- Earnings call transcript Q3 2022

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings and welcome to Easterly Government Properties' Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Lindsay Winterhalter. you. Thank

begin. may You

Lindsay Winterhalter

morning. Good

meaning call during begins, are certain the with note historical Act Securities Reform of please conference call made XXXX. the forward-looking this considered which and statements the may Private facts Litigation Before are that of include not statements

variety from any or are the may no company these no its assurance believes filings. The in expectations expectations described achieved. including, company's publicly reasonable, control. to and the Form of results are those in will as Form other its without SEC update the recent statements forward-looking materially a with it risks in will attained Furthermore, the and XX-K that factors differ actual beyond affected Although the obligation be any reflected and assumes be most contained company statements forward-looking XX-Q that limitation, that forward-looking in statements. those filed can company's give and by SEC

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

to earnings current can financial measures comparable like turn of page these at find Crate, I'd of in website information of ir.easterlyreit.com. Darrell GAAP over on separate Chairman and the non-GAAP now numbers to Relations a the most the You tab -- supplemental to tabular Easterly conference company's Government package release Investor reconciliation the the Properties. call company's

Darrell Crate

to also by company's Meghan and quarter for company's us Good Baivier, Thanks COO. the for Lindsay. you I'm CEO; the job. third joined addition call. in the morning, conference joining Trimble, and CFO everyone, thank and Bill Today, Great Lindsay,

The market, and are entered gap market in During buyer transaction between a fast a rates has seller uncertain. is new estate rates readjusting. expectations. phase the rising and slowed is quickly, quarter, there how are real the we Cap

occupancy government, with or and uncertainty quality, our uncertain impact by this portfolio facing U.S. consistency that the Of for is backed managing our full dividend, will the investors, coupled of tenant rent the adversely should our times. the course during particularly having our stability credit for none of credit

So, to our question, period how our portfolio this value enhance to we me add can use that and the shareholders. front-footed leaves for

serving enhance are we institutional portfolio where enhancing by locations or of we at we our either an our to remote assets the set disposing agencies, that First, in our These of we of quality will see but do time, in agency are agencies build ability to with not know this a best add ability a what on concentrating defined fine value. edge client. believe are

the debt. rate proceeds most Second, we're of disposition the using our pay from down outstanding to floating

these have favors and in uncertainty. been disciplined out our our assets us We of liabilities rate that interest match about to terming times

liquidity meaningful purchase distress. maintaining may experiencing to landlords we're in order some financial assets Third, that by be owned

is over. We that have disadvantage relative start with we them imagined. developers cap up. Liquidity worked exit found been dry years. will assuming for longer several That lower ever an last have to They over the ourselves rates projects than a to at

to a two, liquidity or quality and our with And much will itself. transactions find will the get assets. we'll complete mentioned that lastly, on will imagine we don't the done need rate we're to but acquire this bidding market their the will partner imagine Not be I opportunity that I ready Some but reprice a in should present specifics, cap do new reflects in additional environment. actively we next projects. ready quarter accretive ourselves way

over return that's backed the I'll to full third quarter States attractive the our and goal with to and into deliver execute will adjusted intent strategy risk faith activities. call you safety the stability The represent our positioned by that, we continue Bill as shareholders with we to government. forward we're turn the to to And of how tenants and United an deliver to with that investors. credit pleased is So, give business our our portfolio look to insights the is

Bill Trimble

for does Thanks a quarter, of for is XXXX Darrell delivered and acquired in our during good square GSA acquisitions the Council non-cancelable Starting XX,XXX behalf build-to-suite District Judiciary term a in earnings until Bluffs, Iowa. morning. Courthouse U.S. call. for Thank leased quarter the joining located you us with XXXX. third on third Easterly This that to Courthouse, that not XXX% expire XX-year facility foot

of Park FBI our Courthouse management strong the geographic overall undoubtedly facilities mission XXX Circuit, years U.S. Division across the this the the Southern facility team. another asset ago. property part strengthens that efficiencies serves Iowa, with the we And our Service and Judicial National the assets. of district from located This river As District Easterly's Western adding provide a to of portfolio eighth of the over created just Omaha enduring of for our caliber Judiciary,

of of to to that addition brand for all facility Like foot which acquisition services the sits XX-building wholly-owned XX-year a facility, portfolio, VA VA an enhanced range surrounding provide the properties the XX,XXX our roughly new seven the nearly joint on Easterly this Georgia, is able venture, XXXX. does lease veterans of announced line. VA that approximately expire previously portfolio. square Alabama Georgia, XX,XXX the VA close to In brand Columbus Columbus, in to VA not reside is our part state this, our purchased until new in located activity, From

to continue to this expect $XXX in million remainder XXXX. deliver approximately of a in on the to the of and total portfolio portfolio JV we of expect planned close We the assets VA the as

the is of prudent and we moment growth. portfolio stay with to aware cost chase in undergoing but at the an there said niche maintaining advantages it this That rates not nearly this in are of rising rising for acquisition this inflationary feel transformation. are deals active country is year seen this careful pressures market. consideration a We in backdrop changing a acknowledge the where But has GSA are market. capital, decades. opportunities, markets of we presence are There two acutely competitive the are sake for and pace Interest not a

As leased on us further, balance environment, previously exit opportunity unique costs and help developers the GSA has been of did believe liquidity always an there protects we equated need found inflation-induced capital. regional balance several FEMA from have in operating structure the over maintaining prospects, be Darrell years very And By as themselves Tracy we as similar increases. a as sheet sheet selective this This our for are we mentioned, the soon landlords most strengthening extended most which mentioned, may pursuing estimate to to use is what the in the ago. development with acquisition we future opportunities Development only strategy. who

leased attractive this Easterly course a buildings, will a Finally, at go morning's weighted age years a with when our comprised which remaining our experienced XX highly Through but dividend bullseye-oriented this we've portfolio makes feet geographical more with lease even turn how the portfolio estate. term, of this approximately are bullseye use of executed our in time ownership announcement, of the footprint average sale yield. weighted report portfolio this first of cash the detail strategy. leased income average proceeds our property market left at In only turning the transaction is nearly was an private as reflective remaining Easterly more tighter the XX to is foot, to of pleased in square of core and into improved, portfolio paused, the a action lease per disposition supports right on ultimately, of enhances sale, currently is disposition with and stable with the for Easterly NAV XXX,XXX real XX square and average our further annualized portfolio. is size. time, GSA flows visibility properties of a at buyer disposition Easterly larger The rent. end, sale all the This Meghan a

renew renewals Turning asset government-backed the continues and to we secure duration our located team the third lengthen quarter, a Dallas, drug of DEA Texas In our portfolio's the new flows, term. NAV. lease cash updates, enhance in for that XX-year the laboratory leasing to management

government for located importance a these term Rock, With the FBI of the look forward is We we Arkansas congratulate term. lease executions, the providing also years, and for to XX-year field weighted XX apparent. the I management of U.S. facilities renewal asset quarters renew and renewal office strong for team future continued and two updates beyond. on average renewals another combined in Little XXXX

ESG was in XXXX which trajectory. notable the a an inaugural for its our as found quarter This responsibility operations, notable page, ESG report, ESG third is Easterly corporate perspective, in a our report. can released quarter be to death company's Turning of

a volunteering important to these our the practices our including the strong XX% the by for and engagement goals committed and and a increase and for finally, we employees. about itself communities use establishing For energy commitment in at reduction for time, of XX% a in giving XXXX, be citizens environmental across serve. XX% goals XXXX, has least employee participation survey X% with feel an and We charitable implementation to employees, good water hiring DEI social reduction company, certain continuing Easterly in corporate shareholders, or and training participation by to Easterly company, first

report Director has for this these thanks updated be expect leading will this closing, Sustainability initiatives for captures the been which quarter can important Many delivering In tracked effort basis. will be on You an report and goals company's so towards annual progress ESG our increasing and this an to Easterly. of well.

certainty And We of responsibility of simultaneously assets, XX.X future executed to the cash renewed in company's first the and and close our and ESG for discuss through for the time quarter we added disposition, years, profile. bullseye the look expirations this strengthens to strides our sheet endeavors apprised both your of of company's report. morning average call subsequent to We sustainability quality the have over our everyone And duration flow made the turn as balance environmental year. lease largest financial inaugural increasing a I duration increased of with company portfolio and JV, to thank Meghan that, portfolio We and portfolio. you our end, for corporate results. the significant future which quarterly out through We on publication keeping will we providing forward the wholly-owned the XXXX efforts dividends. with weighted overall

Meghan Baivier

company's pleased a due when our At everyone. ourselves of morning, the come. with time rising interest focus enhance position for into Good actions our rates, I recycle Bill. the in profile, to bringing part the is to sheets market portfolio and balance to taken leverage and you opportunities Thank strength capital, we've greater am

approximately our At quarter years thesis. our the term with and weighted venture a billion lease through is net line forma for portfolio joint properties $X.X joint end, of annualized own portfolio our on the a metrics pro square total weighted In venture, company. through Pro feet years. either weighted of with operating debt approximately size represents average forma XXth, outstanding remaining age this million average remaining our XX stronger, XX.X of and even a As indebtedness this company's approximately X.X ratio morning's X.X enhanced EBITDA reflects a times to the XX or to had million lease leased comprising over rate of debt average revised representing wholly-owned September years, total, we feet, investment properties, XX of quarterly of XX% or with for X.X disposition XX.X leased of bullseye square new term announcement variable look credit. just operating either wholly-owned and $XXX.X company million

ratio property With debt rate of at obligations, as extinguished forma XXth. pro times taking proceeds to portfolios to quarter EBITDA with to subsequent Jacksonville. of well X.X above disposition company's the Furthermore, used will debt MEPCOM, XX the mortgage weighted Easterly's quarterly down we net a pay annualized we the down adjusted have to be expect September a completed outstanding end, average sale will net

years; all and combined related recycling company rates. by lengthened We with X.X% reduced from of the outstanding translate maturity approximately the X.X development weighted into capacity of points; $XX.X outstanding for equity, time have well-positioned average company's rate forward eight the future for the to weighted obligations; debt to expenses a interest a will floating obligations rate actions the in added rising debt XX.X% and exposure When basis balance company's unsettled average of these non-bullseye of million assets. acquisitions improved sheet by

FFO per our to on share income $X.XX. $X.XX, a and per all quarter share fully Turning basis, per was net $X.XX, was diluted also as adjusted third was results share AFFO

wholly-owned markets, capital and was in in completed announced the completed Our disposition finally, available properties million. turning predicated the VA a factors, disposition the of already properties $X.XX. million approximately $XXX.X share, sale cash This pro are all in the the the with portfolio $XXX beyond portfolio, closing a XX is and including guidance of upon rata number at in the the million earnings connection in per distribution for diluted to FFO year-to-date, of to REIT totaling company's activity $XX.X XXXX on to of connection QX additional $X.XX material our we And investment reality our brethrens, Like no our changing our no our guidance issuing development the fully guidance additional share on related a revising guidance basis approximately earnings results. of range the XXXX we end plan with year and majority XXXX. in acquisition

have growth it we is cost greater increased that, of capital, to and the we will appreciate ability environment. in your the capital back rapidly you general the your guidance and now drive thesis feel our market turn markets, clarity to withhold in the to shareholders uncertainty of for market, until we Shomali. our our With earnings prudent evolving transaction partnership. call thank slowing commitment for the a and Given I to

Operator

Please will comes from time, first Instructions] Citi. be the line of question-and-answer proceed question. this At you. Griffin session. we a [Operator Thank Michael your question with conducting Our with

Michael Griffin

back Maybe to Thanks. guidance comment. going the

would run know relative you should XXXX, into be you And imply framework with you be guidance expectations you to it for Meghan, about would if didn't any could how color talked deceleration provide about seeing provide is this guess rate it? it the I Just to just through XXXX, going XQ XXXX. I additional but I great. of commentary mean, kind here review a or we how thinking

Meghan Baivier

Sure.

guidance, the parts -- disposition year's due the So, portion with as fourth the the from rate of interest run as and portion deal in this equal is a to a really well shift for regard quarter. large dilution volume, to

would yes, two So, and disposition the into go primary curve XXXX. as rate how affected considering we looking off how forward of start drivers XXXX, we the we run the be at

Michael Griffin

-- That’s sorry. cool. Okay,

Meghan Baivier

formal issue guidance we'll February. So, in

Michael Griffin

of, in And you, that's necessarily forced on maybe dispositions, kind Got And me to understand seem -- a it sevens on an of the flooding back a debt the where cap about rate, correctly, that. seller of compared the a be needed trading assessing But to it my side that about back dispo of of you're cap then didn't low call market things. math mid-Xs. to at this. kind showed appreciate a I color implied you to like

why of right kind around that, more transaction on guess anything of there I be piggybacking time? So, maybe provide helpful? gives you would can this that kind clarity any else at was this And

Bill Trimble

Yes, good morning.

our which regions difficult we management into. for asset think really sizes, it's in missions, sure I buildings, is within were our first buildings saw located different we of think while them range realize were that you the geographies, different we remote thing we all a have I noted, sold, to of of different to the love dig and like, that portfolio, and when you broad our many -- team

they're the square foot Secondarily, of size. XX,XXX in the sort to XX,XXX mostly

that a think, importantly, So, important. not part most and our company. weren't for really I they scale bullseye our But strategy of that's is

think I judiciary, it's parts of Security have portfolio. we that talked that concentrate been very important on know, our we Homeland we've that about agencies terrific agencies those the

time, moving stuff, that good the appetite period particular were I we on from March of a the to at cap basically, the construct But there's really to down really stuff, we other November the until incredible that compressed, so as as bad the year, this factor a sector. everything which you of even great educated of move in, not there's And got last lot interested of mean, okay low and fives tried I on, now, the at we portfolio sixes and in last basically rates during very right also a portfolio. rate compressing a play saw buyer saw another from think stuff, to down side obviously, were this

there's Now, be but going federal there's last But need, of pricing, to of of is you broader more I trade would which the why which anything the of a portfolio. will laboratories beginning our are Meghan, our sorts rate. the these plain good we've buildings gas different is vanilla spectrum, XX to out buildings, core a what what always for government years, they're reflective that. think to this are And of that’s they're going we're FBIs, think, is to at to lower on -- add? buildings, be reflective a think I have not return seeing enjoyed cap most whether courthouses, buildings

Darrell Crate

I guess the are a for we're of having that want have of well-positioned for these transaction, those those timing uncertainty, at you the see course, liquidity. I would liquidity that are to position them. think times we looked we be want ourselves as very at building and as to while opportunities say, we just the coming was us to good opportunities. to also we look And that opportunities XXXX, of just of ahead But uncertain price on

Michael Griffin

low And cap is dispo ballpark, right seven it's rate, give around a take? the or that in right

Bill Trimble

Yes. That is.

Michael Griffin

for it. so That’s Appreciate Okay, great. Thanks much, it guys. Thanks. me.

Operator

line the question. next Please BMO with Kim comes Markets. proceed John question Our your of from Capital with

John Kim

growth, on your is. seems on really burner And you've conducive a strategy more of interest But recently. acquisition. capital now? It rate until achieving what back your given had not your recent on for of cost refined is months it's been is really that in like compression there's earnings cap the and for rate you. bullseye just What environment, that Thank strategy some target on

Meghan Baivier

opportunity with to ability is that of isn't normalizing capital done in eight to agree premise and this necessarily not be market growth, an John. normalize with our accretively and drive acquire and that to and we've go Yes, cost it market back to I line do what where think years for the we for our external would there

Bill Trimble

is more quarter, is that way John, which -- to the -- we We quarters, it's take is happen, affirmatively, and it. that's that But is ourselves don't three quarters? that's holds we're going take in think clear that positioning of I two a is can a advantage why it going what to what future know. very

John Kim

creative that see acquisitions you Bill doesn't where way. that in that is pursued you mentioned where be like the some could earlier plain can seem thought expansion, vanilla to call I they get but some route, corporate it assets that's

Bill Trimble

to replace. occupied laboratories, expensive from extremely are has government is world do from very I'd we not now, direction. But you XX see we've the time, the in point how to and to to note and know are like of that be part have think, that think and I important, years portfolio now, I that there's get is out speech but and back? out XX to years have No, for that. drive missions. buildings bullseye, time, like I asked, occupancy which questions going acquisitions At bullseye, the I been and government really the The think more FBI, we going bullseye, times came point. been to always or of many to happen changing. entire think that have us animal difficult And the important the going they every forecast I area can't -- appears folks been valuable, to in think most continue the in what's we in I or been to asking in John a but courthouses our one when about going some so the And

for that in it also the sheet. spend in to -- natural and close liquidities balance to a we're time just the seemed that's the some So, area going our moment

John Kim

probably same-store quarter, a costs operating On you I realized weather-related. XXXX? that But basis? you feel figure had that's And expense I the how if rising those something was wondering managing this about into on

Meghan Baivier

-- half on repeat what question, the you same-store the basis Can quarter-over-quarter? first John, about of

John Kim

you you total OpEx the on have the mean, wondering had I I if but same-property portfolio Yes, basis, basis? that was

Meghan Baivier

Yes.

quarter which September, quarter, that NOI by of netted million the really, deals about then in quarter-over-quarter the -- fully way, offset interest second in done we seen $X.XX rates, the obviously, we contribution in had rising utilities due so the have August, in moderate the in and $X.X the the the decline. So, million same-store offsetting and spike quarter-over-quarter to annualization, FFO $X.X

John Kim

expense Do expect next inflationary that elevated? number pressures year keeping

Meghan Baivier

as for I mean, effectively well August, happened be the all over do keeping such think and provide are protection. spike, month OpEx our in in, had expenses, our insulate to levels. They time, environment not we're we for of inflationary but the we leases of current but growth one may a time, matched reiterate that I inside arc appreciate is over our base we inflation able inflation to

John Kim

That's great. Thank you.

Operator

question proceed next Michael your with our of comes from Please question. with And line the Carroll RBC.

Michael Carroll

Thanks Yes. Meghan.

your I Just going about going question John about $XXX,XXX? is was staying August It asking by the million seasonal that guess was nature that really on like to roughly was driven continue or looks about. $X.X forward? the OpEx up recoveries But just OpEx mean that difference sequentially. I of

Meghan Baivier

So, the government. projects reimbursements in the is tenant see that embedded income, to behalf our that reimbursement, on Mike, interim line OpEx of those is tenant financials rental we related not improvement in you that's perform the space item remember

my OpEx this comment, do our and we as growth your to question, are, continue in is effectively me, with able same-store So, -- I excuse expect sub-X% hedge to said year we nevertheless, base. that to get be prior to

Michael Carroll

as be of seasonal XQ, XQ be -- we and not able still So, into assuming significant. driven big increase pretty move it of OpEx, increased between is OpEx $X.X looks there's or I was to I'm mean, going that so going just about nature you're like a up the by revenues that what it million, to total were gap kind forward as what to and is

Is benefits correct? four the So, see in some you going that should quarters. of that

Meghan Baivier

Yes.

utility decline revert the move -- So, details NOI that quarter-over-quarter into tight, fourth again, spiking, entirely expect quarter. right? just We do million the by we do the as did to same-store keep here to we our $X.X nearly

Michael Carroll

that just you surprised your related outside change I your was property, mean, did I the so you many your many criteria? Okay. It portfolio? you guess and want non-bullseye in to don't of consider definition I selling left would bullseye a I sales, of of had that portfolio. within doesn't have that fit these asset properties you guess, then how you sales, your And

Bill Trimble

good we are in now. sensitive we think we I our Well, year a very where Obviously, had in vanilla are last largest as the of feel few terms plain renewables XX terms. assets years,

to cover really that this those we concentrate were always we put into human we builders of that have mission-critical said I assets vanilla category. will what I want any on So, and they that would as and for have to most to you see reasons, you're in But category. see same we've discipline bullseye what and going probably in be properties buy as sales always, same, if to going you're said the the who that's plain those think the that's -- future

Michael Carroll

consider non-bullseye or assets vanilla these properties? just them consider you would you plain Would

Bill Trimble

tell the think we to I well, -- you a binary like really Non-bullseye think same -- I mean, thing. we isn't isn't truth. the consider thing bullseye

said, make opportunities edge, of taking months the and an So, And have little been for bit, edge this -- coming. on create And in can we that that, And others. a of liquidity on, best the we're it's a to times there's actions the that months of to our all that kind bullseye are focused it in along what to place. the in the properties. really of advantage it's concentrate time where do competitive client. agencies adversity, the as And we couple are very edge sure trim context last the of of defined some trim six again, three and kind than was a serving of closer of opportunity have really we

Michael Carroll

you're Okay, in in happy that so the some then building IRS properties those the Social portfolios led vanilla with non-bullseye still the happy with probably properties other lease with you're that Security the term? Fresno, have because -- are plain you buildings

Bill Trimble

think call by term. you that just know I'll the the $XX with IRS very Yes, charge that's vanilla probably it. I of you lease a of of get a in property. everybody the ever the in -- of way, from we're the And But those to million happy sort And, national remind check. got yes, that would they're example front be because want place is And last plain call a an compliance.

Michael Carroll

Okay, great. you. Thank

Bill Trimble

Thanks.

Operator

of question question. Lewis Michael [Operator with proceed your Please Truist. Instructions] Our with line the next comes from

Michael Lewis

good Carroll's Maryland. This on these question. of to Park, feet XX Mike thoughts. Thanks. the in College XX,XXX timing, the of because portfolio had When looked SBA one I some is at wanted is of follow-up an I I square properties, same

Baton is feet them leased of Pittsburgh. a of in XX,XXX square One VA, XX,XXX in feet Rouge, one square IAS them [ph] is to

you were came And the the I'm kind and think I portfolio was how ones so like, those portfolio buyer, which this in Or out? together what wondering, agencies. you came curious were and And with -- are together? probably did just bullseye negotiate of properties I'm how did market this just it found buyer? a

Meghan Baivier

very a regularly speak the put lot was very value it good Mike, named found we was perspective fair into it efficient interest and a from a competitors, portfolio. feel that, the we and that Yes. market. well-compiled had well-considered competitively out portfolio, We of on

Michael Lewis

Okay.

properties and didn't in swap out? So, you

Meghan Baivier

No, we No, not. didn't. we did

Michael Lewis

of debt the does was you million wondering maturity Okay, there I'm you the don't on part and next can $X And assume of for then months, on are at portfolio. guidance, that, only And the and proceeds the debt? get? XX repay cost? Because all any what what of it have debt to used that as sales

Meghan Baivier

XXth nudge the year the of our the of million end Yes, the and through look consideration down the to at closing of $XXX plan you million does completing that's right, VA $XX our is the you portfolio that target, had property, end the It outstanding acquisition the obviously our quarter. pay to also And Mike. line We with proceeds. of when with revolver. on

adequate there. for need markets. should So, a secured following capacity it, lot finance we in And of continued us

Michael Lewis

Okay, And then, me guidance another again, question. for just lastly, guess, sense. I that makes

that of only be by to you're I you for guidance acquisitions and probably the that's the related this on When the half lower impacts look lowered even year to at and you before dispositions, you about dispositions. going and -- think -- right $X.XX before months' markets capital I and half and mentioned is proceeds So, the you then the redeploy two

Meghan Baivier

make -- are due to $X.XX disposition sure longer just that to not about due Sorry impact. if guidance rates, no the that transactions and -- $X.XX $X.XX our is wholly-owned roughly on for in are the you

Michael Lewis

my Perfect. missed Okay, you. question. right. Thank All I that that. Yes, answers

Meghan Baivier

you. Thank problem. No

Operator

turn have to I'll for reached we the remarks. Darrell closing of over And back call the W. end now question-and-answer the Crate session.

Darrell Crate

Thank you, XXXX all hope for joining to we We third conference call Great. and again everyone Properties Government look and speaking has Easterly forward soon. to the thanks helpful you this been call. quarter

Operator

and conclude this disconnect today's you And lines this time. may your does at conference

Easterly Government Properties (DEA) 1 Nov 222022 Q3 Earnings call transcript