Executive Summary / Key Takeaways

• Mission-Critical Foundation: Easterly Government Properties (DEA) maintains a highly stable portfolio of Class A properties leased primarily to U.S. Government agencies, focusing on essential functions like law enforcement and veteran care, which are indispensable regardless of economic cycles.
• Strategic Diversification and Development: The company is actively expanding its total addressable market through accretive acquisitions and developments in state, local, and government-adjacent sectors, aiming for a portfolio mix of 70% federal, 15% state/local, and 15% government-adjacent to enhance growth and weighted average lease terms.
• Capital Allocation for Growth: A recent dividend reset and reverse stock split were strategic moves to free up capital for high-return investments, improve dividend coverage, and strengthen the balance sheet, positioning DEA for sustainable Core FFO growth.
• "Doge" as an Opportunity: Management views the U.S. Government's "Department of Government Efficiency" (Doge) initiative as a significant tailwind, as DEA's modern, cost-efficient leased facilities directly address the government's need to divest aging, owned properties with substantial deferred maintenance.
• Clear Growth Outlook and Deleveraging: DEA projects 2-3% annual Core FFO growth for 2025 and 2026, supported by a robust $1.5 billion pipeline and a commitment to reducing cash leverage to a medium-term target of six times, enhancing investor comparability and lowering capital costs.

The Enduring Foundation of Government Real Estate

Easterly Government Properties, Inc. (NYSE:DEA) operates as an internally managed real estate investment trust (REIT) with a singular, compelling focus: the acquisition, development, and management of Class A commercial properties leased to U.S. Government agencies. This core business, generating approximately 90% of its revenue from federal government leases, positions DEA uniquely within the broader real estate investment landscape. The company's portfolio comprises mission-critical facilities—courthouses, law enforcement labs, public health clinics, and secure administrative buildings—that are vital to the functioning and security of the nation. These assets are not speculative; they are long-leased, purpose-built, and considered indispensable, offering a defensive investment profile resilient to economic fluctuations.

DEA's overarching strategy is built on disciplined growth, essential real estate, and enduring value creation. This involves three long-term priorities: achieving 2% to 3% annual Core FFO growth, enhancing same-store performance through thoughtful diversification into state, local, and high-credit government-adjacent tenancy, and executing value-creating development opportunities that improve weighted average lease terms and building age. The company's foundational strengths include a high portfolio occupancy rate of 97% as of September 30, 2025, and a weighted average remaining lease term of approximately 10 years, underscoring the stability and predictability of its cash flows.

DEA's primary technological differentiation lies not in traditional building technology, but in its specialized expertise and proven processes for partnering with the U.S. Government. This "technology" of insight and execution provides tangible, quantifiable benefits. For instance, DEA estimates it can deliver a laboratory to the government "three times cheaper and notably faster" than the government could achieve on its own. Furthermore, its development projects are strategically targeted to create a "150 basis point spread to our cost of capital." This specialized approach contributes significantly to DEA's competitive moat, enabling accretive investments even in challenging capital markets and solidifying its market positioning as a "partner of choice" for government tenancy. For investors, this translates into a business model capable of generating stable, recurring revenue streams and superior margins within its niche, driven by operational efficiency and deep institutional knowledge.

The "Doge" Initiative: A Catalyst for Transformation

The U.S. Government's "Department of Government Efficiency" (Doge) initiative represents a significant, ongoing transformation in federal real estate strategy. Doge aims to shift the government away from its traditional model of owning office space towards a more flexible, leased model to drive cost efficiencies. Easterly Government Properties views this initiative not as a threat, but as a substantial opportunity. Management emphasizes that DEA's portfolio of modern, Class A, mission-critical leased facilities aligns perfectly with Doge's objectives to reduce reliance on aging, government-owned properties. The average age of government-owned facilities exceeds 50 years, burdened by over $80 billion in deferred maintenance and repair liabilities as of fiscal year 2022. In stark contrast, DEA's portfolio boasts a weighted average age of approximately 16.4 years.

Darrell Crate, President and CEO, highlighted that DEA has been "underwriting to Doge before Doge since we founded the company," focusing on essential government functions. The company has reported no lease cancellations due to Doge, and instead sees opportunities to expand its leasing relationships as the initiative accelerates. This perspective is reinforced by the GSA's stated priority of "optimizing the GSA's real estate portfolio" by "reducing our deferred maintenance liabilities" and "taking advantage of a stronger private government partnership."

Strategic Evolution and Portfolio Expansion

Easterly's strategic evolution is marked by a deliberate diversification beyond its core federal government tenancy. The company aims for a long-term portfolio mix of 70% federal, 15% state and local, and 15% government-adjacent exposure. This diversification strategy is designed to enhance same-store performance and increase the weighted average lease term, as state government leases can extend up to 40 years, significantly longer than the typical 20-year federal limit.

Recent acquisitions in 2025 exemplify this strategy. In April, DEA acquired the DC - Capitol Plaza, a 289,873 square foot facility 98% leased to the AA+ rated District of Columbia government, for approximately $120 million at a high nine cap rate. This asset provides a 100 basis point premium to the company's cost of capital and includes roughly 1% annual rent escalators. In May, a 74,549 square foot Department of Homeland Security (DHS) facility near Burlington, Vermont, was acquired with a 10-year lease. August saw the acquisition of the York Space Systems headquarters in Greenwood Village, Colorado, a 138,125 square foot facility with a 10-year lease through December 2031. This $29 million acquisition, at a low elevens cap rate, includes a specialized "clean room" for satellite construction, positioning DEA towards its government-adjacent exposure goal. These acquisitions collectively contributed $10.30 million in revenues and $3.70 million in net income for the nine months ended September 30, 2025.

The development pipeline remains a key driver of value creation. The FDA Atlanta laboratory, DEA's largest development project, is nearing completion, with the lease expected to commence in December 2025. This project has already provided significant liquidity, with $102.70 million in lump sum reimbursement received in Q3 2025, bringing total reimbursements to $138.10 million. Other notable developments include a 64,000 square foot State Crime Lab in Fort Myers, Florida, with a 25-year non-cancelable lease to the Florida Department of Law Enforcement, and a 40,035 square foot federal courthouse in Medford, Oregon, under a 20-year non-cancelable lease with the GSA for the Judiciary. DEA also demonstrated proactive asset management by re-tenanting a U.S. Forest Service facility in Albuquerque with the State of New Mexico under a new 10-year firm term lease with annual rent escalators.

Financial Performance and Capital Discipline

Easterly delivered solid financial performance for the third quarter of 2025, with net income of $1.2 million, or $0.03 per diluted share, and Core FFO of $35.62 million, or $0.76 per diluted share, slightly exceeding expectations. Total revenues for the quarter increased by $11.40 million year-over-year to $86.15 million, primarily driven by recent acquisitions. However, total expenses also rose by $9.80 million to $64.88 million, largely due to increased property operating costs, real estate taxes, and depreciation from the expanded portfolio. Net interest expense increased by $2.80 million to $19.04 million, reflecting the impact of fixed-rate senior unsecured notes issued since September 2024. An impairment loss of $2.50 million was recognized on the ICE - Otay property, which was subsequently sold for net proceeds of approximately $3.50 million. For the nine months ended September 30, 2025, total revenues grew by $25.26 million to $249.06 million, while net income decreased by $6.07 million to $8.78 million, primarily due to higher interest expenses and the impairment loss. Core FFO for the nine-month period was $103.28 million.

The company maintains a robust liquidity position, with $4.40 million in cash and cash equivalents, $9.90 million in restricted cash, and $229 million available under its $400 million revolving credit facility as of September 30, 2025, which also includes an accordion feature for an additional $300 million. DEA's debt structure totals $1.64 billion, with 89.6% fixed-rate and 10.4% variable-rate debt, carrying a weighted average maturity of 4.4 years and an interest rate of 4.7%.

A significant strategic shift in capital allocation occurred in Q1 2025 with a dividend reduction and a 1-for-2.5 reverse stock split. These actions were taken to "free up significant capital for accretive investments," align the dividend with peers, and strengthen the balance sheet, allowing for reinvestment into growth initiatives. Management noted that while dividend coverage was achievable at the old level, the capital markets were not rewarding it with a premium multiple, making it an inefficient use of capital.

Easterly is actively focused on leverage optimization, targeting a "medium-term cash leverage goal of six times," a notable reduction from historical levels of seven to eight times. Progress is evident, as the $102.70 million lump sum reimbursement for FDA Atlanta reduced cash leverage from 7.9 times to 7.6 times in Q3 2025, with further improvement expected below 7.5 times upon project completion. The company successfully upsized its 2018 term loan facility to $200 million and secured a new $100 million accordion feature in August 2025. Furthermore, the 2016 term loan maturity was extended from 2025 to 2028, with options for further extensions to 2030. In October 2025, KBRA reaffirmed DEA's investment-grade rating (BBB with a Stable Outlook), underscoring its creditworthiness and access to debt capital.

Competitive Landscape and Strategic Positioning

Easterly Government Properties occupies a specialized and relatively defensive niche within the REIT market. Its core competitive advantage lies in its deep, specialized knowledge of U.S. Government needs and its strong, long-standing relationships with agencies like the GSA. This expertise enables DEA to secure exclusive leases and deliver cost efficiencies, such as developing laboratories "three times cheaper and notably faster" than government alternatives, and achieving a "150 basis point spread" on development projects. This translates directly into stable, recurring revenue and superior margins within its niche. The mission-critical nature of its properties ensures high occupancy and resilience, with demand for these assets consistently outperforming "commodity government" properties.

Compared to broader REITs like Alexandria Real Estate Equities (ARE), which focuses on life sciences and innovation, or Digital Realty Trust (DLR), specializing in data centers, DEA's growth trajectory may appear less aggressive. ARE benefits from faster expansion into emerging innovation hubs, while DLR capitalizes on the rapidly expanding data center market, offering advanced technological infrastructure. DEA's "technology" is its process expertise rather than cutting-edge building tech, which means it may lag DLR in areas requiring high-tech infrastructure for government-adjacent needs. However, DEA's government expertise allows it to secure leases that competitors might not access, enhancing its market share in federal segments and improving pricing power.

Historically, DEA has carried higher cash leverage compared to net lease and office peers, a factor it is actively addressing to enhance investor comparability and reduce capital costs. The regulatory hurdles and high capital requirements inherent in government leasing act as significant barriers to entry, reinforcing DEA's established position and defending its market share against new entrants. While indirect competitors, such as private equity firms or emerging virtual infrastructure solutions, pose a long-term consideration, DEA's focus on physical, mission-critical assets with firm-term leases (95% of annualized lease income) provides a strong buffer against these evolving dynamics.

Outlook and Growth Trajectory

Easterly Government Properties has provided a clear outlook, narrowing its full-year Core FFO per share guidance for 2025 to $2.98 to $3.02 on a fully diluted basis, which at its midpoint, reflects strong 3% growth over 2024. For 2026, the company projects Core FFO per share in the range of $3.05 to $3.12, implying a consistent 2-3% growth rate. This guidance assumes $50 million to $100 million of gross development-related investment and $50 million in wholly-owned acquisitions for 2026. Management explicitly states that the $50 million acquisition target is a "low bar," given a robust $1.5 billion pipeline, indicating potential for higher acquisition volumes if capital markets become more favorable.

The company's growth is underpinned by the imminent delivery of the FDA Atlanta project, successful 2025 lease renewal execution, sustained operational efficiencies, and continued portfolio expansion. Management's confidence in its strategy is evident in its consistent Core FFO performance and its proactive capital allocation decisions. The commitment to reducing cash leverage to six times, coupled with strategic diversification and a focus on accretive development, positions DEA for sustained long-term value creation.

Conclusion

Easterly Government Properties stands as a compelling investment in a specialized, resilient sector of the real estate market. Its core strength lies in its portfolio of mission-critical properties, backed by the full faith and credit of the U.S. Government, providing stable and predictable cash flows. The company's strategic pivot, marked by a dividend reset and a disciplined approach to capital allocation, is designed to fuel accretive growth and optimize its balance sheet. DEA's unique expertise in government leasing and efficient development processes serves as a powerful differentiator, enabling it to capitalize on the "Doge" initiative as a catalyst for federal real estate transformation. With a clear path for Core FFO growth, a robust development pipeline, and a commitment to deleveraging, Easterly is strategically positioned to deliver enduring value to shareholders, offering a stable anchor for discerning investment portfolios.