Easterly Government Properties(DEA) - 2020 Q4 - Annual Report

Part I Business Easterly Government Properties is a REIT focused on acquiring, developing, and managing Class A properties leased to U.S. Government agencies Portfolio Overview as of December 31, 2020 | Metric | Value | | :--- | :--- | | Wholly Owned Operating Properties | 79 | | Total Leased Square Feet | ~7.3 million | | Portfolio Lease Rate | 99% | | Properties Leased to U.S. Gov't | 77 | | Properties Leased to Private Tenants | 2 | | Properties Under Development | 1 (~0.2 million sq. ft.) | - The company's primary business objective is to generate attractive risk-adjusted returns for stockholders through long-term dividends and capital appreciation by focusing on properties leased to U.S. Government agencies[16] - The company's portfolio is characterized by high-quality, mission-critical properties with a weighted average age of approximately 13.3 years and a weighted average remaining lease term of about 8.2 years[22] - As of December 31, 2020, the company had 45 employees and emphasized a culture of diversity and inclusion, with 38% of employees being female and 40% of named executive officers being women[27] Risk Factors The company faces risks from U.S. Government lease dependence, non-renewals, substantial indebtedness, and geographic concentration - The company is highly dependent on the U.S. Government, which accounted for 99.6% of its annualized lease income as of December 31, 2020[41] - A significant portion of the portfolio faces near-term lease expirations, with leases representing approximately 22.8% of total annualized lease income set to expire by the end of 2023[42] - The company has a notable geographic concentration in California, with 18 of its 79 operating properties located in the state, accounting for 18.5% of total leased square feet and 24.8% of total annualized lease income[53] - As of December 31, 2020, the company had approximately $983.4 million in total indebtedness[104] - Failure to maintain REIT qualification would result in significant adverse consequences[128][130] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC as of the filing date - There are no unresolved staff comments[157] Properties Easterly's portfolio comprises 79 operating properties totaling 7.3 million leased square feet, 99% leased, primarily to U.S. Government tenants Top 5 Tenants by Annualized Lease Income (as of Dec 31, 2020) | Tenant | Annualized Lease Income | % of Total | | :--- | :--- | :--- | | Dept. of Veteran Affairs (VA) | $43,172,668 | 17.7% | | Federal Bureau of Investigation (FBI) | $40,771,826 | 16.7% | | Drug Enforcement Administration (DEA) | $24,531,817 | 10.1% | | Judiciary of the U.S. (JUD) | $12,006,443 | 4.9% | | Food and Drug Administration (FDA) | $11,467,739 | 4.7% | Geographic Diversification by State (Top 5 by Annualized Lease Income) | State | % of Total Annualized Lease Income | | :--- | :--- | | California | 24.8% | | Virginia | 8.0% | | Texas | 7.1% | | Alabama | 5.7% | | Kansas | 5.6% | Lease Expiration Schedule by Annualized Lease Income | Year of Expiration | Annualized Lease Income Expiring | % of Total | | :--- | :--- | :--- | | 2021 | $25,010,373 | 10.2% | | 2022 | $11,524,521 | 4.7% | | 2023 | $14,823,900 | 6.1% | | 2024 | $22,767,700 | 9.3% | | 2025 | $12,655,165 | 5.2% | | Thereafter | $101,163,361 | 41.1% | Legal Proceedings The company is not currently involved in any material litigation, nor is it aware of any threatened against it - The company is not currently involved in any material litigation[171] Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[172] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE under 'DEA', with an intent to pay regular quarterly distributions to maintain REIT qualification - The company's common stock is traded on the NYSE under the symbol "DEA"[175] - To maintain its REIT status, the company must distribute at least 90% of its taxable income and intends to pay regular quarterly distributions[176] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting increased revenues and net income in 2020 driven by acquisitions, with FFO as Adjusted reaching $106.1 million Results of Operations Total revenues increased by $23.4 million to $245.1 million in 2020, primarily from property acquisitions, leading to a net income of $13.5 million Comparison of Operations (Years Ended Dec 31) | (In thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenues | $245,078 | $221,722 | | Rental income | $238,131 | $208,544 | | Total Expenses | $192,075 | $186,283 | | Property operating | $48,430 | $48,279 | | Depreciation & amortization | $93,803 | $92,439 | | Interest expense, net | ($35,480) | ($33,460) | | Net Income | $13,528 | $8,224 | - The $29.6 million increase in rental income was primarily driven by revenues from nine operating properties acquired and one development property placed in service since the end of 2019[198] - The company recognized a $4.0 million loss on the sale of the DEA – Otay property in 2020, compared to a $6.2 million gain on the sale of the CBP – Chula Vista property in 2019[206][207] Liquidity and Capital Resources Liquidity is supported by operating cash flow, a $450.0 million revolving credit facility, and ATM equity programs, with total indebtedness at $983.4 million Debt Capital Structure as of December 31, 2020 | Metric | Value | | :--- | :--- | | Total Principal Outstanding | $983.4 million | | Weighted Average Maturity | 6.6 years | | Weighted Average Interest Rate | 3.6% | | % Fixed Debt | 90.3% | | % Variable Debt | 9.7% | | % Secured Debt | 20.8% | - During 2020, the company issued a total of 6,996,824 shares under its ATM programs, raising net proceeds of approximately $160.4 million[218][219] Dividends Declared in 2020 | Quarter | Declaration Date | Dividend per Share | | :--- | :--- | :--- | | Q1 2020 | April 29, 2020 | $0.26 | | Q2 2020 | July 29, 2020 | $0.26 | | Q3 2020 | October 27, 2020 | $0.26 | | Q4 2020 | February 18, 2021 | $0.26 | Non-GAAP Financial Measures FFO and FFO, as Adjusted, are key supplemental performance measures, with FFO, as Adjusted, increasing to $106.1 million in 2020 Reconciliation of Net Income to FFO and FFO, as Adjusted | (In thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net income | $13,528 | $8,224 | $6,659 | | Depreciation and amortization | $93,803 | $92,439 | $66,403 | | (Gain) loss on sale of property | $3,995 | ($6,245) | — | | FFO | $111,326 | $94,418 | $73,062 | | Adjustments | ($5,233) | ($1,623) | ($8,589) | | FFO, as Adjusted | $106,093 | $92,795 | $64,453 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with 9.7% of debt at variable rates, and it is monitoring the LIBOR transition - As of December 31, 2020, 90.3% of the company's debt had fixed interest rates, while 9.7% ($95.0 million) had variable rates[271] - A hypothetical 25 basis point fluctuation in market interest rates on variable-rate debt would change annual interest expense by approximately $0.2 million[271] - The company is exposed to risks from the planned cessation of LIBOR after 2021 and is evaluating the impact on its contracts[272][273] Financial Statements and Supplementary Data This section refers to the consolidated financial statements and supplementary data, included in a separate section starting on page F-1 - The company's financial statements and supplementary data are located at the end of the report, beginning on page F-1[277] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[277] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2020, confirmed by auditors - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[278] - Management assessed internal control over financial reporting as effective, and this assessment was audited and confirmed by PricewaterhouseCoopers LLP[279][280] Other Information The company reports no other information for this item - None[282] Part III Part III incorporates information by reference from the company's 2021 Proxy Statement, covering directors, executive compensation, security ownership, and related transactions Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference from the company's Proxy Statement for the 2021 Annual Meeting of Stockholders - Information is incorporated by reference from the Proxy Statement[285] Executive Compensation Information required by this item is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the Proxy Statement[286] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides equity compensation plan information as of December 31, 2020, with further details incorporated by reference from the Proxy Statement Equity Compensation Plan Information as of December 31, 2020 | Plan Category | Securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Securities remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 3,086,211 | $ — | 1,993,822 | Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the Proxy Statement[290] Principal Accounting Fees and Services Information required by this item is incorporated by reference from the company's Proxy Statement - Information is incorporated by reference from the Proxy Statement[291] Part IV Part IV contains the list of exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and certifications Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and all exhibits filed as part of the Annual Report on Form 10-K - This section lists all documents filed as exhibits to the report, including financial statements, schedules, and other required filings[294][295][296] Form 10-K Summary This section is not applicable - Not applicable[299]