UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-36834
EASTERLY GOVERNMENT PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland
47-2047728
(State of Incorporation)
(IRS Employer Identification No.)
2001 K Street NW, Suite 775 North, Washington, D.C.
20006
(Address of Principal Executive Offices)
(Zip Code)
(202) 595-9500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock
DEA
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 1, 2023, the registrant had 93,415,706 shares of common stock, $0.01 par value per share, outstanding.
INDEX TO FINANCIAL STATEMENTS
Page
Part I: Financial Information
Item 1: Financial Statements:
Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (unaudited)
1
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)
2
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)
3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (unaudited)
4
Notes to the Consolidated Financial Statements
6
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
Item 3: Quantitative and Qualitative Disclosures About Market Risk
38
Item 4: Controls and Procedures
Part II: Other Information
Item 1: Legal Proceedings
Item 1A: Risk Factors
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Item 3: Defaults Upon Senior Securities
Item 4: Mine Safety Disclosures
39
Item 5: Other Information
Item 6: Exhibits
40
Signatures
Easterly Government Properties, Inc.
Consolidated Balance Sheets (unaudited)
(Amounts in thousands, except share amounts)
June 30, 2023
December 31, 2022
Assets
Real estate properties, net
$
2,270,435
2,285,308
Cash and cash equivalents
9,816
7,578
Restricted cash
11,970
9,696
Tenant accounts receivable
60,862
58,835
Investment in unconsolidated real estate venture
268,594
271,644
Intangible assets, net
145,837
157,282
Interest rate swaps
5,114
4,020
Prepaid expenses and other assets
35,335
35,022
Total assets
2,807,963
2,829,385
Liabilities
Revolving credit facility
53,000
65,500
Term loan facilities, net
249,179
248,972
Notes payable, net
696,290
696,052
Mortgage notes payable, net
222,711
240,847
Intangible liabilities, net
14,421
16,387
Deferred revenue
85,932
83,309
Accounts payable, accrued expenses and other liabilities
64,363
67,336
Total liabilities
1,385,896
1,418,403
Equity
Common stock, par value $0.01, 200,000,000 shares authorized, 93,415,706 and 90,814,021 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively
934
908
Additional paid-in capital
1,673,399
1,622,913
Retained earnings
102,491
93,497
Cumulative dividends
(524,806
)
(475,983
Accumulated other comprehensive income (loss)
4,518
3,546
Total stockholders’ equity
1,256,536
1,244,881
Non-controlling interest in Operating Partnership
165,531
166,101
Total equity
1,422,067
1,410,982
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Operations (unaudited)
(Amounts in thousands, except share and per share amounts)
For the three months ended June 30,
For the six months ended June 30,
2023
2022
Revenues
Rental income
67,758
71,156
135,906
141,595
Tenant reimbursements
2,500
916
4,575
2,060
Asset management income
517
317
1,034
565
Other income
598
368
1,078
839
Total revenues
71,373
72,757
142,593
145,059
Expenses
Property operating
17,629
15,551
35,517
31,009
Real estate taxes
7,619
7,851
15,087
15,677
Depreciation and amortization
22,619
24,343
45,700
48,502
Acquisition costs
444
302
905
664
Corporate general and administrative
7,024
5,966
14,319
11,949
Total expenses
55,335
54,013
111,528
107,801
Other income (expense)
Income from unconsolidated real estate venture
1,418
825
2,820
1,456
Interest expense, net
(11,678
(11,439
(23,693
(22,321
Net income
5,778
8,130
10,192
16,393
(675
(933
(1,198
(1,855
Net income available to Easterly Government Properties, Inc.
5,103
7,197
8,994
14,538
Net income available to Easterly Government Properties, Inc. per share:
Basic
0.05
0.08
0.09
0.16
Diluted
Weighted-average common shares outstanding
93,358,851
90,751,351
92,235,346
90,452,594
93,641,382
91,083,980
92,508,651
90,799,647
Dividends declared per common share
0.265
0.530
Consolidated Statements of Comprehensive Income (unaudited)
(Amounts in thousands)
Other comprehensive income:
Unrealized gain on interest rate swaps, net
3,107
2,903
1,094
8,410
Other comprehensive income
Comprehensive income
8,885
11,033
11,286
24,803
Other comprehensive income attributable to non-controlling interest
(362
(338
(122
(945
Comprehensive income attributable to Easterly Government Properties, Inc.
7,848
9,762
9,966
22,003
Consolidated Statements of Cash Flows (unaudited)
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities
Straight line rent
(1,365
(531
(2,820
(1,456
Amortization of above- / below-market leases
(1,376
(1,604
Amortization of unearned revenue
(3,106
(2,841
Amortization of loan premium / discount
(543
(563
Amortization of deferred financing costs
1,031
1,022
Amortization of lease inducements
431
428
Distributions from investment in unconsolidated real estate venture
5,870
3,369
Non-cash compensation
2,967
3,266
Net change in:
(754
2,712
(1,598
(1,510
Deferred revenue associated with operating leases
5,730
1,464
Principal payments on operating lease obligations
(218
(195
(1,089
(4,102
Net cash provided by operating activities
59,052
64,354
Cash flows from investing activities
Real estate acquisitions and deposits
107
(78,771
Additions to operating properties
(12,105
(10,891
Additions to development properties
(8,969
(4,949
—
304
(52,721
Net cash used in investing activities
(20,967
(147,028
Cash flows from financing activities
Issuance of common shares
52,414
9,504
Credit facility draws
53,750
157,250
Credit facility repayments
(66,250
(29,000
Repayments of mortgage notes payable
(17,812
(2,628
Dividends and distributions paid
(55,619
(54,415
Payment of offering costs
(56
(136
Net cash (used in) provided by financing activities
(33,573
80,575
Net increase (decrease) in Cash and cash equivalents and Restricted cash
4,512
(2,099
Cash and cash equivalents and Restricted cash, beginning of period
17,274
20,143
Cash and cash equivalents and Restricted cash, end of period
21,786
18,044
Supplemental disclosure of cash flow information is as follows:
Cash paid for interest (net of capitalized interest of $665 and $531 in 2023 and 2022, respectively)
23,555
21,766
Supplemental disclosure of non-cash information
Additions to operating properties accrued, not paid
5,404
1,207
Additions to development properties accrued, not paid
2,350
2,534
Offering costs accrued, not paid
10
Deferred asset acquisition costs accrued, not paid
18
128
Properties acquired for Common Units
219
17,361
Recognition of operating lease right-of-use assets
101
Recognition of liabilities related to operating lease right-of-use assets
Exchange of Common Units for Shares of Common Stock
(140
(2,911
Common stock
140
2,909
Total
5
Notes to the Consolidated Financial Statements (unaudited)
1. Organization and Basis of Presentation
The information contained in the following notes to the consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2022, and related notes thereto, included in the Annual Report on Form 10-K of Easterly Government Properties, Inc. (the “Company”) for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 28, 2023.
The Company is a Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2015. The operations of the Company are carried on primarily through Easterly Government Properties LP (the “Operating Partnership”) and the wholly owned subsidiaries of the Operating Partnership. As used herein, the “Company,” “we,” “us,” or “our” refer to Easterly Government Properties, Inc. and its consolidated subsidiaries and partnerships, including the Operating Partnership, except where context otherwise requires.
We are an internally managed REIT, focused primarily on the acquisition, development, and management of Class A commercial properties that are leased to U.S. Government agencies that serve essential functions. We generate substantially all of our revenue by leasing our properties to such agencies, either directly or through the U.S. General Services Administration (“GSA”). Our objective is to generate attractive risk-adjusted returns for our stockholders over the long-term through dividends and capital appreciation.
We focus on acquiring, developing and managing U.S. Government leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the U.S. Government, working closely with the tenant agency to meet its needs and objectives. As of June 30, 2023, we wholly owned 78 operating properties and eight operating properties through an unconsolidated joint venture (the “JV”) in the United States, encompassing approximately 8.6 million leased square feet, including 85 operating properties that were leased primarily to U.S. Government tenant agencies and one operating property that was entirely leased to a private tenant. As of June 30, 2023, our operating properties were 98% leased. For purposes of calculating percentage leased, we exclude from the denominator total square feet that was unleased and to which we attributed no value at the time of acquisition. In addition, we wholly owned one property under development that we expect will encompass approximately 0.2 million leased square feet upon completion.
The Operating Partnership holds substantially all of our assets and conducts substantially all of our business. We are the sole general partner of the Operating Partnership. We owned approximately 88.4% of the aggregate limited partnership interests in the Operating Partnership (“common units”) at June 30, 2023. We believe that we have operated and have been organized in conformity with the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2015.
Principles of Consolidation
The accompanying consolidated financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company, Easterly Government Properties TRS, LLC, Easterly Government Services, LLC, the Operating Partnership and its other subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation
The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the consolidated financial position of the Company at June 30, 2023 and December 31, 2022, the consolidated results of operations for the three and six months ended June 30, 2023 and 2022, and the consolidated cash flows for the six months ended June 30, 2023 and 2022. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the balance sheet, and the
reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the impact of extraordinary events, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
2. Summary of Significant Accounting Policies
The significant accounting policies used in the preparation of our condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
3. Real Estate and Intangibles
Consolidated Real Estate and Intangibles
Real estate and intangibles consisted of the following as of June 30, 2023 (amounts in thousands):
Land
213,592
Building and improvements
2,292,532
Acquired tenant improvements
81,666
Construction in progress
38,254
Accumulated depreciation
(355,609
Total Real estate properties, net
In-place leases
271,066
Acquired leasing commissions
68,642
Above market leases
14,620
Payment in lieu of taxes
6,394
Accumulated amortization
(214,885
Total Intangible assets, net
Below market leases
(72,037
57,616
Total Intangible liabilities, net
(14,421
No operating properties were acquired or disposed of during the six months ended June 30, 2023.
During the three and six months ended June 30, 2023, we incurred $0.4 million and $0.9 million of acquisition-related expenses, respectively, mainly consisting of internal costs associated with future property acquisitions.
The following table summarizes the scheduled amortization of our acquired above- and below-market lease intangibles for each of the five succeeding years as of June 30, 2023 (amounts in thousands):
Acquired Above-Market Lease Intangibles
Acquired Below-Market Lease Intangibles
2023 (1)
586
(1,941
2024
1,129
(2,938
2025
1,097
(2,246
2026
1,096
(2,008
2027
(1,783
Above-market lease amortization reduces Rental income on our Consolidated Statements of Operations and below-market lease amortization increases Rental income on our Consolidated Statements of Operations.
7
4. Investment in Unconsolidated Real Estate Venture
The following is a summary of our investment in the JV (dollars in thousands):
As of June 30,
Joint Venture
Ownership Interest
MedBase Venture
53.0%
On October 13, 2021, we formed an unconsolidated real estate venture, which we refer to as the JV, with a global investor to fund the acquisition of a portfolio of ten properties anticipated to encompass 1,214,165 leased square feet (the "VA Portfolio"). We own a 53.0% interest in the JV, subject to preferred allocations as provided in the JV agreement.
No operating properties were acquired by the JV during the six months ended June 30, 2023. As of June 30, 2023, eight of the ten properties in the VA Portfolio had been acquired by the JV.
We provide asset management services to the JV. During the three and six months ended June 30, 2023, we recognized asset management service revenue of $0.5 million and $1.0 million, respectively. During the three and six months ended June 30, 2022 we recognized asset management service revenue of $0.3 million and $0.6 million, respectively.
The following is a summary of financial information for the JV (amounts in thousands):
Balance sheet information:
Real estate, net
425,696
Other assets, net (1)
90,734
516,430
Total liabilities (2)
10,296
506,134
Company’s share of equity
268,219
Basis differential (3)
375
Carrying value of the Company’s investment in the unconsolidated venture
Income statement information:
Total revenue
10,076
5,965
19,856
10,663
Operating income
2,716
1,597
5,403
2,828
2,675
1,556
5,321
2,746
Company’s share of net income
8
5. Debt
At June 30, 2023, our consolidated borrowings consisted of the following (amounts in thousands):
Principal Outstanding
Interest
Current
Loan
Rate (1)
Maturity
Revolving credit facility:
Revolving credit facility (2)
S + 135 bps (3)
July 2025 (4)
Total revolving credit facility
Term loan facilities:
2016 term loan facility
100,000
2.72% (6)
March 2024
2018 term loan facility (5)
150,000
5.42% (7)
July 2026
Total term loan facilities
250,000
Less: Total unamortized deferred financing fees
(821
Total term loan facilities, net
Notes payable:
2017 series A senior notes
95,000
4.05%
May 2027
2017 series B senior notes
50,000
4.15%
May 2029
2017 series C senior notes
30,000
4.30%
May 2032
2019 series A senior notes
85,000
3.73%
September 2029
2019 series B senior notes
3.83%
September 2031
2019 series C senior notes
90,000
3.98%
September 2034
2021 series A senior notes
2.62%
October 2028
2021 series B senior notes
200,000
2.89%
October 2030
Total notes payable
700,000
(3,710
Total notes payable, net
Mortgage notes payable:
VA – Golden
8,546
5.00% (8)
April 2024
USFS II – Albuquerque
12,541
4.46% (8)
ICE – Charleston
12,727
4.21% (8)
January 2027
VA – Loma Linda
127,500
3.59% (8)
July 2027
CBP – Savannah
9,972
3.40% (8)
July 2033
USCIS – Kansas City
51,500
3.68% (8)
August 2024
Total mortgage notes payable
222,786
(1,172
Less: Total unamortized premium/discount
Total mortgage notes payable, net
Total debt
1,221,180
9
As of June 30, 2023, the net carrying value of real estate collateralizing our mortgages payable totaled $330.0 million. See Note 7 for the fair value of our debt instruments.
On January 26, 2023, we used $15.7 million of available cash to extinguish the mortgage note obligation on DEA – Pleasanton.
On February 3, 2023, we entered into three SOFR-based interest rate swaps each with a notional value of $100.0 million that were designated as cash flow hedges of interest rate risk. Two of the interest rate swaps, with an aggregate notional value of $200.0 million, became effective in June 2023. The third swap, with a notional value of $100.0 million, will become effective when our existing swaps mature in September 2023. See Note 6 for more information on our interest rate swaps.
On May 30, 2023, we entered into the third amendment to our second amended and restated credit agreement, dated as of July 23, 2021 and into the sixth amendment to our senior unsecured term loan agreement, dated as of September 29, 2016. These amendments added a daily simple SOFR-based option to the term SOFR-based floating interest rate option as a benchmark rate for borrowings denominated in U.S. dollars for all purposes under the credit and term loan agreements, including, in each case, a credit spread adjustment of 0.10%.
On July 20, 2023, we drew the full $50.0 million delayed draw on our 2018 term loan facility and transferred $50.0 million of our interest rate swap with a notional value of $100.0 million, from our revolving credit facility to the $50.0 million delayed draw.
Financial Covenant Considerations
As of June 30, 2023, we were in compliance with all financial and other covenants related to our debt.
6. Derivatives and Hedging Activities
The following table sets forth the key terms and fair values of our interest rate swap derivatives, each of which was designated as a cash flow hedge as of June 30, 2023 (amounts in thousands):
Notional Amount
Fixed Rate
Floating Rate Index
Effective Date
Expiration Date
Fair Value
37,000
1.36
%
One Month USD-SOFR CME Term
November 29, 2022
September 29, 2023
355
63,000
1.38
601
4.01
USD-SOFR with -5 Day Lookback
June 23, 2023
March 23, 2025
4.18
December 23, 2024
1,176
3.70
June 29, 2025
1,564
The table below sets forth the fair value of our interest rate derivatives as well as their classification on our Consolidated Balance Sheet (amounts in thousands):
Balance Sheet Line Item
As of June 30, 2023
Interest rate swaps - Asset
Cash Flow Hedges of Interest Rate Risk
The gains or losses on derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income (loss) (“AOCI”) and will be reclassified to interest expense in the period that the hedged forecasted transactions affect earnings on our variable rate debt.
We estimate that $4.3 million will be reclassified from AOCI as a decrease to interest expense over the next 12 months.
The table below presents the effects of our interest rate derivatives on our Consolidated Statements of Operations and Comprehensive Income (amounts in thousands):
Unrealized gain recognized in AOCI
4,842
2,005
4,336
6,244
Gain (loss) reclassified from AOCI into interest expense
1,735
(898
3,242
(2,166
Credit-Risk-Related Contingent Features
We have agreements with each of our derivative counterparties that contain a provision where we could be declared in default on our derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to our default on such indebtedness. As of June 30, 2023, we were not in a net liability position with any derivative counterparty. As of June 30, 2023, we were in compliance with these agreements and had not posted any collateral related to these agreements.
7. Fair Value Measurements
Accounting standards define fair value as the exit price, or the amount that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standards also establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The hierarchy of these inputs is broken down into three levels: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Categorization within the valuation hierarchy is based upon the lowest level of input that is most significant to the fair value measurement.
Recurring fair value measurements
The fair values of our interest rate swaps are determined using widely accepted valuation techniques, including discounted cash flow analysis, on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities in such interest rates. While we determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. We have determined that the significance of the impact of the credit valuation adjustments made to our derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of our derivatives held as of June 30, 2023 were classified as Level 2 of the fair value hierarchy.
11
The carrying values of cash and cash equivalents, restricted cash, accounts receivable, other assets and accounts payable and accrued expenses are reasonable estimates of fair values because of the short maturities of these instruments. The table below presents our assets measured at fair value on a recurring basis as of June 30, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall (amounts in thousands):
Level 1
Level 2
Level 3
For our disclosure of debt fair values, we estimated the fair value of our 2016 term loan facility and our 2018 term loan facility based on the variable interest rate and credit spreads (categorized within Level 3 of the fair value hierarchy) and estimated the fair value of our other debt based on the discounted estimated future cash payments to be made on such debt (categorized within Level 3 of the fair value hierarchy); the discount rates used approximate current market rates for loans, or groups of loans, with similar maturities and credit quality, and the estimated future payments included scheduled principal and interest payments. Fair value estimates are made as of a specific point in time, are subjective in nature and involve uncertainties and matters of significant judgment. Settlement at such fair value amounts may not be possible and may not be a prudent management decision.
Financial assets and liabilities not measured at fair value
As of June 30, 2023, all financial instruments and liabilities were reflected in our balance sheets at amounts which, in our estimation, reasonably approximated their fair values, except for the following:
Financial liabilities
Carrying Amount (1)
Fair Value (2)
2018 term loan facility
Notes payable
591,010
Mortgages payable
206,596
8. Equity Incentive Plan
Restricted Shares
We award restricted stock to certain members of management and non‑employee directors. Management awards generally vest over a range of two to four years. Non‑employee director awards vest upon the earlier of the anniversary of the date of the grant or the next annual stockholder meeting, as long as the grantee remains a director or employee on such date. Restricted stock awards issued under the 2015 Equity Incentive Plan, as amended (the “2015 Equity Incentive Plan”), may not be sold or otherwise transferred until restrictions have lapsed, as established by the compensation committee.
We value our non-vested restricted share awards at the grant date fair value, which was the market price of our common stock as of the applicable grant date. Compensation expense related to restricted common stock awards was $0.2 million and $0.2 million for the three months ended June 30, 2023 and 2022, respectively, and $0.3 million and $0.4 million for the six months ended June 30, 2023 and 2022, respectively.
The fair value of restricted stock that vested was $0.3 million and $1.5 million during the six months ended June 30, 2023 and 2022, respectively, based on the market price at the vesting date. The balance of unamortized restricted stock expense as of June 30, 2023 was $0.5 million, which is expected to be recognized over a weighted‑average period of 1.1 years.
12
A summary of the status of our restricted shares as of June 30, 2023 and changes during the six months ended June 30, 2023 is presented below:
Restricted Shares Weighted Average Grant Date Fair Value Per Share
Outstanding, December 31, 2022
41,315
19.94
Vested
(24,347
18.57
Granted
32,486
14.18
Forfeited
Outstanding, June 30, 2023
49,454
16.83
LTIP Units
We grant LTIP units to certain members of management and non‑employee directors. Management awards generally vest immediately or over a range of two to four years. Non‑employee director shares vest upon the earlier of the anniversary of the date of the grant or the next annual stockholder meeting, as long as the grantee remains a director or employee on such date. Performance-based LTIP units are earned subject to us achieving certain thresholds, including absolute total shareholder returns, relative total shareholder returns, or operational hurdles through the performance period. Service-based LTIP units vest over time, subject to continued employment and other terms of the awards.
The following is a summary of our granted LTIP unit awards during the six months ended June 30, 2023:
Award Type
Grant Date
Performance PeriodEnd Date
Vest Date
Units Granted
Service
January 3, 2023
December 31, 2025
219,859
Operational
127,291
Performance
148,633
March 2, 2023
March 2, 2026
3,438
May 9, 2023
16,244
2023 LTIP Grant
515,465
We value our operational LTIP unit awards that are subject to us achieving certain performance conditions at the grant date fair value, which is the market price of our common stock as of the applicable grant date. We value our service-based LTIP unit awards at the grant date fair value, which is the market price of our common stock as of the applicable grant date, discounted by the risk related to the timing of book-up events. For the performance LTIP unit awards granted that are subject to us achieving certain total shareholder return thresholds, we used a Monte Carlo Simulation (risk-neutral approach) to determine the grant date fair value.
The following is a summary of the significant assumptions used to value the total shareholder return for performance-based LTIP units during the six months ended June 30, 2023:
Expected volatility
29.0
Dividend yield
5.6
Risk-free interest rate
4.2
Expected life
3 years
The fair value of LTIP units that vested were $4.0 million and $5.5 million during the six months ended June 30, 2023 and 2022, respectively, based on the market price at the vesting date. Compensation expense related to LTIP unit awards was $1.2 million and $1.5 million for the three months ended June 30, 2023 and 2022, respectively, and $2.7 million and $2.9 million for the six months ended June 30, 2023 and 2022, respectively. The balance of unamortized LTIP expense as of June 30, 2023 was $9.9 million, which is expected to be recognized over a weighted‑average period of 1.9 years. As of June 30, 2023, management considers it probable that the operational performance conditions on our unvested grants will be achieved.
13
A summary of the status of our LTIP units as of June 30, 2023 and changes during the six months ended June 30, 2023 are presented below:
LTIP Units (1)
LTIP Units Weighted Average Grant Date Fair Value Per Share
896,665
19.90
(204,570
21.50
12.25
(85,352
18.30
1,122,208
16.21
9. Equity
The following table summarizes the changes in our stockholders’ equity for the three months ended June 30, 2023 and 2022 (amounts in thousands, except share amounts):
Shares
Common Stock Par Value
Additional Paid-in Capital
RetainedEarnings
CumulativeDividends
AccumulatedOtherComprehensiveIncome (Loss)
Non-controlling Interest in Operating Partnership
Total Equity
Three months ended June 30, 2023
Balance at March 31, 2023
93,389,906
1,672,467
97,388
(500,051
1,773
167,528
1,440,039
Stock based compensation
148
1,151
1,299
Dividends and distributions paid ($0.265 per share)
(24,755
(3,401
(28,156
Grant of unvested restricted stock
25,800
Unrealized gain on interest rate swaps
2,745
362
675
Allocation of non-controlling interest in Operating Partnership
784
(784
Balance at June 30, 2023
93,415,706
Three months ended June 30, 2022
Balance at March 31, 2022
90,779,897
1,614,798
69,364
(403,788
(172
158,235
1,439,345
169
1,468
1,637
(24,063
(3,318
(27,381
21,725
Redemption of common units for shares of common stock
15,000
211
(211
Contribution of property for common units
2,565
338
933
6,110
(6,110
Balance at June 30, 2022
90,816,622
1,621,288
76,561
(427,851
2,393
168,696
1,441,995
14
The following table summarizes the changes in our stockholders’ equity for the six months ended June 30, 2023 and 2022 (amounts in thousands, except share amounts):
Six months ended June 30, 2023
Balance at December 31, 2022
90,814,021
293
2,674
Dividends and distributions paid ($0.530 per share)
(48,823
(6,796
10,199
Issuance of common stock, net
2,559,000
26
52,206
52,232
972
122
1,198
(2,153
2,153
Six months ended June 30, 2022
Balance at December 31, 2021
90,147,868
901
1,604,712
62,023
(379,895
(5,072
158,912
1,441,581
352
2,914
(47,956
(6,459
29,078
204,751
434,925
9,394
9,399
7,465
945
1,855
3,921
(3,921
A summary of dividends declared by our board of directors per share of common stock and per common unit at the date of record is as follows:
Quarter
Declaration Date
Record Date
Payment Date
Dividend (1)
Q1 2023
April 26, 2023
May 11, 2023
May 23, 2023
Q2 2023
August 2, 2023
August 17, 2023
August 29, 2023
Offering of Common Stock on a Forward Basis
On August 11, 2021, we completed an underwritten public offering of 6,300,000 shares of common stock offered on a forward basis. In connection with the offering, we also entered into separate forward sale agreements with each of the forward purchasers (the “Forward Sales Agreements”), pursuant to which the forward purchasers borrowed and sold to the underwriters an aggregate of 6,300,000 shares of our common stock. On December 28, 2021, we issued 3,991,000 shares of our common stock for net proceeds of $85.0 million, which shares were issued in partial settlement of the Forward Sales Agreements entered into in connection with the underwritten public offering. During the three months ended March 31, 2023, we issued 2,309,000 shares of common stock under the Forward Sale Agreements and received net cash proceeds of approximately $46.8 million. As of June 30, 2023, all shares of common stock under the Forward Sales Agreements had been issued and settled.
15
ATM Programs
We entered into separate equity distribution agreements on each of December 20, 2019 (the “2019 ATM Program”) and June 22, 2021 (the “2021 ATM Program” and, together with the 2019 ATM Program, the “ATM Programs”) with various financial institutions pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $300.0 million under each ATM Program from time to time in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). Under each of the ATM Programs, we may enter into one or more forward transactions (each, a “forward sale transaction”) under separate master forward sale confirmations and related supplemental confirmations with each of the various financial institutions party to the respective ATM Program for the sale of shares of our common stock on a forward basis.
The following table sets forth certain information with respect to issuances under the 2019 ATM Program during the six months ended June 30, 2023 (amounts in thousands except share amounts):
2019 ATM Program
For the three months ended
Number of Shares Issued(1)
Net Proceeds(1)
March 31, 2023
5,562
No sales of shares of our common stock were made under the 2021 ATM Program during the six months ended June 30, 2023.
We used the net proceeds received from such sales for general corporate purposes. As of June 30, 2023, we had approximately $300.0 million of gross sales of our common stock available under the 2021 ATM Program and $87.4 million of gross sales of common stock available under the 2019 ATM Program.
Share Repurchase Program
On April 28, 2022, our Board of Directors authorized a share repurchase program whereby we may repurchase up to 4,538,994 shares of our common stock, or approximately 5% of our outstanding shares as of the authorization date. We are not required to purchase shares under the share repurchase program, but may choose to do so in the open market or through privately negotiated transactions at times and amounts based on our evaluation of market conditions and other factors.
No repurchases of shares of our common stock were made under the share repurchase program during the six months ended June 30, 2023.
Contribution of Property for Common Units
On January 25, 2023, the Operating Partnership issued 12,391 common units and fully settled a contingent earn-out liability in connection with our acquisition of FBI / DEA - El Paso on May 26, 2020. The issuance of the common units was effected in reliance upon an exemption from registration provided by Section 4(a)(2) under the Securities Act.
10. Earnings Per Share
Basic earnings or loss per share of common stock (“EPS”) is calculated by dividing net income attributable to common stockholders by the weighted average shares of common stock outstanding for the periods presented. Diluted EPS is computed after adjusting the basic EPS computation for the effect of dilutive common equivalent shares outstanding during the periods presented. Unvested restricted shares of common stock and unvested LTIP units are considered participating securities, which require the use of the two-class method for the computation of basic and diluted earnings per share.
16
The following table sets forth the computation of our basic and diluted earnings per share of common stock for the three and six months ended June 30, 2023 and 2022 (amounts in thousands, except per share amounts):
Numerator
Less: Non-controlling interest in Operating Partnership
Less: Dividends on participating securities
(151
(137
(299
(272
Net income available to common stockholders
4,952
7,060
8,695
14,266
Denominator for basic EPS
Dilutive effect of share-based compensation awards
16,689
13,666
20,448
25,683
Dilutive effect of LTIP units (1)
265,842
318,963
252,857
309,067
Dilutive effect of shares issuable under forward sale agreements (2)
12,303
Denominator for diluted EPS
Basic EPS
Diluted EPS
11. Leases
Lessor
We lease commercial space to the U.S. Government through the GSA or other federal agencies or nongovernmental tenants. These leases may contain extension options that are predominately at the sole discretion of the tenant. Certain of our leases contain a “soft-term” period of the lease, meaning that the U.S. Government tenant agency has the right to terminate the lease prior to its stated lease end date. While certain of our leases are contractually subject to early termination, we do not believe that our tenant agencies are likely to terminate these leases early given the build-to-suit features at the properties subject to the leases, the weighted average age of these properties based on the date the property was built or renovated-to-suit, where applicable (approximately 19.1 years as of June 30, 2023), the mission-critical focus of the properties subject to the leases and the current level of operations at such properties. Certain lease agreements include variable lease payments that, in the future, will vary based on changes in inflationary measures, real estate tax rates, usage, or share of expenditures of the leased premises.
The following table summarizes the maturity of fixed lease payments under our leases as of June 30, 2023 (amounts in thousands):
Payments due by period
Thereafter
Fixed lease payments
2,047,912
108,413
208,581
199,864
193,031
181,497
1,156,526
17
The table below sets forth our composition of lease revenue recognized between fixed and variable components (amounts in thousands):
Fixed
62,969
65,931
125,893
131,378
Variable
4,789
5,225
10,013
10,217
Lessee
We lease corporate office space under operating lease arrangements in Washington, D.C. and San Diego, CA. The leases include variable lease payments that, in the future, will vary based on changes in real estate tax rates, usage, or share of expenditures of the leased premises. We have elected not to separate lease and non-lease components for our corporate office leases.
As of June 30, 2023, the unamortized balances associated with our right-of-use operating lease asset and operating lease liability were both $3.3 million. We used our incremental borrowing rate, which was arrived at utilizing prevailing market rates and the spread on our revolving credit facility, in order to determine the net present value of the minimum lease payments.
The following table provides quantitative information for our commenced operating leases (amounts in thousands):
Cash flows from operating lease costs
130
102
261
204
In addition, the maturity of fixed lease payments under our commenced corporate office leases as of June 30, 2023 is summarized in the table below (amounts in thousands):
Corporate office leases
324
768
793
661
718
Total future minimum lease payments
3,632
Imputed interest
(375
3,257
12. Revenue
The table below sets forth revenue from tenant construction projects and the associated project management income disaggregated by tenant agency for the three and six months ended June 30, 2023 and 2022 (amounts in thousands):
Tenant
Department of Veteran Affairs (“VA”)
1,699
203
2,632
U.S. Joint Staff Command (“JSC”)
651
164
1,253
456
Federal Bureau of Investigation (“FBI”)
55
619
378
845
U.S. Coast Guard (“USCG”)
62
209
33
Department of Transportation (“DOT”)
136
Immigration and Customs Enforcement (“ICE”)
111
The Judiciary of the U.S. Government (“JUD”)
106
110
Federal Emergency Management Agency (“FEMA”)
70
89
Customs and Border Protection (“CBP”)
35
82
155
U.S. Citizenship and Immigration Services (“USCIS”)
30
Bonneville Power Administration (“BPA”)
National Archives and Records Administration (“NARA”)
Food and Drug Administration (“FDA”)
Internal Revenue Service (“IRS”)
Department of Labor (“DOL”)
General Services Administration - Other
National Park Services (“NPS”)
100
Drug Enforcement Agency (“DEA”)
Occupational Safety and Health Administration (“OSHA”)
22
68
Patent and Trademark Office (“PTO”)
Health Resources and Services Administration (“HRSA”)
2,765
1,102
5,075
2,374
As June 30, 2023 and December 31, 2022, the balance in Accounts receivable related to tenant construction projects and the associated project management income was $8.2 million and $6.8 million, respectively.
The duration of the majority of tenant construction project reimbursement arrangements is less than a year and payment is typically due once a project is complete and work has been accepted by the tenant. There were no projects on-going as of June 30, 2023 with a duration of greater than one year.
During the three and six months ended June 30, 2023, we recognized $0.1 million and $0.2 million, respectively, in parking garage income generated from the operations of parking garages situated on the Various GSA – Buffalo property and on the Various GSA – Portland property. During both the three and six months ended June 30, 2022, we recognized $0.1 million in parking garage income generated from the operations of parking garages situated on the Various GSA – Buffalo property and on the Various GSA – Portland property. The monthly and transient daily parking revenue falls within the scope of Revenue from Contracts with Customers (“ASC 606”) and is accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied. As of both June 30, 2023 and December 31, 2022, the balance in Accounts receivable related to parking garage income was less than $0.1 million.
During both the three and six months ended June 30, 2023, we recognized less than $0.1 million in income for providing COVID-19 related cleaning services to certain tenants. During the three and six months ended June 30, 2022, we recognized less than $0.1 million and $0.1 million, respectively, in income for providing COVID-19 related cleaning services to certain tenants. The income falls within the scope of ASC 606 and is recognized over time as the performance obligation is satisfied. The balance in Accounts receivable related to these services was less than $0.1 million as of both June 30, 2023 and December 31, 2022.
19
There were no contract assets or liabilities as of June 30, 2023 or December 31, 2022.
13. Concentrations Risk
Concentrations of credit risk arise for us when multiple of our tenants are engaged in similar business activities, are located in the same geographic region or have similar economic features that impact in a similar manner their ability to meet contractual obligations, including obligations owed to us. We regularly monitor our tenant base to assess potential concentrations of credit risk.
As stated in Note 1 above, we lease commercial space to the U.S. Government or non-governmental tenants. At June 30, 2023, the U.S. Government accounted for approximately 98.5% of our total annualized lease income and non-governmental tenants accounted for the remaining approximately 1.5%.
Seventeen of our 86 wholly-owned and unconsolidated operating properties are located in California, accounting for approximately 15.0% of our total leased square feet and approximately 20.0% of our total annualized lease income as of June 30, 2023. To the extent that weak economic or real estate conditions or natural disasters affect California more severely than other areas of the country, our business, financial condition and results of operations could be significantly impacted.
14. Related Parties
We provide asset management services to properties owned by the JV. For the three and six months ended June 30, 2023, we recognized Asset management income of $0.5 million and $1.0 million, respectively. For the three and six months ended June 30, 2022, we recognized Asset management income of $0.3 million and $0.6 million, respectively.
15. Subsequent Events
For our consolidated financial statements as of June 30, 2023, we evaluated subsequent events and noted no significant events.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We caution investors that forward-looking statements are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “potential”, “project”, “result”, “seek”, “should”, “target”, “will”, and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, investors should use caution in relying on forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:
For a further discussion of these and other factors that could affect us and the statements contained herein, see the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, as may be supplemented or amended from time to time.
Overview
References to “we,” “our,” “us” and “the Company” refer to Easterly Government Properties, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Easterly Government Properties LP, a Delaware limited partnership, which we refer to herein as the “operating partnership.” We present certain financial information and metrics “at Easterly Share,” which is calculated on an entity-by-entity basis. “At Easterly Share” information, which we also refer to as being “at share,” “pro rata,” “our pro rata share” or “our share” is not, and is not intended to be, a presentation in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
We are an internally managed real estate investment trust (“REIT”), focused primarily on the acquisition, development and management of Class A commercial properties that are leased to U.S. Government agencies that serve essential functions. We generate substantially all of our revenue by leasing our properties to such agencies, either directly or through the U.S. General Services Administration (“GSA”). Our objective is to generate attractive risk-adjusted returns for our stockholders over the long term through dividends and capital appreciation.
We focus on acquiring, developing and managing U.S. Government-leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the U.S. Government, working closely with the tenant agency to meet its needs and objectives. We may also consider other potential opportunities to add properties to our portfolio, including acquiring properties leased to states and local governments with strong creditworthiness. As of June 30, 2023, we wholly owned 78 operating properties and eight operating properties through an unconsolidated joint venture (the “JV”) in the United States encompassing approximately 8.6 million leased square feet (8.1 million pro rata), including 85 operating properties that were leased primarily to U.S. Government tenant agencies and one operating property that was entirely leased to a private tenant. As of June 30, 2023, our operating properties were 98% leased. For purposes of calculating percentage leased, we exclude from the denominator total square feet that was unleased and to which we attributed no value at the time of acquisition. In addition, we wholly owned one property under development that we expect will encompass approximately 0.2 million leased square feet upon completion.
The operating partnership holds substantially all of our assets and conducts substantially all of our business. We are the sole general partner of the operating partnership and owned approximately 88.4% of the aggregate limited partnership interests in the operating partnership, which we refer to herein as common units, as of June 30, 2023. We have elected to be taxed as a REIT and we believe that we have operated and have been organized in conformity with the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2015.
Operating Properties
As of June 30, 2023, our operating properties were 98% leased with a weighted average annualized lease income per leased square foot of $35.45 ($35.12 pro rata) and a weighted average age of approximately 14.4 years based on the date the property was built or renovated-to-suit, where applicable. We calculate annualized lease income as annualized contractual base rent for the last month in a specified period, plus the annualized straight line rent adjustments for the last month in such period and the annualized net expense reimbursements earned by us for the last month in such period.
The table set forth below shows information relating to the properties we owned, or in which we had an ownership interest, at June 30, 2023, and it includes properties held by the JV:
Property Name
Location
PropertyType (1)
Tenant LeaseExpiration Year (2)
Leased SquareFeet
Annualized Lease Income
Percentage of Total AnnualizedLeaseIncome
Annualized LeaseIncome perLeased SquareFoot
Wholly Owned U.S. Government Leased Properties
VA - Loma Linda
Loma Linda, CA
OC
2036
327,614
16,592,268
50.65
USCIS - Kansas City (3)
Lee's Summit, MO
O/W
2024 - 2042
417,033
10,351,371
3.4
24.82
JSC - Suffolk
Suffolk, VA
O
2028
403,737
8,413,625
2.8
20.84
Various GSA - Portland (4)
Portland, OR
2023 - 2039
211,955
7,046,661
2.3
33.25
Various GSA - Chicago
Des Plaines, IL
202,185
6,971,858
34.48
FBI - Salt Lake
Salt Lake City, UT
2032
169,542
6,897,893
40.69
IRS - Fresno
Fresno, CA
2033
180,481
6,845,720
37.93
Various GSA - Buffalo (5)
Buffalo, NY
2025 - 2039
273,678
6,732,092
2.2
24.60
VA - San Jose
San Jose, CA
2038
90,085
5,765,363
1.9
64.00
EPA - Lenexa
Lenexa, KS
169,585
5,684,120
33.52
PTO - Arlington
Arlington, VA
2035
190,546
5,339,380
1.8
28.02
FBI - San Antonio
San Antonio, TX
148,584
5,232,467
1.7
35.22
FBI - Tampa
Tampa, FL
2040
138,000
5,177,074
37.52
FDA - Alameda
Alameda, CA
L
2039
69,624
4,840,290
1.6
69.52
FBI / DEA - El Paso
El Paso, TX
203,683
4,647,160
1.5
22.82
FEMA - Tracy
Tracy, CA
W
210,373
4,646,120
22.09
FBI - Omaha
Omaha, NE
112,196
4,451,732
39.68
TREAS - Parkersburg
Parkersburg, WV
2041
182,500
4,340,447
1.4
23.78
DOT - Lakewood
Lakewood, CO
122,225
4,141,796
33.89
VA - South Bend
Mishakawa, IN
86,363
4,136,462
47.90
FDA - Lenexa
59,690
4,091,806
1.3
68.55
FBI - Pittsburgh
Pittsburgh, PA
100,054
4,037,239
40.35
VA - Mobile
Mobile, AL
79,212
3,947,470
49.83
FBI - New Orleans
New Orleans, LA
2029
137,679
3,926,093
28.52
USCIS - Lincoln
Lincoln, NE
137,671
3,901,870
28.34
FBI - Knoxville
Knoxville, TN
99,130
3,577,235
1.2
36.09
FBI - Birmingham
Birmingham, AL
2042
96,278
3,535,446
36.72
EPA - Kansas City
Kansas City, KS
2043
55,833
3,493,954
1.1
62.58
ICE - Charleston
North Charleston, SC
65,124
3,334,548
51.20
VA - Chico
Chico, CA
2034
51,647
3,310,590
64.10
FBI - Richmond
Richmond, VA
96,607
3,310,029
34.26
USFS II - Albuquerque
Albuquerque, NM
98,720
3,249,945
32.92
DEA - Sterling
Sterling, VA
57,692
3,209,041
55.62
23
LeasedSquareFeet
Wholly Owned U.S. Government Leased Properties (Cont.)
FBI - Little Rock
Little Rock, AR
102,377
3,189,062
1.0
31.15
USFS I - Albuquerque
92,455
3,180,431
34.40
USCIS - Tustin
Tustin, CA
66,818
3,148,124
47.11
DEA - Vista
Vista, CA
52,293
3,110,917
59.49
VA - Orange
Orange, CT
56,330
2,968,191
52.69
VA - Indianapolis
Brownsburg, IN
80,000
2,954,619
36.93
JUD - Del Rio
Del Rio, TX
C/O
89,880
2,887,088
0.9
32.12
ICE - Albuquerque
71,100
2,822,205
39.69
FBI - Mobile
76,112
2,797,577
36.76
DEA - Dallas Lab
Dallas, TX
49,723
2,774,089
55.79
JUD - El Centro
El Centro, CA
43,345
2,765,592
63.80
DEA - Pleasanton
Pleasanton, CA
42,480
2,743,024
64.57
DEA - Upper Marlboro
Upper Marlboro, MD
2037
50,978
2,723,146
53.42
SSA - Charleston
Charleston, WV
110,000
2,692,983
24.48
FBI - Albany
Albany, NY
69,476
2,680,474
38.58
USAO - Louisville
Louisville, KY
2031
60,000
2,538,338
0.8
42.31
TREAS - Birmingham
83,676
2,527,605
30.21
NARA - Broomfield
Broomfield, CO
161,730
2,373,591
14.68
JUD - Charleston
Charleston, SC
52,339
2,337,677
44.66
DEA - Dallas
71,827
2,253,537
0.7
31.37
Various GSA - Cleveland (6)
Brooklyn Heights, OH
2028 - 2040
61,384
2,250,294
36.66
CBP - Savannah
Savannah, GA
35,000
2,249,163
64.26
NWS - Kansas City
Kansas City, MO
94,378
2,142,661
22.70
JUD - Jackson
Jackson, TN
73,397
2,065,187
28.14
DEA - Santa Ana
Santa Ana, CA
39,905
1,996,277
50.03
DEA - North Highlands
Sacramento, CA
37,975
1,913,404
0.6
50.39
NPS - Omaha
62,772
1,836,520
29.26
VA - Golden
Golden, CO
56,753
1,722,618
30.35
USCG - Martinsburg
Martinsburg, WV
59,547
1,583,893
0.5
26.60
JUD - Aberdeen
Aberdeen, MS
46,979
1,572,610
33.47
GSA - Clarksburg
Clarksburg, WV
63,750
1,521,309
23.86
VA - Charleston
97,718
1,472,208
15.07
DEA - Birmingham
35,616
1,442,564
40.50
DEA - Albany
31,976
1,398,185
43.73
USAO - Springfield
Springfield, IL
43,600
1,381,505
31.69
DEA - Riverside
Riverside, CA
34,354
1,305,270
0.4
37.99
24
JUD - Council Bluffs
Council Bluffs, IA
28,900
1,283,504
44.41
SSA - Dallas
27,200
1,056,391
0.3
38.84
JUD - South Bend
South Bend, IN
30,119
790,363
26.24
ICE - Louisville
17,420
655,365
0.2
37.62
DEA - San Diego
San Diego, CA
16,100
555,773
34.52
DEA - Bakersfield
Bakersfield, CA
9,800
486,103
49.60
SSA - San Diego
10,059
442,607
0.1
44.00
ICE - Otay
7,434
258,761
34.81
Subtotal
7,550,401
264,029,970
87.0
34.97
Wholly Owned Privately Leased Property
501 East Hunter Street - Lummus Corporation
Lubbock, TX
W/D
70,078
411,124
5.87
Wholly Owned Properties Total / Weighted Average
7,620,479
264,441,094
87.1
34.70
Unconsolidated Real Estate Venture U.S. Government Leased Properties
VA - Phoenix (7)
Phoenix, AZ
257,294
10,649,799
3.5
41.39
VA - San Antonio (7)
226,148
9,212,310
3.0
40.74
VA - Chattanooga (7)
Chattanooga, TN
94,566
4,334,944
45.84
VA - Lubbock (7) (8)
120,916
4,030,913
33.34
VA - Marietta (7)
Marietta, GA
76,882
3,895,813
50.67
VA - Birmingham (7)
Irondale, AL
77,128
3,154,679
40.90
VA - Columbus (7)
Columbus, GA
67,793
2,898,223
42.75
VA - Lenexa (7)
31,062
1,309,621
42.16
951,789
39,486,302
12.9
41.49
Total / Weighted Average
8,572,268
303,927,396
100.0
35.45
Total / Weighted Average at Easterly's Share
8,124,926
285,368,833
35.12
25
Certain of our leases are currently in the “soft-term” period of the lease, meaning that the U.S. Government tenant agency has the right to terminate the lease prior to its stated lease end date. We believe that, from the U.S. Government’s perspective, leases with such provisions are helpful for budgetary purposes. While some of our leases are contractually subject to early termination, we do not believe that our tenant agencies are likely to terminate these leases early given the build-to-suit features at the properties subject to the leases, the weighted average age of these properties based on the date the property was built or renovated-to-suit, where applicable (approximately 19.1 years as of June 30, 2023), the mission-critical focus of the properties subject to the leases and the current level of operations at such properties.
The following table sets forth a schedule of lease expirations for leases in place (including for wholly owned properties and properties held by the JV) as of June 30, 2023:
Year of Lease Expiration (1)
Number of Leases Expiring
Leased Square Footage Expiring
Percentage of Portfolio Leased Square Footage Expiring
Annualized Lease IncomeExpiring
Percentage of Total Annualized Lease IncomeExpiring
AnnualizedLease Incomeper LeasedSquare FootExpiring
268,201
3.1
9,618,413
3.2
35.86
473,465
5.5
14,289,502
4.7
30.18
631,326
7.4
20,631,405
6.8
32.68
294,245
9,490,733
32.25
506,510
5.9
18,639,271
6.1
36.80
778,474
9.1
16,490,650
5.4
21.18
337,372
3.9
11,247,552
3.7
2030
0.0
100,502
4,068,460
40.48
531,001
6.2
16,792,015
31.62
52
4,651,172
54.3
182,659,395
60.2
39.27
117
Information about our development property as of June 30, 2023 is set forth in the table below:
Lease Term
Estimated Leased SquareFeet
FDA - Atlanta
Atlanta, GA
Food and Drug Administration
20-year
162,000
Results of Operations
Comparison of Results of Operations for the three months ended June 30, 2023 and 2022
The financial information presented below summarizes our results of operations for the three months ended June 30, 2023 and 2022 (amounts in thousands).
Change
(3,398
1,584
200
230
(1,384
2,078
(232
(1,724
142
1,058
1,322
593
(239
(2,352
Total revenues decreased $1.4 million to $71.4 million for the three months ended June 30, 2023 compared to $72.8 million for the three months ended June 30, 2022.
The $3.4 million decrease in Rental income is primarily attributable to a decrease in revenues from the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the three months ended June 30, 2022.
The $1.6 million increase in Tenant reimbursements is primarily attributable to an increase in tenant project reimbursements.
The $0.2 million increase in Asset management income is attributable to the fee we earned for asset management on two operating properties acquired by the JV since June 30, 2022, as well as a full period of operations from two operating properties acquired during the three months ended June 30, 2022.
The $0.2 million increase in Other income is primarily attributable to an increase in project overhead income from our tenant reimbursable projects.
Total expenses increased $1.3 million to $55.3 million for the three months ended June 30, 2023 compared to $54.0 million for the three months ended June 30, 2022.
The $2.1 million increase in Property operating expenses is primarily attributable to an increase in reimbursable projects.
The $0.2 million decrease in Real estate taxes is primarily attributable to the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the three months ended June 30, 2022.
The $1.7 million decrease in Depreciation and amortization is also primarily attributable to the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the three months ended June 30, 2022.
27
The $1.1 million increase in Corporate general and administrative was primarily due to an increase in employee costs.
The $0.6 million increase in Income from unconsolidated real estate venture is primarily attributable to our pro rata share of operations from two operating properties acquired by the JV since June 30, 2022, as well as a full period of operations from two operating properties acquired during the three months ended June 30, 2022.
The $0.2 million increase in Interest expense, net is primarily related to higher interest rates on our revolving credit facility.
Comparison of Results of Operations for the six months ended June 30, 2023 and 2022
The financial information presented below summarizes our results of operations for the six months ended June 30, 2023 and 2022 (amounts in thousands).
(5,689
2,515
469
239
(2,466
4,508
(590
(2,802
241
2,370
3,727
1,364
(1,372
(6,201
Total revenues decreased $2.5 million to $142.6 million for the six months ended June 30, 2023 compared to $145.1 million for the six months ended June 30, 2022.
The $5.7 million decrease in Rental income is primarily attributable to a decrease in revenues from the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the six months ended June 30, 2022.
The $2.5 million increase in Tenant reimbursements is primarily attributable to an increase in tenant project reimbursements.
The $0.5 million increase in Asset management income is attributable to the fee we earned for asset management on two operating properties acquired by the JV since June 30, 2022, as well as a full period of operations from two operating properties acquired during the six months ended June 30, 2022.
28
Total expenses increased $3.7 million to $111.5 million for the six months ended June 30, 2023 compared to $107.8 million for the six months ended June 30, 2022.
The $4.5 million increase in Property operating expenses is primarily attributable to an increase in reimbursable projects and an increase in utility costs across the portfolio.
The $0.6 million decrease in Real estate taxes is primarily attributable to the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the six months ended June 30, 2022.
The $2.8 million decrease in Depreciation and amortization is also primarily attributable to the ten properties disposed of since June 30, 2022, offset by the one operating property acquired since June 30, 2022, as well as a full period of operations from the two operating properties acquired during the six months ended June 30, 2022.
The $2.4 million increase in Corporate general and administrative was primarily due to an increase in employee costs.
The $1.4 million increase in Income from unconsolidated real estate venture is primarily attributable to our pro rata share of operations from two operating properties acquired by the JV since June 30, 2022, as well as a full period of operations from two operating properties acquired during the six months ended June 30, 2022.
The $1.4 million increase in Interest expense, net is primarily related to higher interest rates on our revolving credit facility.
Liquidity and Capital Resources
We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses, including all scheduled principal and interest payments on our outstanding indebtedness, current and anticipated tenant improvements, planned and possible acquisitions of properties, including the two remaining properties in the portfolio of ten properties anticipated to be acquired through the JV (the “VA Portfolio”), stockholder distributions to maintain our qualification as a REIT, repurchases of common stock under our share repurchase program and other capital obligations associated with conducting our business. At June 30, 2023, we had $21.8 million available in cash and cash equivalents and there was $396.9 million available under our revolving credit facility.
Our primary expected sources of capital are as follows:
Our short-term liquidity requirements consist primarily of funds to pay for the following:
29
Our long-term liquidity needs, in addition to recurring short-term liquidity needs as discussed above, consist primarily of funds necessary to pay for acquisitions, non-recurring capital expenditures, and scheduled debt maturities. Although we may be able to anticipate and plan for certain of our liquidity needs, unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise, or our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or required. As of the date of this filing, there were no known commitments or events that would have a material impact on our liquidity.
We entered into separate equity distribution agreements on each of December 20, 2019 (the “2019 ATM Program”) and June 22, 2021 (the “2021 ATM Program” and, together with the 2019 ATM Program, the “ATM Programs”) with various financial institutions pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $300.0 million under each ATM Program from time to time in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act. Under each of the ATM Programs, we may enter into one or more forward transactions (each, a “forward sale transaction”) under separate master forward sale confirmations and related supplemental confirmations with each of the various financial institutions party to the respective ATM Program for the sale of shares of our common stock on a forward basis.
The following table sets forth certain information with respect to issuances under the 2019 ATM Program during the six months ended June 30, 2023 (amounts in thousands, except share amounts):
We used the net proceeds received from such sales for general corporate purposes. As of June 30, 2023, we had approximately $300.0 million of gross sales of our common stock available under the 2021 ATM Program and $87.4 million of gross sales of our common stock available under the 2019 ATM Program.
On April 28, 2022, our Board of Directors authorized a share repurchase program whereby we may repurchase up to 4,538,994 shares of our common stock, or approximately 5% of our outstanding shares as of the authorization date. We are not required to purchase shares under the share repurchase program but may choose to do so in the open market or through privately negotiated transactions at times and amounts based on our evaluation of market conditions and other factors.
31
Debt
Indebtedness Outstanding
The following table sets forth certain information with respect to our outstanding indebtedness as of June 30, 2023 (amounts in thousands):
32
On February 3, 2023, we entered into three SOFR-based interest rate swaps each with a notional value of $100.0 million that were designated as cash flow hedges of interest rate risk. Two of the interest rate swaps, with an aggregate notional value of $200.0 million, became effective in June 2023. The third swap, with a notional value of $100.0 million, will become effective when our existing swaps mature in September 2023. For more information on our interest rate swaps, see Note 6 to the Consolidated Financial Statements.
Our revolving credit facility, term loan facilities, notes payable, and mortgage notes payable are subject to ongoing compliance with a number of financial and other covenants. As of June 30, 2023, we were in compliance with all applicable financial covenants.
The chart below details our debt capital structure as of June 30, 2023 (dollar amounts in thousands):
Debt Capital Structure
Total principal outstanding
1,225,786
Weighted average maturity
5.2 years
Weighted average interest rate
3.8
% Variable debt
% Fixed debt (1)
99.8
% Secured debt
18.2
Material Cash Commitments
During the six months ended June 30, 2023, there were no material changes to the cash commitment information presented in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2022.
Unconsolidated Real Estate Venture
We consolidate entities in which we have a controlling interest or are the primary beneficiary in a variable interest entity. From time to time, we may have off-balance sheet unconsolidated real estate ventures and other unconsolidated arrangements with varying structures.
As of June 30, 2023, we have invested $268.6 million in the JV. As of June 30, 2023, we committed capital, net of return of over committed capital, to the JV totaling $274.1 million and have a remaining capital commitment of $64.2 million. None of the properties owned by the JV are encumbered by mortgage indebtedness.
For a more complete description of the JV, see Note 4 to the Consolidated Financial Statements.
Dividend Policy
In order to qualify as a REIT, we are required to distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We anticipate distributing all of our taxable income. We expect to make quarterly distributions to our stockholders in a manner intended to satisfy this requirement. Prior to making any distributions for U.S. federal tax purposes or otherwise, we must first satisfy our operating and debt service obligations. It is possible that it would be necessary to utilize cash reserves, liquidate assets at unfavorable prices or incur additional indebtedness in order to make required distributions. It is also possible that our board of directors could decide to make required distributions in part by using shares of our common stock.
A summary of dividends declared by the board of directors per share of common stock and per common unit at the date of record is as follows:
Inflation
Substantially all of our leases provide for operating expense escalations. We believe inflationary increases in expenses may be at least partially offset by the operating expenses that are passed through to our tenants and by contractual rent increases. We do not believe inflation has had a material impact on our historical financial position or results of operations.
Cash Flows
The following table sets forth a summary of cash flows for the six months ended June 30, 2023 and 2022 (amounts in thousands):
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Operating Activities
We generated $59.1 million and $64.4 million of cash from operating activities during the six months ended June 30, 2023 and 2022, respectively. Net cash provided by operating activities for the six months ended June 30, 2023 includes $51.1 million in net cash from rental activities net of expenses, $5.9 million related to distributions from investment in unconsolidated real estate venture and $2.1 million related to the change in tenant accounts receivable, prepaid expenses and other assets, deferred revenue associated with operating leases, principal payments on operating lease obligations, and accounts payable, accrued expenses and other liabilities. Net cash provided by operating activities for the six months ended June 30, 2022 includes $62.6 million in net cash from rental activities net of expenses and $3.4 million related to distributions from investment in unconsolidated real estate venture, offset by $1.6 million related to the change in tenant accounts receivable, prepaid expenses and other assets, deferred revenue associated with operating leases, principal payments on operating lease obligations, and accounts payable, accrued expenses and other liabilities.
34
Investing Activities
We used $21.0 million and $147.0 million in cash for investing activities during the six months ended June 30, 2023 and 2022, respectively. Net cash used in investing activities for the six months ended June 30, 2023 includes $12.1 million in additions to operating properties and $9.0 million in additions to development properties, offset by $0.1 million in real estate acquisitions and deposits. Net cash used in investing activities for the six months ended June 30, 2022 includes $78.8 million in real estate acquisitions and deposits, $52.7 million in investment in unconsolidated real estate venture, $10.9 million in additions to operating properties and $4.9 million in additions to development properties, offset by $0.3 million in distributions of capital from unconsolidated real estate venture.
Financing Activities
We used $33.6 million and generated $80.6 million in cash from financing activities during the six months ended June 30, 2023 and 2022, respectively. Net cash used in financing activities for the six months ended June 30, 2023 includes $55.6 million in dividend payments, $17.8 million in mortgage notes payable repayment, $12.5 million in net pay downs under our revolving credit facility and $0.1 million in the payment of offering costs, offset by $52.4 million in gross proceeds from issuance of shares of our common stock. Net cash generated by financing activities for the six months ended June 30, 2022 includes $128.3 million in net draws under our revolving credit facility and $9.5 million in gross proceeds from issuances of shares of our common stock, offset by $54.4 million in dividend payments, $2.6 million in mortgage notes payable repayment and $0.1 million in the payment of offering costs.
Non-GAAP Financial Measures
We use and present Funds From Operations (“FFO”), Core FFO and FFO, as Adjusted as supplemental measures of our performance. The summary below describes our use of FFO, Core FFO and FFO, as Adjusted, provides information regarding why we believe these measures are meaningful supplemental measures of our performance and reconciles these measures from net income, presented in accordance with GAAP.
Funds From Operations and Funds From Operations, as Adjusted
FFO is a supplemental measure of our performance. We present FFO calculated in accordance with the current National Association of Real Estate Investment Trusts (“Nareit”) definition set forth in the Nareit FFO White Paper – Restatement 2018. FFO includes the REIT’s share of FFO generated by unconsolidated affiliates. In addition, we present Core FFO and FFO, as Adjusted for certain other adjustments that we believe enhance the comparability of our FFO across periods and to the FFO reported by other publicly traded REITs. FFO is a supplemental performance measure that is commonly used in the real estate industry to assist investors and analysts in comparing results of REITs.
FFO is defined by Nareit as net income (calculated in accordance with GAAP), excluding:
We present FFO because we consider it an important supplemental measure of our operating performance, and we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting results.
We adjust FFO to present Core FFO as an alternative measure of our operating performance, which, when applicable, excludes items which we believe are not representative of ongoing operating results, such as liability management related costs (including losses on extinguishment of debt and modification costs), catastrophic event charges, depreciation of non-real estate assets, and the unconsolidated real estate venture's allocated share of these adjustments. In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results. We believe Core FFO more accurately reflects the ongoing operational and financial performance of our core business.
We adjust FFO to present FFO, as Adjusted as an alternative measure of our operating performance, which, when applicable, excludes the impact of losses on extinguishment of debt, depreciation of non-real estate assets, acquisition costs, straight-line rent and other non-cash adjustments, amortization of deferred revenue (which results from landlord assets funded by tenants), non-cash interest expense, non-cash compensation, amortization of above-/below-market leases, and the unconsolidated real estate venture’s allocated share of these adjustments. By excluding these income and expense items from FFO, as Adjusted, we believe we provide useful information as these items have no cash impact. In addition, by excluding acquisition related costs, we believe FFO, as Adjusted provides useful information that is comparable across periods and more accurately reflects the operating performance of our properties.
FFO, Core FFO and FFO, as Adjusted are presented as supplemental financial measures and do not fully represent our operating performance. Other REITs may use different methodologies for calculating FFO, Core FFO and FFO, as Adjusted or use other definitions of FFO, Core FFO and FFO, as Adjusted and, accordingly, our presentation of these measures may not be comparable to other REITs. Neither FFO, Core FFO nor FFO, as Adjusted are intended to be a measure of cash flow or liquidity. Please refer to our financial statements, prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations and cash flows.
36
The following table sets forth a reconciliation of our net income to FFO, Core FFO and FFO, as Adjusted for the three and six months ended June 30, 2023 and 2022 (amounts in thousands):
Depreciation of real estate assets
22,368
24,096
45,199
48,008
Unconsolidated real estate venture allocated share of above adjustments
1,875
1,127
3,750
FFO
30,021
33,353
59,141
66,406
Adjustments to FFO:
Loss on extinguishment of debt
Natural disaster event expense, net of recovery
(22
78
Depreciation of non-real estate assets
251
247
501
494
Core FFO
30,267
33,620
59,767
66,941
Adjustments to Core FFO:
Straight-line rent and other non-cash adjustments
(902
451
Amortization of above-/below-market leases
(676
(743
Amortization of deferred revenue
(1,622
(1,443
Non-cash interest expense
244
235
488
460
(4
(78
(9
43
(394
(70
(709
FFO, as Adjusted
29,119
33,661
58,132
65,637
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base these estimates, judgments, and assumptions on historical experience, current trends, and various other factors that we believe to be reasonable under the circumstances. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or a different presentation of our financial statements.
Our Annual Report on Form 10-K for the year ended December 31, 2022 contains a discussion of our significant accounting policies, which utilize relevant critical accounting estimates. During the six months ended June 30, 2023, there were no material changes to the discussion of our significant accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2022.
37
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Our primary market risk results from our indebtedness, which bears interest at both fixed and variable rates. We manage and may continue to manage our market risk on variable rate debt by entering into swap arrangements to, in effect, fix the rate on all or a portion of the debt for varying periods up to maturity. This in turn, reduces the risks of variability of cash flows created by variable rate debt and mitigates the risk of increases in interest rates. Our objective when undertaking such arrangements is to reduce our floating rate exposure and we do not intend to enter into hedging arrangements for speculative purposes. For more information on our interest rate swaps, see Note 6 to the Consolidated Financial Statements.
As of June 30, 2023, $1.2 billion, or 99.8% of our debt, excluding unamortized premiums and discounts, had fixed interest rates and $3.0 million, or 0.2% had variable interest rates. If market rates of interest on our variable rate debt fluctuate by 25 basis points, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows, by less than $0.1 million annually.
As of June 30, 2023, each of the agreements governing our variable rate debt have been transitioned to SOFR.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a -15(e) and Rule 15d-15 of the Exchange Act, as of June 30, 2023. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II
Item 1. Legal Proceedings
We are not currently involved in any material litigation nor, to our knowledge, is any material litigation currently threatened against us.
Item 1A. Risk Factors
Except to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Item 5. Other Information
During the three months ended June 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
Item 6. Exhibits
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q:
Exhibit
Exhibit Description
Amended and Restated Articles of Amendment and Restatement of Easterly Government Properties, Inc. (previously filed as Exhibit 3.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 on January 30, 2015 and incorporated herein by reference)
Amended and Restated Bylaws of Easterly Government Properties, Inc. (previously filed as Exhibit 3.2 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 on January 30, 2015 and incorporated herein by reference)
3.3
First Amendment to Amended and Restated Bylaws of Easterly Government Properties, Inc. (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on February 27, 2019 and incorporated herein by reference)
Second Amendment to Amended and Restated Bylaws of Easterly Government Properties, Inc. (previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on May 20, 2021 and incorporated herein by reference)
4.1
Specimen Certificate of Common Stock of Easterly Government Properties, Inc. (previously filed as Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-11 on January 30, 2015 and incorporated herein by reference)
10.1
Third Amendment to Second Amended and Restated Credit Agreement, dated as of May 30, 2023, by and among Easterly Government Properties, Inc., Easterly Government Properties LP, the Guarantors named therein, the Initial Lenders and Initial Issuing Banks named therein, and Citibank, N.A., as Administrative Agent, Wells Fargo Bank, N.A. and PNC Bank, National Association, as Co-Syndication Agents, BMO Harris Bank, N.A., Raymond James Bank, Royal Bank of Canada and Truist Bank, as Co-Documentation Agents, and Citibank, N.A., Wells Fargo Securities, LLC and PNC Capital Markets LLC, as Joint Lead Arrangers and Joint Book Running Managers (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on June 2, 2023 and incorporated herein by reference)
10.2
Sixth Amendment to Term Loan Agreement, dated as of May 30, 2023, by and among Easterly Government Properties, Inc., Easterly Government Properties LP, the Guarantors named therein, PNC Bank, National Association, as Administrative Agent and a Lender, and U.S. Bank National Association and Truist Bank, as Lenders (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K on June 2, 2023 and incorporated herein by reference)
31.1*
Certification of Chief Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
31.2*
Certification of Chief Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
32.1**
Certification of Chief Executive Officer and Chief Financial Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended
101.INS*
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)
* Filed herewith
** Furnished herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 8, 2023
/s/ William C. Trimble, III
William C. Trimble, III
Chief Executive Officer and President
(Principal Executive Officer)
/s/ Meghan G. Baivier
Meghan G. Baivier
Executive Vice President, Chief Financial Officer and Chief Operating Officer
(Principal Financial Officer)