Easterly Government Properties(DEA) - 2021 Q3 - Quarterly Report

Part I: Financial Information Financial Statements This section presents the unaudited consolidated financial statements for the three and nine months ended September 30, 2021, detailing the Balance Sheets, Statements of Operations, Comprehensive Income, and Cash Flows Consolidated Balance Sheets As of September 30, 2021, total assets were $2.56 billion, an increase from $2.46 billion at year-end 2020, with total liabilities rising to $1.19 billion and total equity increasing to $1.37 billion Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $2,555,970 | $2,457,540 | | Real estate properties, net | $2,287,208 | $2,208,661 | | Cash and cash equivalents | $16,068 | $8,465 | | Total Liabilities | $1,185,260 | $1,157,570 | | Revolving credit facility | $112,500 | $79,250 | | Notes payable, net | $447,215 | $447,171 | | Total Equity | $1,370,710 | $1,299,970 | Consolidated Statements of Operations For the nine months ended September 30, 2021, total revenues increased 13.0% year-over-year to $203.2 million, with net income more than doubling to $26.2 million and diluted EPS reaching $0.27 Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $69,608 | $61,131 | $203,223 | $179,875 | | Total Expenses | $51,990 | $47,682 | $150,615 | $142,438 | | Net Income | $9,042 | $4,821 | $26,176 | $10,902 | | Diluted EPS | $0.09 | $0.05 | $0.27 | $0.12 | | Dividends Declared per Share | $0.265 | $0.260 | $0.785 | $0.780 | Consolidated Statements of Comprehensive Income Comprehensive income for the nine months ended September 30, 2021, was $30.5 million, a substantial increase from $2.0 million in the prior year, driven by higher net income and positive changes in unrealized gains on interest rate swaps Comprehensive Income (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Income | $26,176 | $10,902 | | Unrealized gain (loss) on interest rate swaps, net | $4,275 | $(8,880) | | Comprehensive Income | $30,451 | $2,022 | Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash from operating activities was $94.5 million, while net cash used in investing activities was $127.5 million, primarily for real estate acquisitions, and net cash provided by financing activities was $42.1 million Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $94,459 | $108,625 | | Net cash used in investing activities | $(127,452) | $(181,316) | | Net cash provided by financing activities | $42,072 | $71,016 | | Net increase (decrease) in Cash | $9,079 | $(1,675) | Notes to the Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, real estate acquisitions and dispositions, debt structure, equity transactions, and subsequent events - The company is a REIT focused on leasing Class A commercial properties to U.S. Government agencies, owning 83 operating properties (7.5M sq ft) and one property under development as of Sep 30, 2021[23][24] - During the first nine months of 2021, the company acquired six operating properties for an aggregate purchase price of $134.0 million[32] - The company sold two properties, SSA – Mission Viejo and United Technologies – Midland, for net proceeds of $3.3 million and $4.0 million respectively, recognizing a total gain of $1.3 million[35][36] - Subsequent to the quarter-end, the company formed a joint venture to acquire a portfolio of ten VA properties for $635.6 million and also acquired two other properties[103][104][105] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, focusing on its U.S. Government-leased property portfolio, liquidity, and reconciliation of Net Income to non-GAAP FFO - The company's portfolio consists of 83 operating properties, which are 99% leased, with U.S. Government tenants accounting for 98.6% of the company's annualized lease income[114][121] Results of Operations (Nine Months Ended Sep 30) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $203.2M | $179.9M | +$23.3M | | Total Expenses | $150.6M | $142.4M | +$8.2M | | Net Income | $26.2M | $10.9M | +$15.3M | FFO Reconciliation (Nine Months Ended Sep 30) | Metric (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | FFO | $92,430 | $81,634 | | FFO, as Adjusted | $86,676 | $78,698 | - The company maintains liquidity through cash, operating cash flow, its revolving credit facility ($337.5 million available as of Sep 30, 2021), and equity/debt issuances[172][173] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its variable-rate debt, with 87.4% of its debt fixed-rate as of September 30, 2021, and ongoing monitoring of the LIBOR to SOFR transition - As of Sep 30, 2021, 87.4% of the company's debt was fixed-rate, with $128.2 million (12.6%) subject to variable rates[220] - A 25 basis point fluctuation in market interest rates would change annual interest expense by $0.3 million[220] - The company is monitoring the planned phase-out of LIBOR after June 30, 2023, and its transition to alternative rates like SOFR[221] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2021[222] - No material changes were identified in the internal control over financial reporting during the third quarter of 2021[223] Part II: Other Information Legal Proceedings 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 legal proceedings[225] Risk Factors The report states there are no material changes to the risk factors disclosed in the 2020 Annual Report on Form 10-K, except for an updated risk factor concerning joint ventures - A new risk factor was added regarding joint ventures, citing risks like partner financial distress, inconsistent goals, and potential impasses on key decisions[227] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported[228] Defaults Upon Senior Securities The company reports that this item is not applicable - Not applicable[229] Mine Safety Disclosures The company reports that this item is not applicable - Not applicable[230] Other Information The company reported no other information for this item - None[231] Exhibits This section lists the exhibits filed with the Form 10-Q, including amended credit agreements, a purchase and sale agreement, and officer certifications required by the SEC - Lists exhibits filed with the report, such as credit agreements, a major purchase agreement, and officer certifications[233]