Easterly Government Properties Reports Fourth Quarter and Full Year 2018 Results

WASHINGTON–(BUSINESS WIRE)–Easterly Government Properties, Inc. (NYSE:DEA) (the “Company” or
“Easterly”), a fully integrated real estate investment trust (“REIT”)
focused primarily on the acquisition, development and management of
Class A commercial properties leased to the U.S. Government, today
announced its results of operations for the quarter and full year ended
December 31, 2018.

Highlights for the Quarter Ended December 31, 2018:

  • Net income of $0.6 million, or $0.01 per share on a fully diluted basis
  • FFO of $21.7 million, or $0.31 per share on a fully diluted basis
  • FFO, as Adjusted of $20.1 million, or $0.29 per share on a fully
    diluted basis
  • CAD of $17.3 million
  • Completed the acquisition of three of the remaining six properties in
    the Company’s previously announced 14-property portfolio acquisition,
    representing an aggregate of 90,688 square feet, for a combined
    purchase price of approximately $33 million
  • Completed the acquisition of the 83,676-square foot Department of the
    Treasury facility in Birmingham, Alabama (“TREAS – Birmingham”)
  • Completed the acquisition of the 50,978-square foot Drug Enforcement
    Administration (DEA) laboratory located in Upper Marlboro, Maryland
    (“DEA – Upper Marlboro”)
  • Lease commenced at the newly re-developed 210,373-square foot Federal
    Emergency Management Agency (FEMA) facility located in Tracy,
    California (“FEMA – Tracy”).
  • Portfolio occupancy at 100%
  • Amended the Company’s 2016 term loan facility to reduce the interest
    rate margin applicable to borrowings under the facility and extend the
    maturity date by six months to March 29, 2024

Highlights for the Year Ended December 31, 2018:

  • Net income of $6.7 million, or $0.11 per share on a fully diluted basis
  • FFO of $73.1 million, or $1.17 per share on a fully diluted basis
  • FFO, as Adjusted of $64.6 million, or $1.03 per share on a fully
    diluted basis
  • Completed the accretive acquisition of 15 properties with an aggregate
    purchase price of approximately $410 million
  • Completed the re-development of the 210,373-square foot FEMA facility
    located in Tracy, California and commenced a brand new, 20-year lease
    term
  • Completed the Company’s third public offering since its IPO consisting
    of 20.7 million shares of our common stock, including 7.0 million
    shares sold on a forward basis. Assuming the physical settlement of
    the forward shares, the offering is expected to result in a total of
    $379.0 million of net proceeds, including amounts previously received
  • Issued 1.68 million shares of common stock for approximately $34.1
    million of gross proceeds through the Company’s At-the-Market (ATM)
    Program
  • Amended and restated the Company’s $400.0 million senior unsecured
    credit facility, increasing total borrowing capacity under the
    facility by $200.0 million for a total credit facility size of $600.0
    million, consisting of (i) a $450.0 million revolving credit facility,
    and (ii) a $150.0 million term loan facility. The revolving credit
    facility also includes an accordion feature that provides the Company
    with additional capacity, subject to the satisfaction of customary
    terms and conditions, of up to $250.0 million.

“In 2018 we saw the acquisition of the Company’s largest portfolio to
date. This and other accretive acquisitions scaled the Company and
contributed to the stated goal of generating long-term distributable
cash flow growth backed by the full faith and credit of the U.S.
Government,” said William C. Trimble, III, Easterly’s Chief Executive
Officer. “We welcomed important new agencies into our growing portfolio
while also delivering our first development project since IPO. The
pipeline remains robust as we continue to execute on our bullseye
acquisition and development strategies.”

Financial Results for the Quarter Ended December 31, 2018

Net income of $0.6 million, or $0.01 per share on a fully diluted basis
FFO
of $21.7 million, or $0.31 per share on a fully diluted basis
FFO,
as Adjusted of $20.1 million, or $0.29 per share on a fully diluted basis
CAD
of $17.3 million

Financial Results for the Year Ended December 31, 2018

Net income of $6.7 million, or $0.11 per share on a fully diluted basis
FFO
of $73.1 million, or $1.17 per share on a fully diluted basis
FFO,
as Adjusted of $64.6 million, or $1.03 per share on a fully diluted basis
CAD
of $54.9 million

Portfolio Operations

As of December 31, 2018, the Company wholly owned 62 operating
properties in the United States, encompassing approximately 5.3 million
square feet in the aggregate, including 60 operating properties that
were leased primarily to U.S. Government tenant agencies and two
operating properties that were entirely leased to private tenants. As of
December 31, 2018, the portfolio had an average age of 12.5 years, based
upon the date the property was built or renovated-to-suit, was 100%
occupied, and had a weighted average remaining lease term of 7.6 years.

Acquisitions and Development Activities

In 2018, the Company acquired 15 properties with an aggregate purchase
price of approximately $410 million. In addition, the Company delivered
one re-development project, which is now an operating property in the
Company’s portfolio.

On May 24, 2018, the Company acquired a 56,753-square foot Department of
Veterans Affairs (VA) Denver Acquisition and Logistics Center in Golden,
Colorado (“VA – Golden”). VA – Golden houses holistic supply chain
management for the VA National Hearing Aid and Telehealth Programs and
supports VA and U.S. Government agencies with professional acquisition
and logistical services. VA – Golden also houses the VA’s only hearing
aid repair program, which provides eligibility verification, problem
diagnosis, hearing aid programming retrieval, cleaning, repairs, vendor
management, and quality control. The renovated-to-suit property was
originally constructed in 1996 and fully renovated in 2011 to meet the
specific design needs of the VA. The facility is leased to the VA for an
initial 15-year lease, which expires in September 2026.

On July 11, 2018 the Company acquired a 90,085-square foot VA
Community-Based Outpatient Clinic located in San Jose, California (“VA –
San Jose”). VA – San Jose, part of the VA Palo Alto Health Care System,
is an outpatient clinic that was completed in the first quarter of 2018.
The state-of-the-art facility is leased to the VA for an initial,
non-cancelable lease term of 20 years through February 2038. The
brand-new advanced facility consists of medical clinic and
administrative space distributed over three floors. Services performed
at VA – San Jose include primary care, mental health care, women’s
health, audiology and speech pathology, podiatry, optometry and
dermatology. The VA also promotes the use of group classes and
instruction by incorporating state-of-the-art training and patient
education spaces throughout the facility.

On September 13, 2018, the Company completed the acquisition of eight of
the 14 properties in the Company’s previously announced portfolio
acquisition, representing an aggregate of 1,024,026 square feet, for a
combined purchase price of approximately $244 million. The properties
include:

  • FBI – Pittsburgh, PA

    FBI – Pittsburgh serves as one
    of 56 FBI field offices located throughout the country. The
    100,054-square foot facility was built-to-suit for the FBI in 2001 and
    is 100% leased. This facility oversees operations for nine surrounding
    resident agencies located throughout Pennsylvania and the entirety of
    West Virginia.

  • TREAS – Parkersburg, WV

    TREAS – Parkersburg, a
    182,500-square foot build-to-suit property, was built in multiple
    phases in 2004 and 2006 and is 100% leased to the General Services
    Administration (GSA) for the beneficial use of the Bureau of Fiscal
    Service (BFS). This mission critical agency within the U.S. Department
    of Treasury has been located in Parkersburg since 1957 and currently
    occupies three buildings in the vicinity.

  • ICE – Pittsburgh, PA

    ICE – Pittsburgh, a
    state-of-the-art, build-to-suit facility constructed in 2004, is
    occupied by the U.S. Immigration and Customs Enforcement (ICE), which
    works to promote homeland security and public safety with respect to
    border control, customs, trade and immigration for the surrounding
    Pittsburgh region. The Class A facility houses the Homeland Security
    Investigations (HSI) division, dedicated to combating criminal
    organizations illegally exploiting America’s travel, trade, financial
    and immigration systems. This 33,425-square foot facility is located
    adjacent to the FBI – Pittsburgh field office and is 76% leased.

  • GSA – Clarksburg, WV

    GSA – Clarksburg serves as a
    multi-tenanted federal center for various federal tenants within the
    market area, including the FBI, DEA, SSA, Offices of the U.S.
    Attorneys, and Small Business Association (SBA). This 100% leased
    63,750-square foot build-to-suit facility was constructed in 1999 and
    serves the five tenant agencies through a single GSA lease.

  • Various GSA – Buffalo, NY

    Various GSA – Buffalo, a
    267,766-square foot multi-tenanted Class A office building completed
    in 2004, is primarily occupied by two federal agencies: the Department
    of Veterans Affairs (VA) and the Internal Revenue Service (IRS). It
    also houses one of the National Labor Relations Board’s 26 regional
    offices. The U.S. Government leases 94% of the 100% leased building.

  • Various GSA – Chicago, IL

    Various GSA – Chicago, a
    multi-tenanted office building fully renovated in 1999, is
    strategically located next to Chicago O’Hare International Airport and
    serves as the Federal Aviation Administration’s (FAA) Great Lakes
    Regional Office, which oversees operations in eight states. The U.S.
    Department of Agriculture (USDA) also maintains a presence within the
    facility. The 239,331-square foot building is 96% leased.

  • SSA – Charleston, WV

    SSA – Charleston, a
    110,000-square foot single tenant facility fully renovated in 2000, is
    occupied by the Office of Hearings Operations (OHO), a part of the
    Social Security Administration (SSA). The Charleston hearing office
    services three SSA field offices in Ohio and nine SSA field offices in
    West Virginia. The 100% leased facility features courtrooms,
    administrative offices and public service areas.

  • SSA – Dallas, TX

    SSA – Dallas is a 27,200-square
    foot build-to-suit facility 100% leased to the GSA for the beneficial
    use of the SSA. Built in 2005, this facility integrates
    state-of-the-art systems to serve as a local field office with superb
    access from one of Dallas’s busiest thoroughfares.

On October 1, 2018, the lease commenced at the newly re-developed
210,373-square foot Federal Emergency Management Agency (FEMA) facility
located in Tracy, California (“FEMA – Tracy”). In October 2017 Easterly
acquired the rights to a lease award to re-develop the new FEMA
distribution center, one of eight regional distribution centers located
throughout the country. The GSA signed a 20-year non-cancelable lease
with the Company for the beneficial use of FEMA. The FEMA – Tracy
property is a mission critical, industrial building that sits on just
over 19 acres of land and includes a blend of office, warehouse, and
conditioned space for full-time cold storage.

On October 16, 2018, the Company completed the acquisition of three of
the remaining six properties in the previously announced 14-property
portfolio acquisition, representing an aggregate of 90,688 square feet,
for a combined purchase price of approximately $33 million. The
properties include:

  • JUD – Charleston, SC

    JUD – Charleston, an historic
    townhouse with a modern annex that, together with two adjacent
    federally-owned buildings, constitutes the federal judicial complex in
    Charleston. The original building dates to 1795 and was fully
    renovated in 1999 when the annex was constructed. The building, known
    as the Josiah House, contains three district judge courtrooms and four
    judges’ chambers. It is physically connected on the second floor to
    the J. Waties Waring Judicial Center. This 50,888-square foot federal
    courthouse is 100% leased.

  • DEA – Bakersfield, CA

    DEA – Bakersfield is a
    build-to-suit facility that houses the Bakersfield Resident Office for
    the DEA’s San Francisco Division. This 9,800-square foot facility
    houses two holding cells, provides for secure and enclosed first floor
    parking and offers second story office space with secured rooms for
    weapons and drug storage. The facility was constructed in 2000 and is
    100% leased.

  • VA – Baton Rouge, LA

    VA – Baton Rouge, constructed
    in 2004, serves as a VA outpatient facility for Baton Rouge and the
    surrounding veteran population. This facility is one of two VA medical
    treatment facilities in Baton Rouge. Situated close to the largest
    private medical center in Louisiana, VA – Baton Rouge is 30,000-square
    feet in size and currently 100% leased to the VA.

On November 9, 2018, the Company completed the acquisition of TREAS –
Birmingham, an 83,676-square foot facility that houses part of the
Bureau of Fiscal Service (BFS). TREAS – Birmingham is a modern, Class A
build-to-suit facility constructed in 2014 and 100% leased to the
Treasury through the GSA. This first-generation leased facility features
three stories and resides on a nearly four-acre site. The property is
leased for an initial 15-year, non-cancelable term that expires in
December of 2029.

On November 15, 2018, the Company acquired a modern, Class A laboratory
100% leased to the GSA and occupied by the DEA, located in Upper
Marlboro, Maryland (“DEA – Upper Marlboro”). This 50,978-square foot
laboratory serves as the DEA’s Mid-Atlantic regional laboratory, one of
the DEA’s seven regional and two specialized laboratories located
strategically throughout the country. This laboratory provides
scientific, technical and administrative support to various law
enforcement and intelligence communities. This state-of-the-art, mission
critical facility was constructed in 2002 and is still in its initial
20-year lease term, which expires in 2022.

Balance Sheet and Capital Markets Activity

As of December 31, 2018, the Company had total indebtedness of $770.9
million comprised of $134.8 million outstanding on its senior unsecured
revolving credit facility, $150.0 million outstanding on its 2018 senior
unsecured term loan facility, $100.0 million outstanding on its 2016
senior unsecured term loan facility, $175.0 million of senior unsecured
notes, and $211.1 million of mortgage debt (excluding unamortized
premiums and discounts and deferred financing fees). At December 31,
2018, Easterly’s outstanding debt had a weighted average maturity of 6.7
years and a weighted average interest rate of 3.7%. As of December 31,
2018, Easterly’s net debt to total enterprise value was 41.1%, and its
net debt to annualized quarterly EBITDA ratio was 6.6x, pro forma for a
full quarter of operations from the five properties acquired in the
fourth quarter of 2018.

On June 18, 2018, the Company amended and restated its $400.0 million
senior unsecured credit facility, increasing the total borrowing
capacity under the facility by $200.0 million for a total credit
facility size of $600.0 million. The amended and restated facility
consists of: (i) a $450.0 million revolving credit facility, and (ii) a
$150.0 million 2018 term loan facility. The revolving credit facility
also includes an accordion feature that provides the Company with
additional capacity, subject to the satisfaction of customary terms and
conditions, of up to $250.0 million.

On June 21, 2018, the Company completed an underwritten public offering
of an aggregate of 20,700,000 shares of the Company’s common stock,
including 2,700,000 shares sold pursuant to the underwriters’ exercise
in full of their option to purchase additional shares. 7,000,000 shares
were offered on a forward basis in connection with forward sales
agreements entered into with certain financial institutions, acting as
forward purchasers. The Company expects to physically settle the forward
sales agreements and receive proceeds, subject to certain adjustments,
upon one or more such physical settlements no later than June 21, 2019.
Upon full physical settlement of the forward sales agreements, the
offering is expected to result in approximately $379.0 million of total
net proceeds to the Company, including amounts previously received.

On October 3, 2018 the Company amended its 2016 term loan facility to
reduce the interest rate margin applicable to borrowings and to extend
the maturity date by six months to March 29, 2024.

During the twelve months ended December 31, 2018, the Company issued
1,682,037 million shares of the Company’s common stock at an average
price of $20.26 per share through the Company’s ATM program, raising
gross proceeds of $34.1 million to maintain balance sheet strength.

Dividend

On February 21, 2018, the Board of Directors of Easterly approved a cash
dividend for the fourth quarter of 2018 in the amount of $0.26 per
common share. The dividend will be payable March 28, 2019 to
shareholders of record on March 14, 2019.

Subsequent Events

On January 31, 2019, the Company completed the acquisition of the final
three properties in the 14-property portfolio acquisition. The three
properties represent an aggregate of 355,426 square feet and were
acquired for a combined purchase price of $153 million. The three
properties include:

  • DEA – Sterling, VA

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

  • FDA – College Park, MD

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

  • Various GSA – Portland, OR

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

Outlook for the 12 Months Ending December 31,
2019

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

         
Low High
Net income (loss) per share – fully diluted basis $ 0.06   0.10
Plus: real estate depreciation and amortization $ 1.10 1.10
FFO per share – fully diluted basis $ 1.16 1.20
 

This guidance assumes $200 million of acquisitions, not including the Q1
2019 closings of the final three properties in the 14-property
portfolio, and $75 – $100 million of gross development-related
investment during 2019. Additionally, this guidance includes two factors
which, in combination, diminish the Company’s expected results, relative
to the Company’s 2018 performance, by approximately $0.045 per share on
a fully diluted basis. First, positive non-cash adjustments to rental
income from the amortization of above and below market leases, are
expected to decline by approximately $2.5 million in 2019. Second, the
Company’s weighted average shares on a fully diluted basis in 2019 will
include approximately 1 million units that are the result of long-term
incentive plan grants that were made at the time of IPO. Pro forma for
these two factors, the midpoint of the Company’s 2019 guidance
represents year-over-year FFO per share on a fully diluted basis growth
of approximately 4.5%.

The Company’s guidance for 2019 FFO per share on a fully diluted basis
represents expected FFO, as Adjusted per share on a fully diluted basis
growth of approximately 6% to 11%. This is due, in part, to an
anticipated year-over-year change in straight-line rent and above and
below market lease amortization adjustments of approximately $4.5
million.

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

Non-GAAP Supplemental Financial Measures

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

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

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

Funds From Operations (FFO) is defined by NAREIT as net income
(loss), calculated in accordance with GAAP, excluding gains or losses
from sales of property and impairment losses on depreciable real estate,
plus real estate depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. FFO is a widely
recognized measure of REIT performance. Although FFO is a non-GAAP
financial measure, the Company believes that information regarding FFO
is helpful to shareholders and potential investors.

Funds From Operations, as Adjusted (FFO, as Adjusted) adjusts FFO
to present an alternative measure of our operating performance, which,
when applicable, excludes the impact of acquisition costs, straight-line
rent, above-/below-market leases, non-cash interest expense, non-cash
compensation and other non-cash items.

Contacts

Easterly Government Properties, Inc.
Lindsay S. Winterhalter
Vice
President, Investor Relations & Operations
202-596-3947
[email protected]

Read full story here

error: Content is protected !!