed rate debt | 96.6% | | % Variable rate debt - unhedged | 3.4% | | Weighted average maturity | 4.9 years | | Weighted average interest rate | 4.4% | Debt Maturities The debt maturity schedule indicates minimal maturities in 2024, with significant amounts staggered from 2025 to 2027 Debt Maturities by Year (in thousands) | Year | Total Maturing Debt | Percentage of Total | | :--- | :--- | :--- | | 2024 | $53,709 | 3.8% | | 2025 | $104,598 | 7.4% | | 2026 | $185,054 | 13.1% | | 2027 | $230,733 | 16.4% | | 2028 | $123,483 | 8.8% | | Thereafter | $709,029 | 50.4% | Properties This section provides an overview of the company's leased operating properties, tenant base, lease expiration schedule, and re/development projects Leased Operating Property Overview The portfolio comprises over 9 million square feet, generating $326 million in annualized lease income from diversified properties, including wholly-owned and joint venture assets Portfolio Summary (as of June 30, 2024) | Metric | Value | | :--- | :--- | | Total Leased Square Feet | 9,055,997 | | Total Annualized Lease Income | $326,036,932 | | Weighted Average Annualized Lease Income per Leased Square Foot | $36.00 | - The portfolio includes wholly-owned properties and a 53.0% interest in properties through an unconsolidated joint venture, primarily consisting of VA outpatient clinics[34] Tenants The tenant base is predominantly the U.S. Government, accounting for 96.9% of annualized lease income, with a weighted average remaining lease term of 10.1 years - The U.S. Government represents 95.6% of leased square footage and 96.9% of annualized lease income, highlighting a strong, credit-worthy tenant base[37] Top 3 Tenants by Annualized Lease Income | Tenant | Annualized Lease Income | % of Total | | :--- | :--- | :--- | | Department of Veteran Affairs (VA) | $88,877,202 | 27.3% | | Federal Bureau of Investigation (FBI) | $53,616,325 | 16.4% | | Drug Enforcement Administration (DEA) | $27,896,535 | 8.6% | Lease Expirations The lease expiration schedule shows a well-laddered profile, with only 1.7% of annualized lease income expiring in 2024 and 56.9% after 2033 Lease Expiration Schedule (% of Total Annualized Lease Income) | Year of Expiration | % of Annualized Lease Income Expiring | | :--- | :--- | | 2024 | 1.7% | | 2025 | 5.9% | | 2026 | 5.4% | | 2027 | 5.8% | | 2028 | 5.4% | | 2029-2033 | 20.3% | | Thereafter | 56.9% | Summary of Re/Development Projects The company's development pipeline includes an FDA laboratory project under construction and a courthouse project in the design phase Project Under Construction | Property Name | Property Type | Total Leased Square Feet | Anticipated Cost (thousands) | Anticipated Completion Date | | :--- | :--- | :--- | :--- | :--- | | FDA - Atlanta | Laboratory | 162,000 | $235,436 | 4Q 2025 | - There is one project in the design phase: a 50,777 square foot courthouse with an anticipated completion in Q2 2026[42]