Easterly Government Properties(DEA) - 2023 Q1 - Quarterly Report

Part I: Financial Information Item 1: Financial Statements 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 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 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 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 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] - 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][30] - 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][60] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2023 financial performance, covering property portfolio, operations, liquidity, and non-GAAP measures, noting decreased net income and strong liquidity 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] - 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] Results of Operations 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] - 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] Liquidity and Capital Resources 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][121] 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] Non-GAAP Financial Measures 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 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] Item 4: Controls and Procedures 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] - 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] Part II: Other Information Item 1: 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 litigation[150] Item 1A: Risk Factors 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] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[152] Item 6: Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files