DEA - Earnings call transcript Q1 2020 | Easterly Government Properties, Inc.

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Operator

Greetings, and welcome to the Easterly Government Properties First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I will now turn the call over to Lindsay Winterhalter, Vice President, Investor Relations. ahead. go Please

Lindsay Winterhalter

Good morning.

which note on the made The this Safe call forward-looking include please be statement use complying forward-looking on XXXX company begins, facts may of historical the conference of and statements, the intends by these making the covered call considered provisions. company statements the this and Before are not forward-looking. Safe forward-looking of provisions for are Harbor Reform call. statements contained Litigation in those Act the to for with purpose statements the by Harbor Private Securities is Statements

Although intentions, the suggested and by its or attained be expectations, assurance they intentions, or prospects statements forward-looking expectations, no are reasonable, strategies will company strategies believes achieved. that those can or in plans, as these reflected give plans, that

assumes including results and other results of events and on operations of that for actual will uncertainties and new risks its and obligations information, affected on the or result whether of company. of Furthermore, and described those update the differ beyond condition with factors Form no in the company as on to forward-looking from December financial XXXX, the economies of are year statements, future to SEC in potential forward-looking Annual impact the filings and the the XXXX adverse filed and global publicly related limitation regional and may February risks a COVID-XX in U.S. adverse Report otherwise. any The impact variety the SEC XX-K XX, its statements the control, on XX, Item XA by without of factors those risk a ended contained be materially company’s

operations financial call, adjusted refer the as operations, on measures, and from funds company non-GAAP may Additionally, as available cash distribution. funds this for from such certain to conference

information financial current company’s package GAAP release and these the numbers tabular supplemental find measures of company’s separate earnings Relations of websites Investor non-GAAP can page You the ir.easterlyreit.com. in a the to on reconciliation the most comparable at

turn of conference over to I Chairman would call Government Darrell Properties. like Crate, to now the Easterly

Darrell Crate

Good joined Lindsay. this us CEO; Meghan you, Trimble, and also call. first to I’m by thank CFO for Baivier, joining Thank the you company’s Today, Bill everyone, in quarter Lindsay, and COO. the company’s for morning, addition conference and

I for Before this we extend on safety once health call. everyone times, we begin, face-to-face meet well These and when unprecedented are to eagerly want all my wishes again. of we the the day can await and

meaningfully defensive virtues We’ve the What a has of well. company’s differentiated tools strategy, last strength operations, the and backed scale spent we’ve the investors credit environment. in public the by as it perform quarter our maintained length in assembling the a business the the serving government to been? are and our revenue of a and faith of U.S. stream We’ve company, of witnessed the leases. achieved average carefully five years And necessary any full diversified

bullseye of We’ve then development of also that with through we balance has can cost us investment-grade the attractive accretively the properties. acquisition sheet a capital provided deploy maintained disciplined that and

in of manner. investors and us appreciative which company, our continue We’re to placed confidence deploy attractive consistent in has, turn, the the an in capital have to allowed

great REIT, continue when transparent no-drama stay before, a feels Chairman the than it serve a time a future At as such less gives to of to comfort safe.

turn I’ll over that, the And to with Bill. call

William Trimble

first you good for for earnings joining our quarter and Darrell, Thank morning. us Thanks, call.

continue COVID-XX discussion backdrop, Easterly our more begin unique and of at quarterly our traditional light my then this with pandemic, activities. in with I’ll Given of operations the

thanks enjoyed to high efficiency and operations, our morale seamless commenced the and with IT on We remaining work-from-home March employees We operations staff. in-office transition our protocol Friday, for near strong. and a our from supper XXth,

time able that need during to is team well, they they leadership our Easterly support is company-wide, their the families these structure team employees times. and staying with XX make have are maintain sure safe, closeness challenging just With to doing our

proud being of how and I’m has ahead of I curve and for so staff Easterly terms planning in the preparedness. of adapted change applaud our to this

monitor region of to effects offices social look We our safe continue soon, only distancing the and to country the so. the it is but across when to returning do and forward to

as and And many confirmed strong exceptional the extends Our while proactive and primary the of deploying to structured are been operations the plan with Government. our of approach essential. the tenant, response our also in portfolio, they properties, COVID-XX has team tenant our The COVID our across suspected toward commitment cases. asset management combat partnership needs certain Federal U.S. agencies with meeting deemed unique

COVID-XX there and of throughout cases our three suspected Today, have entire portfolio. been cases confirmed XX

worked team they has the to government our and as with to response address to these safety quickly we’ll and continue our employees. review Our ensure and health of arise, situations plan the tenants our

in underlying service times with agencies is expeditious towards The level another Easterly has approach to praise government. trying U.S. of received differentiated the are from of will These and just and deliver. our respect the to we our an the example and manner have GSA continue

in It Colorado. results. our quarter build-to-suit team property Defense DHA a constructed started - the quarter for towards to a built XXXX. foot square lease. The and DHA XX-year with lease of XXXX with Agency originally located of Health for sizeable of of the renovation XXX,XXX GSA new was use the in the beneficial facility acquisitions execution in specifically the the Aurora, a Turning an is upon DHA. first acquisition underwent expiration facility Aurora, The XXXX leased a

of located of acquisition Paso, FBI Joint Texas. DEA is foot a We Center tip and then in announced spear facility in enduring for square with really at the This Justice of Government. the Federal second the El purchase XXX,XXX the Federal quarter, terms of our missions

are XX XXXX. between which the strategically this constructed of of lease the serve July the is does located FBI, DEA’s for division compound in of throughout XXXX, offices, one This offices facility phases XXXX Not that also a one leased as years it and the three-building the domestic was with but country. term only of expires field both of in XX XXX%

of company purchase its the Veterans announced acquisition a first second facility the of the in third the XXXX. our with Affairs recently and - of of Mobile build-to-suit is Department April, outpatient In facility that other VA to foot XX,XXX facilities, expires Mobile, outpatient a square quarter that a Alabama. Like XX-year of subject completed lease non-cancelable initial in an December year is

outpatient the a In year, in facility and fourth Chico, LEED for located an a we XXXX. purchase This VA build-to-suit of acquisition was years facility non-cancelable to certification in healthcare The recently announced California. the of June was VA lease mid-XXXX. addition, of is completed yesterday, foot state-of-the-art with leased XX,XXX achieve designed clinic to square outpatient of initial in XX term a expires Silver that our

our I’m of acquisitions exceptional. our of the ability truly confident strength our we ability cost This and to is on our to proud acquisitions for team, $XXX that of XXXX. to in our execute of deliver stated continue of opportunities pipeline our capital our because in our attractive actionable on of team, feel million pipeline robust goal

working the at XXXX. Lenexa put FDA facility of due progress our continue to quarter to pace and to deliver various measures facility. safety the coronavirus, in place and his trades shifts rapid is our FDA remain brand-new at a state-of-the-art response for exceptional in in on team in laboratory Ibe we Construction fourth progressing with to make track Mike

We’ve also Redevelopment progress the the Project. with significant and Atlanta made for the GSA FDA Laboratory

state-of-the-art timeline our intent We expect original for submitted facility drawings and any have government forward final in in another not design We do drawings FDA delays and the look Atlanta, XXXX. construction for the to we are delivering the ongoing. to FDA,

To arc global centers of deliver on to our summarize, the Easterly long fronts continues our of ability the business. to unique during operate on all a pandemic business,

in have with side. Because Our a the time Government, engagements lease and time all development acquisition the that, opportunities, pipeline, durations, benefit of of harvest. re-leasing long to Federal our take we

you, your Further, levels this not for is commitment a calculated result, are thank I investment methodical again, our And and company as with pace of it material stability a we known any we that feeling COVID-XX. provides partnership dependability because our thesis. disruption for. of are and to and

company’s the turn to quarterly over results. Meghan I’ll discuss the financial call to

Meghan Baivier

once government-leased has to unique expectations earnings. Thank of strong everyone. us meeting you, predictably estate portfolio post Easterly’s Bill. Good morning, allowed again real

financial me discuss to operations moment a allow Easterly’s a Bill, standpoint. from Like

has We report and the to de income rental are minimis. roll impact uncollected the for any beyond. quarter, second pleased not we been quarter rent In the financial first $X,XXX, rent do material from and on collection issues the expect approximately Easterly COVID-XX was

to quarterly results. our Turning

$X.XX, and a per on was a our in earnings basis per cash income share the $XX.X for saw was available on per FFO was share $X.XX, million. a fully fully basis you FFO release, net fully diluted diluted was basis share first adjusted quarter, $X.XX. As diluted on distribution as our for

operating additional projects age our of As square under properties, two comprising of weighted X.X totaling XXX,XXX portfolio The square design. commercial XX March feet or XX, in XX.X approximately average was million approximately we of with years. real development owned estate, feet

total the available expenses. our approximately $XXX quarter-end, had the development-related Turning $XXX At indebtedness acquisitions for on company credit with of to of million sheet. million, balance line future and

adjusted share, enterprise of XXXX, the program XX.X%, company times. net company’s weighted price As sold and In shares of ATM was and EBITDA $XX.XX stock XXX,XXX to forma of per debt $X.X to value a average common net annualized raising proceeds to Easterly’s the was net the issued million. to of total ratio company net of pro first the its quarterly approximately its quarter March at XXXX XX, March X.X debt

entered ATM million of sale stock the average per our quarter, have for into company’s Further, during under common the programs at sales additional that forward yet company and price share subsequent not weighted initial sales of transactions the shares settled. the of an $XX.XX to been forward a X.X

under share, million company’s ATM a settled physically utilizing forward total $XX.XX X.X to expects company full, of transactions receive average million. $XXX sales proceeds forward shares price of programs weighted the the in sales company’s the net by approximately per bound are Assuming initial

forward funding. these and fund poised of is attractive well to pipeline a just-in-time acquisition capital Easterly highly cost With at sales, our development very with

guidance. to Turning our earnings

in December FFO company million investment year. $XX million is XX share $XXX per development-related guidance of completing to on acquisitions the on basis the $X.XX based to XXXX, and midpoint the this guidance gross of for XX, of of the $XX For million is its $X.XX. a maintaining company diluted months fully ending The

COVID-XX our through While many storm. financial a time, for even and disruptor business companies, believe at withstand we model be can may this grow this

our the annual represents from approximately with midpoint XXXX of goal of X% delivering line guidance X.X% stated, growth to earnings previously As to investors. growth XXXX results, X% in this long-term our

growth XXXX and that goal. our Long-term this expect is meet we company’s performance will in objective steady

you and wish thank stay the always, best partnership. As and all you your please We for time safe.

back will call that, With to turn I the Sashi.

Operator

Thank you.

first The is Coachmen of Instructions] will now from [Operator question be a We go conducting ahead. question-and-answer session. Citi. Please Manny

Kathleen McConnell

McConnell the and completed if This you was maybe year? for morning. just for as I on color is to Good on provide of $XXX has where opportunities? Katy then you stand the changed versus how date Manny. landscape some wondering deals you competitive guidance And million about the for the additional talk look pricing could

William Trimble

morning to Good you. Absolutely.

purchase So Aurora, our basically, DHA $XX first is – million.

Our joint was FBI/DEA/El $XX.X million. Paso facility

- plenty say, I a for a see year $XX.X Our good way which and on months we’re the way $XXX.X time the $XXX million, $XX.X couple million, get Mobile of for of for million, awfully to our – year since which continue half an was checked, totals I’d through of was we to last VA million, the we to start and year opportunities. VA won’t couple to Chico in -

in I think remains many in same. our the the landscape ways, market,

buildings. them. we’re you hats I I off with and sellers of team think And in opportunity every who some there’s now really long talking of familiar one dialing own to friends absolutely these that to day all tell and acquisitions our an our that the additional are

reserves cash have able developer There the us also other see that developers being including hotel in to expeditious not And those other space, advantage that and an – opportunities we’re regional I take some some are properties of of think as to for a number are of properties manner sell owners opportunities. in as government such. build developments and these that to going

So on from bright have that this a standpoint, year, we execute and pipeline I continue to we it. think, will

Kathleen McConnell

great. Okay, Thanks.

Operator

is question Carroll Michael RBC Capital next Please go of The from ahead. Markets.

Michael Carroll

portfolios? opportunities to know, those this but know those I to some are willing and those what some are predict, and single asset-type still they of Yes, holding seems derisk sell of just type more the there transactions. environment? harder their Or properties of are pact? during owners off it kind comments, more I are of last Bill, like I for some mean, about thanks.

William Trimble

Hey, morning. Michael, good

think of I smaller move portfolios. the position standpoint, M&A in and the the you owners an that And obviously, cost think our now we it’s we’re right the we’re same portfolios capital there can be from larger assured but terrific of really, with forward. a to calling

that, are quite moving things said Having today situations. their think, as and naturally, own are still people not I quickly triaging

in all outlook to that say, this steady state there. the to message positive would able accomplish I would in on it’s all, – much So be we’ll pipeline pretty But my a I have what be year. just a

Michael Carroll

Okay. that? And how of pipeline then much much the increased there how that opportunities? is a quantify I single like today, to these kind – on given a big – the Is bigger way assets is mean,

William Trimble

to $XXX that there number what the just familiar can think No, execute solely you, we’re darn we is on. I $XXX mean, based sure be I’d have with. us, a we pretty tell is obviously – we’ve million – with good stuck out since but And million we XXXX, we’ve on

just I we’re throttle forward busy that we our when guarantee put certainly of sort situate in capital in to years, this say to of But exceed looking the number, will that’s particular trying So cost our preference, are we with them that to we is and have time. thing. many that can’t

Michael Carroll

there into of on line then guess, expect, of due, the is guess, has holdover? we kind been any the And delay are government activity still, the it is those? as expirations Okay. is a Or And I those near-term would I is working that where lease in of go in and leases some that typically is risk coming historically. there,

Meghan Baivier

The efficient from GSA Michael, proven Meghan. from is working is be Hey, this to very home.

are we and officers with is touch and in moving progressing in So contracting lease leasing activity, forward. general,

Michael Carroll

those. know assume Are you I close through? And of how months more then settlement Okay, I those mean, question have as those XX is, to you that? equity last for should commitments? going deals come you forward about typically great. to of we I close guess, should straight of the think me kind kind we line that

Meghan Baivier

for, Yes. Michael, you that’s closed. be just-in-time if used funding to going will, being deals around

Michael Carroll

great. Okay, you. Thank

Operator

is The Please of Jefferies. next go from question Peter ahead. Abramowitz

Peter Abramowitz

you. Hi, thank

kind assets, Just for being kind a that typically kind is just move, in. recessionary how What environment, kind wanted your guys obviously, cap get of in are of estate the of cap traditional could expansion would the now, in on long-term to expect you more rate niche your economy thoughts some you facing? thoughts on rates market that are potentially of given everything real

William Trimble

XXXX, I’d little really at Good XXXX, been morning. tell you, having events done over looking ago. since moved started incredible how since we’ve seen decade cap have a this this various that quite it’s rates in through

very approach driving too to we really buildings much to, us the disciplined from of been in said, out is will The the I advantage a pricing become of an there, you long-term up growth. factor. And We’ve us. driving continue elephant because and scarcity the in is swimming see buildings, pool start which have, the front for know all the mostly think, we careful we as not

that, were they’ve or X.X. X, lease have those a maybe down enough been there. I on, XX be properties the our most of into And in this those ourselves which year. build pristine looking even brand-new some really new or same over XX-year that market to of Having to cap first FBI last a And we’re you’re into of take fortunate facilities of at FDA always rates maybe area. rates laboratories, the seeing when going cap said X with and think X.X, mid-X and most Obviously, low sorts are we let’s quarter, below sorts of been yield have the sort of today, one to

be even current $X.XX for with of per for shareholders. share could cost Obviously, our capital, they our attractive

I So capital. I drive and our us to average us for as properties as accretive think see to the portfolio but the and our some also and the hold But lot us think term, might of see a go cost build a and at occasionally you’re center not maintain it’s is of that going out obviously, lease only continue you disciplined current long, towards accretive approach. quality get bullseye pristine

Peter Abramowitz

Sure.

priorities just you that exposure Okay. given does agencies that that at then helpful. do just moving the you. – impact That’s kind tenant are spending, concentration impacts from one forward? think agencies shifting Thank different portfolio? And for government see of kind mix that of federal the in you of of more all having any the the Do on

William Trimble

think in think and I back expenditures I to tenant seems right the we grown pulling not seem on to – of see – the more the can opportunities to might in we I be United States. in time? Government consumer largest that. No, only be now. largest think, during has be substantially this government fact, Federal think is that The does Is office of I going And, beneficiaries forward. period their employer world poised

Republican Obviously, really think agencies you the go any I three our we’ll just go. laboratories at in of believe dozen we’re facilities, that there’s whether targeted do at FEMA building, been we mean, – or portfolio FDA and But more our to XX Democrat we our has have sort to storm. about office, I you if that weather look fine

really million of providing an the back back men I laboratories. XX on see on our outpatient FDA the cutting to Federal women. cutting see and new right now that the don’t incredible Government clinics the don’t service Federal I VA amount Government are veterans,

a certainly has the so, on. And lot going got FBI

development projects place a a be foreseeable Government and leaning certainly going think And Federal for into the forward. the is think I it’s be to So future. place be to certain to going they’re good I

Peter Abramowitz

me. Thank That’s All it you. right. for

Operator

Bill go ahead. Please The is James. from next Raymond Crow Instructions] question [Operator of

William Crow

competing there just pool longer-term this people looking change for is – that and morning, structure? you’re I’m into shifting net everybody. knocking more whether more this defensive folks curious Good was it’s against? Any the like in out or Great. period out actually whether buyer mode a lease

William Trimble

Good morning, Bill.

William Crow

morning. Good

William Trimble

to tell single off-market exactly some every this building happened. hard obviously I won that that tell It’s have we’ve to you and what’s have been we will do year. wanted

our been government it of about So rumors into place sailing. safe a standpoint, That because were There such March happened. to going not the others clear at getting the was from space, that think has were it’s be. to beginning

you with don’t if the you verticals, dealing and knowledge, the daunting operations don’t the you was completely people trained, just team. did occur. databases quick a not Federal Government, have the have I and that been of the And don’t task think the that that have government we’ve have seen flash certainly, just

that GSA from capital, a think, strong a acquisitions, cost as in not the our right private standpoint, do think of certainly, of capital area I So cost have of who are from friends the I now.

we’re our standpoint, the in change to have But big we’re light, to from going a the So and be landscape. green execute. got we’ve prudent we not going seen

William Crow

seeing I that. re-leasing on appreciate What are you spreads?

Meghan Baivier

this Bill, re-leasing by we drives what this our impacted dynamic and approach is really Hey, re-leasing how pandemic. not been has spreads Meghan. around The

the track that so re-leasing, fact hasn’t the around our on conversations shifted. remains will, really And that in these watermark line processes dynamic stay with the the if the replacement you for high expectation. cost of asset And

William Crow

you… One All more for Thanks, right. Meghan.

Meghan Baivier

Sure.

William Crow

your debt are cost the as find it equity your thoughts capital maintain you more to relative been are …given do on historically? basis? equity balance What yourself Or there? a today, has leaning of you trying into

Meghan Baivier

Yes.

that goals of earnings like the million-plus for absolutely is continue us to build we’re type but way still delivering positioned today, expectations. on the and to obviously, to while year as balance the equity $XXX the we opportunity acquisitions, So, into continue delever terms an to in use lean sheet, into

can dynamic us a the is advantage as we that through year. move of take you to So expect

William Crow

Yep.

Thank you. appreciate Okay. I it.

Meghan Baivier

you. Thank

Operator

back question-and-answer floor This like session. concludes I to the Darrell over for would to Crate turn comments. the closing

Darrell Crate

joining Great. first quarter Well, the XXXX conference everyone, for Government thank you, Easterly call.

colleagues forward of we end with of and health. the everybody a soon, not to will investors all look COVID, because we quarantine being company the While wish and and miss together good beat

Operator

teleconference. today’s concludes This

time. this you may your your lines at disconnect participation. for Thank You

Easterly Government Properties (DEA) 5 May 202020 Q1 Earnings call transcript