Easterly Government Properties Reports First Quarter 2019 Results

WASHINGTON–(BUSINESS WIRE)–Easterly Government Properties, Inc. (NYSE: DEA) (the “Company” or
“Easterly”), a fully integrated real estate investment trust (“REIT”)
focused primarily on the acquisition, development and management of
Class A commercial properties leased to the U.S. Government, today
announced its results of operations for the quarter ended March 31, 2019.

Highlights for the Quarter Ended March 31, 2019:

  • Net loss of $0.5 million, or $0.01 per share on a fully diluted basis
  • FFO of $22.0 million, or $0.31 per share on a fully diluted basis
  • FFO, as Adjusted of $20.8 million, or $0.29 per share on a fully
    diluted basis
  • CAD of $18.5 million
  • Completed the acquisition of the final three of the 14 properties in
    the Company’s previously announced portfolio acquisition. The three
    properties represent an aggregate of 355,426 square feet and were
    acquired for a combined purchase price of $152.5 million
  • Issued 6.7 million shares of common stock in exchange for
    approximately $119.2 million in gross proceeds, settling a portion of
    the forward sales agreements entered into in connection with the June
    2018 underwritten public offering of 20.7 million shares of the
    Company’s common stock
  • Launched a new ATM program pursuant to which the Company may issue and
    sell shares of common stock having an aggregate offering price of up
    to $200.0 million including through the sale of shares on a forward
    basis (“2019 ATM Program”)
  • Maintained portfolio occupancy at 100%

“Easterly is a company built on secure, recurring cash flows backed by
the full faith and credit of our largest tenant, the U.S. Government,”
said William C. Trimble, III, Easterly’s Chief Executive Officer. “We
believe the underlying credit quality of our 100% leased portfolio
provides for superior risk adjusted returns.”

Financial Results for the Quarter Ended March 31, 2019:

Net loss of $0.5 million, or $0.01 per share on a fully diluted basis

FFO of $22.0 million, or $0.31 per share on a fully diluted basis

FFO, as Adjusted of $20.8 million, or $0.29 per share on a fully diluted
basis

CAD of $18.5 million

Portfolio Operations

As of March 31, 2019, the Company wholly owned 65 operating properties
in the United States, encompassing approximately 5.6 million square feet
in the aggregate, including 63 operating properties that were leased
primarily to U.S. Government tenant agencies and two operating
properties that were entirely leased to private tenants. As of March 31,
2019, the portfolio had a weighted average age of 13.0 years, based upon
the date the property was built or renovated-to-suit, was 100% occupied,
and had a weighted average remaining lease term of 7.3 years.

Acquisitions and Development Activities

On January 31, 2019, the Company completed the acquisition of the final
three of the 14 properties in the Company’s previously announced
portfolio acquisition. The three properties represent an aggregate of
355,426 square feet and were acquired for a combined purchase price of
$152.5 million. The three properties include:

  • DEA – Sterling, VA

    DEA – Sterling serves as a
    special testing and research laboratory to assist the Drug Enforcement
    Administration (DEA) in performing mission critical forensic analyses.
    The 49,692-square foot facility was built-to-suit in 2001 and includes
    evidence rooms, computer labs, cryptography and various other
    specialized laboratories. The facility is 100% leased through 2020.

  • FDA – College Park, MD

    FDA – College Park houses a
    laboratory for the Food and Drug Administration’s (FDA) Center for
    Food Safety and Applied Nutrition (CFSAN), one of the FDA’s seven
    product-oriented centers. The 80,677-square foot office and laboratory
    was built-to-suit in 2004 and is 100% leased through 2029. The
    facility is part of the University of Maryland’s Research Park and is
    located two blocks from CFSAN headquarters in the Harvey W. Wiley
    Building, forming a campus which links university researchers,
    students and staff with federal laboratories and private sector
    companies.

  • Various GSA – Portland, OR

    Various GSA – Portland, a
    Class A trophy multi-tenanted asset, was built in 2002 and is
    strategically located within Portland’s Central City Plan District
    along the MAX light rail system. The 225,057-square foot facility is
    occupied by tenants such as the U.S. Department of Agriculture (USDA),
    U.S. Army Corp of Engineers (ACOE), Federal Bureau of Investigation
    (FBI) and the Bureau of Alcohol, Tobacco, Firearms and Explosives
    (ATF).

Balance Sheet and Capital Markets Activity

As of March 31, 2019, the Company had total indebtedness of $819.8
million comprised of $184.5 million outstanding on its revolving credit
facility, $150.0 million outstanding on its 2018 term loan facility,
$100.0 million outstanding on its 2016 term loan facility, $175.0
million of senior unsecured notes, and $210.3 million of mortgage debt
(excluding unamortized premiums and discounts and deferred financing
fees). At March 31, 2019, Easterly’s outstanding debt had a weighted
average maturity of 6.2 years and a weighted average interest rate of
3.7%. As of March 31, 2019, Easterly’s Net Debt to total enterprise
value was 36.6% and its Net Debt to annualized quarterly EBITDA and
Adjusted Net Debt to annualized quarterly pro-forma EBITDA ratios were
6.7x and 6.1x, respectively.

On March 4, 2019, the Company launched its 2019 ATM Program, pursuant to
which the Company may issue and sell shares of common stock having an
aggregate offering price of up to $200.0 million from time to time in
negotiated transactions or transactions that are deemed to be
“at-the-market” offerings through the applicable sales agents. Under the
2019 ATM Program, the Company may also enter into one or more forward
transactions under separate master forward sale confirmations and
related supplemental confirmations with certain sales agents or their
affiliates for the sale of shares of common stock on a forward basis.

During the quarter ended March 31, 2019, the Company issued 366,455
shares of the Company’s common stock at a weighted average price of
$17.93 per share through the Company’s previously existing ATM program,
raising gross proceeds of approximately $6.6 million to maintain balance
sheet strength.

Dividend

On May 2, 2019, the Board of Directors of Easterly approved a cash
dividend for the first quarter of 2019 in the amount of $0.26 per common
share. The dividend will be payable June 27, 2019 to shareholders of
record on June 10, 2019.

Outlook for the 12 Months Ending December 31,
2019

The Company is reiterating its guidance for 2019 FFO per share on a
fully diluted basis in a range of $1.16 – $1.20.

                 
Low High
Net income (loss) per share – fully diluted basis $ 0.04   0.08
Plus: real estate depreciation and amortization $ 1.12 1.12
FFO per share – fully diluted basis $ 1.16 1.20
 

This guidance assumes $200 million of acquisitions, not including the Q1
2019 closings of the final three properties in the 14-property
portfolio, and $75 – $100 million of gross development-related
investment during 2019.

The Company’s guidance for 2019 FFO per share on a fully diluted basis
represents expected FFO, as Adjusted per share on a fully diluted basis
growth of approximately 6% to 11%.

This guidance is forward-looking and reflects management’s view of
current and future market conditions. The Company’s actual results may
differ materially from this guidance.

Non-GAAP Supplemental Financial Measures

This section contains definitions of certain non-GAAP financial
measures and other terms that the Company uses in this press release
and, where applicable, the reasons why management believes these
non-GAAP financial measures provide useful information to investors
about the Company’s financial condition and results of operations and
the other purposes for which management uses the measures. These
measures should not be considered in isolation or as a substitute for
measures of performance in accordance with GAAP. Additional detail can
be found in the Company’s most recent annual report on Form 10-K and
quarterly report on Form 10-Q, as well as other documents filed with or
furnished to the SEC from time to time.

Cash Available for Distribution (CAD) is a non-GAAP financial
measure that is not intended to represent cash flow for the period and
is not indicative of cash flow provided by operating activities as
determined under GAAP. CAD is calculated in accordance with the current
Nareit definition as FFO minus normalized recurring real estate-related
expenditures and other non-cash items and nonrecurring expenditures. CAD
is presented solely as a supplemental disclosure because the Company
believes it provides useful information regarding the Company’s ability
to fund its dividends. Because all companies do not calculate CAD the
same way, the presentation of CAD may not be comparable to similarly
titled measures of other companies.

EBITDA is calculated as the sum of net income (loss) before
interest expense, income taxes, depreciation and amortization. EBITDA is
not intended to represent cash flow for the period, is not presented as
an alternative to operating income as an indicator of operating
performance, should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with GAAP is not
indicative of operating income or cash provided by operating activities
as determined under GAAP and may be presented on a pro forma basis.
EBITDA is presented solely as a supplemental disclosure with respect to
liquidity because the Company believes it provides useful information
regarding the Company’s ability to service or incur debt. Because all
companies do not calculate EBITDA the same way, the presentation of
EBITDA may not be comparable to similarly titled measures of other
companies.

Funds From Operations (FFO) is defined, in accordance with the
Nareit FFO White Paper – 2018 Restatement as net income (loss),
calculated in accordance with GAAP, excluding depreciation and
amortization related to real estate, gains and losses from the sale of
certain real estate assets, gains and losses from change in control and
impairment write-downs of certain real estate assets and investments in
entities when the impairment is directly attributable to decreases in
the value of depreciable real estate held by the entity. FFO is a widely
recognized measure of REIT performance. Although FFO is a non-GAAP
financial measure, the Company believes that information regarding FFO
is helpful to shareholders and potential investors.

Funds From Operations, as Adjusted (FFO, as Adjusted) adjusts FFO
to present an alternative measure of our operating performance, which,
when applicable, excludes the impact of acquisition costs, straight-line
rent, above-/below-market leases, non-cash interest expense, non-cash
compensation and other non-cash items. By excluding these income and
expense items from FFO, as Adjusted, the Company believes it provides
useful information as these items have no cash impact. In addition, by
excluding acquisition related costs the Company believes FFO, as
Adjusted provides useful information that is comparable across periods
and more accurately reflects the operating performance of the Company’s
properties.

Net Debt and Adjusted Net Debt. Net Debt represents
consolidated debt (reported in accordance with GAAP) adjusted to exclude
unamortized premiums and discounts and deferred financing fees, less
cash and cash equivalents. By excluding these items, the result provides
an estimate of the contractual amount of borrowed capital to be repaid,
net of cash available to repay it. The Company believes this calculation
constitutes a beneficial supplemental non-GAAP financial disclosure to
investors in understanding its financial condition. Adjusted Net Debt is
Net Debt reduced by 1) the lesser of i) anticipated lump-sum
reimbursement amounts and ii) the cost to date for each project under
construction and 2) 40% times the amount by which the cost to date
exceeds anticipated lump-sum reimbursement amounts for each project
under construction. These adjustments are made to 1) remove the
estimated portion of each project under construction that has been
financed with debt which may be repaid with anticipated cost
reimbursement payments from the US Government and 2) remove the
estimated portion of each project under construction, in excess of
anticipated lump-sum reimbursements, that has been financed with debt
but has not yet produced earnings. See page 19 of the Company’s Q1 2019
Supplemental Information Package for further information. The Company’s
method of calculating Net Debt and Adjusted Net Debt may be different
from methods used by other REITs and, accordingly, may not be comparable
to such other REITS.

Other Definitions

Fully diluted basis assumes the exchange of all outstanding
common units representing limited partnership interests in the Company’s
operating partnership, the full vesting of all shares of restricted
stock, and the exchange of all earned and vested LTIP units in the
Company’s operating partnership for shares of common stock on a
one-for-one basis, which is not the same as the meaning of “fully
diluted” under GAAP.

Conference Call Information

The Company will host a webcast and conference call at 10:00 a.m.
Eastern Standard time on May 7, 2019 to review the first quarter 2019
performance, discuss recent events and conduct a question-and-answer
session. The number to call is 1-877-705-6003 (domestic) and
1-201-493-6725 (international). A live webcast will be available in the
Investor Relations section of the Company’s website. A replay of the
conference call will be available through May 21, 2019 by dialing
844-512-2921 (domestic) and 1-412-317-6671 (international) and entering
the passcode 13689856. Please note that the full text of the press
release and supplemental information package are available through the
Company’s website at ir.easterlyreit.com.

About Easterly Government Properties, Inc.

Easterly Government Properties, Inc. (NYSE:DEA) is based in Washington,
D.C., and focuses primarily on the acquisition, development and
management of Class A commercial properties that are leased to the U.S.
Government. Easterly’s experienced management team brings specialized
insight into the strategy and needs of mission-critical U.S. Government
agencies for properties leased to such agencies either directly or
through the U.S. General Services Administration (GSA). For further
information on the company and its properties, please visit www.easterlyreit.com.

Forward Looking Statements

We make statements in this press release that are considered
“forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section
21E of the Securities Exchange Act of 1934, as amended, or the Exchange
Act, which are usually identified by the use of words such as
“anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,”
“plans,” “projects,” “seeks,” “should,” “will,” and variations of such
words or similar expressions and include our guidance with respect to
Net income (loss) and FFO per share on a fully diluted basis.
We
intend these forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and are including this
statement in this press release for purposes of complying with those
safe harbor provisions. These forward-looking statements reflect our
current views about our plans, intentions, expectations, strategies and
prospects, which are based on the information currently available to us
and on assumptions we have made.
Although we believe that our
plans, intentions, expectations, strategies and prospects as reflected
in or suggested by those forward-looking statements are reasonable, we
can give no assurance that the plans, intentions, expectations or
strategies will be attained or achieved.
Furthermore, actual
results may differ materially from those described in the
forward-looking statements and will be affected by a variety of risks
and factors that are beyond our control including, without limitation:
risks associated with our dependence on the U.S. Government and its
agencies for substantially all of our revenues; risks associated with
ownership and development of real estate; the risk of decreased rental
rates or increased vacancy rates; loss of key personnel; general
volatility of the capital and credit markets and the market price of our
common stock; the risk we may lose one or more major tenants;
difficulties in completing and successfully integrating acquisitions;
failure of acquisitions or development projects to occur at anticipated
levels or to yield anticipated results; risks associated with actual or
threatened terrorist attacks; intense competition in the real estate
market that may limit our ability to attract or retain tenants or
re-lease space; insufficient amounts of insurance or exposure to events
that are either uninsured or underinsured; uncertainties and risks
related to adverse weather conditions, natural disasters and climate
change; exposure to liability relating to environmental and health and
safety matters; limited ability to dispose of assets because of the
relative illiquidity of real estate investments and the nature of our
assets; exposure to litigation or other claims; risks associated with
breaches of our data security; risks associated with our indebtedness;
and other risks and uncertainties detailed in the “Risk Factors” section
of our Form 10-K for the year ended December 31, 2018, filed with the
Securities and Exchange Commission on February 28, 2019 and under the
heading “Risk Factors” in our other public filings.
In addition,
our anticipated qualification as a real estate investment trust involves
the application of highly technical and complex provisions of the
Internal Revenue Code of 1986, or the Code, and depends on our ability
to meet the various requirements imposed by the Code through actual
operating results, distribution levels and diversity of stock ownership.

We assume no obligation to update publicly any forward looking
statements, whether as a result of new information, future events or
otherwise.

 

Balance Sheet

 

(Unaudited, in thousands, except share amounts)

         
March 31, 2019 December 31, 2018
Assets
Real estate properties, net $ 1,771,788 $ 1,626,617
Cash and cash equivalents 8,663 6,854
Restricted cash 4,662 4,251
Deposits on acquisitions 3,250 7,070
Rents receivable 23,505 21,140
Accounts receivable 13,650 11,690
Deferred financing, net 2,281 2,459
Intangible assets, net 170,157 165,668
Interest rate swaps 3,147 4,563
Prepaid expenses and other assets   15,638   11,238
Total assets $ 2,016,741 $ 1,861,550
 
Liabilities
Revolving credit facility 184,500 134,750
Term loan facilities, net 248,329 248,238
Notes payable, net 173,804 173,778
Mortgage notes payable, net 208,780 209,589
Intangible liabilities, net 29,936 30,835
Interest rate swaps 3,398 1,797
Accounts payable and accrued liabilities   38,248   37,310
Total liabilities   886,995   836,297
 
Equity

Common stock, par value $0.01, 200,000,000 shares authorized,
68,005,907 and 60,849,206 shares issued and outstanding at March
31, 2019 and December 31, 2018, respectively.

680 608
Additional paid-in capital 1,127,938 1,017,415
Retained earnings 12,381 12,831
Cumulative dividends (154,944 ) (139,103 )
Accumulated other comprehensive income (loss)   (219 )   2,412
Total stockholders’ equity   985,836   894,163
Non-controlling interest in Operating Partnership   143,910   131,090
Total equity   1,129,746   1,025,253
Total liabilities and equity $ 2,016,741 $ 1,861,550
 
 

Income Statement

 

(Unaudited, in thousands, except share and per share amounts)

 
      Three Months Ended
March 31, 2019     March 31, 2018
Revenues
Rental income $ 48,488 $ 34,831
Tenant reimbursements 1,584 941
Other income   535   202
Total revenues   50,607   35,974
 
Expenses
Property operating 9,963 6,560
Real estate taxes 5,755 3,700
Depreciation and amortization 22,451 14,634
Acquisition costs 470 224
Corporate general and administrative   4,317   3,459
Total expenses   42,956   28,577
 
Other expenses
Interest expense, net   (8,132 )   (5,582 )
Net income (loss) (481 ) 1,815
 
Non-controlling interest in Operating Partnership 65 (296 )

 

       

Net income (loss) available to Easterly Government Properties,
Inc.

$ (416 ) $ 1,519
 

Net income (loss) available to Easterly Government Properties,
Inc. per share:

Basic $ (0.01 ) $ 0.03
Diluted $ (0.01 ) $ 0.03
 
Weighted-average common shares outstanding:
Basic 61,225,926 45,008,062
Diluted 61,225,926 46,018,040
 
Net income (loss), per share – fully diluted basis $ (0.01 ) $ 0.03
 
Weighted average common shares outstanding –

fully diluted basis

70,831,727 53,813,881
 
 

EBITDA, FFO and CAD

 

(Unaudited, in thousands, except share and per share amounts)

 
      Three Months Ended
March 31, 2019     March 31, 2018
Net income (loss) $ (481 ) $ 1,815
Depreciation and amortization 22,451 14,634
Interest expense   8,132   5,582
EBITDA $ 30,102 $ 22,031
 
Pro forma adjustments(1)   793
Pro forma EBITDA $ 30,895
 
Net income (loss) $ (481 ) $ 1,815
Depreciation and amortization   22,451   14,634
Funds From Operations (FFO) $ 21,970 $ 16,449
Adjustments to FFO:
Acquisition costs 470 224
Straight-line rent and other non-cash adjustments (974 ) (1,794 )
Above-/below-market leases (1,729 ) (2,279 )
Non-cash interest expense 322 264
Non-cash compensation   734   864
Funds From Operations, as Adjusted $ 20,793 $ 13,728
 
 
FFO, per share – fully diluted basis $ 0.31 $ 0.31
FFO, as Adjusted, per share – fully diluted basis $ 0.29 $ 0.26
 
Funds From Operations, as Adjusted $ 20,793 $ 13,728
Acquisition costs (470 ) (224 )
Principal amortization (836 ) (763 )
Maintenance capital expenditures (902 ) (466 )
Contractual tenant improvements   (38 )   (95 )
Cash Available for Distribution (CAD) $ 18,547 $ 12,180
 
Weighted average common shares outstanding –
fully diluted basis 70,831,727 53,813,881
 
1 Pro-forma assuming a full quarter of operations from
the three properties acquired in the first quarter of 2019.
 
     
March 31, 2019
Total Debt(1) $ 819,810
Less: Cash and cash equivalents   (8,663 )
Net Debt $ 811,147
Less: Adjustment for projects under construction(2)   (59,949 )
Adjusted Net Debt $ 751,198
 
1 Excludes unamortized premiums / discounts and deferred
financing fees.
2 See definition of Adjusted Net Debt on Page 4.
 

Contacts

Easterly Government Properties, Inc.
Lindsay S. Winterhalter
Vice
President, Investor Relations & Operations
202-596-3947
ir@easterlyreit.com

Author: dmnnewswire