Easterly Government Properties (DEA): Delivering Stability and Growth in Mission-Critical Real Estate

Published on September 24, 2024 | Ticker: DEA

Easterly Government Properties, Inc. (NYSE: DEA) is an internally managed real estate investment trust (REIT) that focuses on acquiring, developing, and managing Class A commercial properties leased to U.S. Government agencies. The company has established itself as a trusted partner for the government, providing essential infrastructure that supports the mission of its tenant agencies.

Business Overview

Easterly's portfolio consists of 90 wholly-owned operating properties and nine operating properties through an unconsolidated joint venture, encompassing approximately 8.9 million leased square feet as of March 31, 2023. The company's properties are 97% leased, with a weighted average annualized lease income per leased square foot of $35.99 and a weighted average age of approximately 14.8 years based on the date the property was built or renovated-to-suit.

The company's business model is centered on providing mission-critical real estate solutions to U.S. Government agencies. Easterly's properties serve essential functions, ranging from Drug Enforcement Administration (DEA) laboratories that aid in the fight against drug trafficking to Federal Emergency Management Agency (FEMA) distribution centers that support emergency response efforts. This specialized focus has allowed Easterly to establish a definable edge in the commercial real estate industry.

Financials

In the first quarter of 2023, Easterly reported net income of $4.9 million and revenue of $72.8 million. The company's annual net income for the previous fiscal year was $18.8 million, with annual revenue of $287.2 million. Easterly's annual operating cash flow and free cash flow for the previous fiscal year were both $115.1 million.

Recent Developments

During the first quarter, the company acquired a 129,046 leased square foot U.S. Immigration and Customs Enforcement (ICE) facility near Dallas, Texas. The building was renovated to suit in 2020 and is primarily leased to the General Services Administration (GSA) for the beneficial use of ICE, with lease expirations ranging from 2032 to 2040. This acquisition is in line with Easterly's strategy of investing in mission-critical real estate that supports the operations of government agencies.

In addition to the ICE Dallas acquisition, Easterly announced the development of a 50,777 square foot Federal courthouse in Flagstaff, Arizona. The courthouse will be primarily leased to the GSA for the beneficial use of the Judiciary of the U.S. Government (JUD) over a 20-year non-cancelable term. This project aligns with the company's focus on developing purpose-built facilities that cater to the specific needs of government tenants.

Liquidity

Easterly's financial position remains strong, with a weighted average maturity of 4.3 years on its debt and a weighted average interest rate of 4.3% as of March 31, 2023. The company's debt capital structure consists of 89.4% fixed-rate debt and 10.6% variable-rate debt, with a secured debt ratio of 16.0%.

Outlook

Looking ahead, Easterly is maintaining its full-year 2023 core FFO per share guidance in the range of $1.14 to $1.16, on a fully diluted basis. This guidance assumes the closing of the VA Jacksonville property through the joint venture at its pro rata acquisition price of $40.9 million later this year, and $100 million to $110 million of gross development-related investment during 2023.

The company's management team is focused on driving operational efficiencies, managing expense growth, and re-leasing properties at positive spreads. Easterly is also actively exploring opportunities to expand its presence in the state and local government property market, as well as pursuing government-adjacent partnerships, which could provide additional avenues for growth.

Conclusion

Easterly's unique positioning as a specialized REIT serving the U.S. Government's mission-critical real estate needs, combined with its strong financial profile and growth initiatives, position the company well to deliver stable and attractive returns for its shareholders. As the company continues to execute on its strategic priorities, investors can look forward to Easterly's continued contribution to the essential infrastructure that supports the vital functions of the U.S. Government.

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