Q4 2019 Earnings Call
factors of its annual report
Form 10-K for the year ended December 31st 2019 to be filed with the SEC on February 25th, 2020 and in its other SEC filings the company if she has no obligation to update publicly any forward-looking statements, whether it's a result of new information future events, or otherwise additionally on this conference call the company May refer mm. Non-gaap Financial measures such as funds from operations fund from operation as adjusted and cash available for distribution. You can find a tabular Reconciliation of these non-gaap Financial measures to the most comparable current Gap numbers in the company's earnings release and separate supplemental information package on the investor relations page of the company's website at 6. I would now like to turn the conference call over to General chairman of easterly Government properties.
Thank you, Lindsay. Good afternoon everyone and thank you for joining us for this fourth quarter conference call today in addition to Lindsay. I'm also joined by Bill Trimble the company CEO and Megan are the company's CFO n c o o
Pleased with the results for 2019 we delivered our first completed development project one or third and a further position the company to continue to win a creative technical projects. Like these Laboratories acquisition execution was disciplined with material additions to our Bullseye properties. We continue to build Upon Our definable Edge in the United States federal government least market and most importantly we are able to deliver an attractive return to our shareholders.
Just last month. We marked our fifth year as a public company was seventy-one properties comprising six point six million square feet with 36 agencies during our time is a public company we've achieved scale in our operations meaningfully Diversified and maintain the average length of our leases. I'm proud of our team and the expertise they bring to our Market each day off. I'd also like to thank our board for the guidance and wisdom have brought to our efforts.
As we look ahead.
The 2020 is shaping up to be a very good year for the company. We appreciate the confidence that investors have shown in our business model through the strong appreciation in our stock price the Ecuador currency combined with the very attractive rates. We can obtain in the debt markets gives us in a very attractive cost of capital relative to our market. We've spent ten years identifying high-quality properties and cultivating their owners with our stock at a premium to nav. We find ourselves with the ability to deploy capital in an attractive disciplined life creative way. We believe we may be entering a. Which gives us the opportunity to deliver particularly a creative growth, and we are grateful for the confidence investors have shown in our Capital deployment. But that I'll turn the call over to Bill to give you insights into the 2019 results. Thanks Darryl. Good afternoon. Thank you for joining us for our friends call log.
yeah positions team closed out as a
Successful 2019 with another two great additions to the company's growing portfolio in the fourth quarter of 2019. The first was the US citizenship and immigration services facility Tustin California. This 67,000 square-foot leed-certified facility is 100% leased to the GSA for the benefit official use of the USCIS the facility that we underwent a sizable renovation to suit for USCIS. We're by the ten provided a substantial capital investment into this facility the government recently signed a 15 year lease office building which expires in 2034 our second acquisition of the fourth quarter was a new VA outpatient facility located in the Northeast us this 56,000 square-foot facility expansion and relocation of an existing VA presence in the region. The facility is located in close proximity to the existing VA Hospital campus and carries a new non-cancellable lease term wage.
fifteen years this
Facility has been designed to achieve green Globe certification for new construction and will serve as the new home from multitude of services and programs including Primary Care Mental Health Care team vocational services and various National programs, including the national Center for PTSD clinical Neuroscience has Administration Division and the pain research informatics jobs comorbidities and education center upon reflection 2019 was an incredible year of the Acquisitions team and I congratulate each member of the team for growing the companies took folio. So materially in 2019, we closed on 381 and Acquisitions 228.8 million of which was predicated on our 2019 acquisition guidance of 209th. We grew the company's portfolio by 23% through the acquisition of eight properties in 2019 and the delivery of one month.
the suit development for the FDA
While still maintaining one hundred percent occupancy throughout the entire portfolio. We also increased are leed-certified portfolio by 15% based on total square feet. These are all marriage to be proud of and ones that contributed to the overall success of our 2019. I'm pleased to report The 20/20 is off to a strong start subsequent to quarter-end. We began executing on our stated Target of two hundred million and Acquisitions for the Year twenty-twenty by acquiring a 116500 square-foot defense health agency facility in Aurora, Colorado. Aurora is a build-to-suit property specifically constructed for the that was originally built in 1998 and underwent a sizable Renovations in 2018 upon the execution of a new 15 year lease. This facility has has a portion of a d h a s health insurance program referred to as Tricare south.
The Tricare program is response.
For providing Insurance to approximately 9.5 million beneficiaries through private medical providers or the DHA Zone network of 51 military hospitals 424 military medical clinics and 248 Dental facilities located worldwide through these 2019 and early 2020 acquisition off and are delivered FDA laboratory development project in Alameda, California. We maintain the average age of the company's portfolio and the remaining average lease term as our property's even with time working against us in short. We are constantly ensuring we keep our portfolio young and relevant to the missions of the federal government.
Turning to development our team led by Mike Ivey continues to make meaningful progress at our to active development sites FDA Lenexa and FDA Atlanta on the development pipeline. We continue to monitor potentially relevant projects that could provide us with an opportunity to deploy our capital A creatively and expand the portfolio with a new Mission critical mass sylheti.
and
Turning to lease renewals. We are pleased to report that we have signed a new lease with the GSA for the FBI field office located in Albany New York executed. Well in advance of its current lease expiration this new 15-year 10-year firm lease will go into effect no later than September of 2021 thus extending the FBI's tendency in our facility through 36. This early lease renewal gives us the opportunity to begin working with the government to determine the scope of work of the buildings TI package, which will allow the FBI office to continue their effective operations from our facility for decades to come.
Much like last quarter's FBI Richmond renewal. This is a center of the bull's-eye property and we were able to earn highly attractive releasing spreads on this location. This is another great example of that is released Bullseye acquisition strategy is a benefit when it comes time for lease renewal conversations with the federal government to summarize East really has delivered on all fronts and 2019. We have grown the square footage of our portfolio for the accretive acquisition of Bullseye properties. We have delivered a state-of-the-art laboratory for the FDA. We have maintained the overall portfolio and it's remaining lease term and we have added growth in scale and with that diversity to our expanding portfolio. There is a lot to be proud of at least early and I thank you again for your partnership and commitment to our investment thesis. I will turn the call over to Megan to discuss the company's quarterly and year-end Financial results. Good afternoon.
easterlies unique
Polio and business strategy allowed Us in the fourth quarter and for the year of 2019 to once again post strong earnings results as you saw on our earnings release for the fourth quarter fax number share on a fully-diluted basis was $0.02 fo for sure on a fully-diluted basis was Thirty cents ffo as adjusted per-share on a fully-diluted basis with $0.31 cash available for distribution was twenty two point four million dollars for the year ended December 31st, 2019 and that income per share in a fully loaded basis with ten cents SFO on a fully-diluted basis with a dollar twenty f f o is adjusted per-share on a fully-diluted basis was a dollar 18 and our cash available for distribution was 81.3 Million, right for the year 2019. We grew ffo per share on a fully-diluted basis by two and half percent ffo is adjusted per-share on a fully-diluted basis by 15% off.
Add by 49%
These are impressive numbers. And as we enter an election year, we believe stable growth from DEA is now more than ever appreciated by our shareholders as of December 31st. We own seventy operating properties comprising approximately 6 and 1/2 million square feet of commercial real estate with two additional projects, totaling 222000 square feet under development or InDesign. The weighted average age of our portfolio is 12.8 years as Bill mentioned it is through the acquisition of young mission-critical Bullseye properties and the delivery of our latest state-of-the-art FDA laboratory project in Alameda, California wage that we were able to maintain the relatively young age of our portfolio.
Our portfolio has grown from sixty to seventy properties since this time last year representing approximately 23% growth in the overall size of the company's portfolio based on square footage through added scale the Superior Credit quality of our primary tenant and a more Diversified stream of cash flows. The company is able to support its growing operations and generate earnings predictability and an attractive dividend yield turning to the balance sheet a quarter in the company had total indebtedness of 908 million dollars with a fully available $450 line of credit for future Acquisitions and development related expenses. As of December 31st. Easter least net debt-to-total Enterprise Value was 30.9% and its adjusted net debt to annualized quarterly performance package was 6.1 times as previously mentioned meaningful progress on our development projects will bring higher levels of reported leverage as we near project completion adjusted leverage and park neutral.
is this leverage drag and
6.1 * demonstrates the strength of the balance sheet and available dry powder as we continue to pursue our Target of two hundred million of Acquisitions in 2020 and 2019. The company pursued a number of capital markets transactions, which have ensured that our balance sheet remains conservative and the company continues to have capacity to pursue a creative Acquisitions and development opportunities in September the company closed on a private placement of 275 million of unregistered great senior unsecured notes this transaction further extended the company's liabilities at an attractive fixed rate all in the wage, which maturity of these notes was 12.4 years and the weighted average interest rate was 3.85% the second entry into the debt private placement Market was well-received by the investor community and helped Birth by strong relationships with our existing and new lenders.
Further in December the company implemented a new ATM program with three hundred million in capacity for future Equity raising opportunities in the fourth quarter of the company issued 1.4 million shares of stock raising approximately $32 in total gross proceeds at a weighted average price of $22.20 per share turning to our earnings guidance for the 12 months ending December 31st, 2019. The company is maintaining its guidance for ffo per share and a fully-diluted basis of a dollar twenty two a dollar twenty four. The midpoint of this guidance is based on the company completing two thousand million of Acquisitions and forty to fifty million of gross development related investment in the year.
Then they pointed us 20/20.
Guidance represents approximately two and half percent growth from our 2019 results in line with our long-term goal of delivering to to 3% annual earnings growth to investors as mentioned. We belong long-term steady growth paired with a secure sector leading dividend is the recipe for consistently improving our cost of capital and we strive to achieve this combination again in 2020, as always. Thank you for your time partnership with that. I will turn the call back to Omer at this time. We will be conducting a question answer session. If you would like to ask you a question, please press star one on your telephone keypad a confirmation tone with your lines in the question queue. You may press start to if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keys. One moment, please while we pull questions.
Our first question is from Manny Richmond City. Please proceed with your question. Hey, good afternoon. Everyone Megan or maybe bill off. If we think about your acquisition pipeline going out from here. How many large or larger portfolios are you looking at rather than one off assets? I'm Manny we've got about $2,000 of the portfolios were looking in various sizes from quite large to sort of attractive sizes in the fifty to a hundred and fifty million. So yeah, absolutely. We're taking a hard look at them and especially with the confidence. We've seen with the market of of late.
And just what do you put sort of the the success rate on is it seller willingness? Is it pricing is it quality though? If you're underwriting is the quality is probably already taken care of. I think the quality of the underwriting I've got to say with our team is unmatched. I think it's always the quirky. I mean they're quirky with the nature of our sellers who we've cultivated a relationship that's almost a decade now, but I think I think many of them understand that this will be the best exit for the long-term weather. It's for many generations to follow in their families through tax protection or maybe get through seeing that maybe this might be a high point in the market for them or it might be in fact that they're having to to enter into renewal conversations with the federal government and I think they'd rather have us do it than I do that themselves. So a number of different catalysts. I think it's it's usually in the in the eye of the seller that that we have to work on.
And buildings remind me to visit. I don't remember off top of my head. How often have you bought the properties that had sort of a shorter lease term remaining where the bank teller didn't want to or wasn't willing to enter the renegotiations and you guys saw the value creation through doing that. I say a handful Manny the one that sticks out most to me is Monday a Albany the field office in New York. That's one that had two years left and through our team were confident of the renewal and saw a 34% increase and actually no T is and no brokerage fees when we when we turn it over so we are happy to to entertain short-term leases. If we are confident of their renewal we do find though that when they get within about 18 months or a year off in the owners will just just choose at that point to do it themselves. Thank you.
as a
Wonder if you would like to ask you a question, please press star one on your telephone keypad for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keys. One moment. Please while we pull for questions about. Our next question is from Michael Carroll RBC Capital markets. Please proceed with your question.
Yeah, thanks. I just wanted to touch on I guess Daryl's comments and the the beginning of this prepared remarks saying that the company's position to particularly drive a creative growth. Can you put up more color on that is that driven by the improved cost of capital or are you willing to pursue some of those portfolio transactions that you're talking about with Manny?
Yeah, no, I would say it is of course, you know improve cost of capital, you know, but we have as you know cultivated, you know, portfolios and individuals, you know for for quite some time and the stock price and the attractive interest rate environment, you know, basically says it's time to be buying buildings.
Okay.
It's a Windows portfolio transactions. I guess do come up. Is it within improved cost of capital that you have? Is it more likely to trade those cuz you can be a little bit more aggressive on the price or is it just still am waiting for those sellers to reach the conclusion that it's time to to sell their portfolio? Yeah. I mean you more than anyone knows, you know how discipline we are in our underwriting how we you know think about the cost of capital, irr and and and and and how we can think about growth but in our Market, I mean again just finding another five to seven basis points, you know in a cap rate can make all the difference.
Okay, great. And then just finally for me. Can you talk a little bit about some of the GSA build-to-suit opportunities? I know you announced a few with the the FDA Labs over the past few years. I guess what's the issue with the Atlanta project? And is there any more on tap that we could underwrite coming in sometime this year? Yeah, I mean I think that you're going to see Atlanta which is by the way really exciting project and we're thrilled to be part of it that's going to be delivering closer to the 2023 time frame but there's also as a remind folks there are 13 ft a month and there are a number of them in place. So I would expect that they'd be announcing a new project. Probably every year in that area. We were aware of some FBI opportunities out there and may I the has been right on all of those as well? And so I think from a standpoint of you know, what do we feel like we see we were seeing more opportunities than we have in the last five years for development.
Great. Thanks.
Our next question is from John Peterson Jeffrey. Please proceed with your question. Oh great. Thanks. Also wanted to kind of dive in on Daryl's comments on I'm driving and career growth more acquisition opportunities. I'm curious how you think about balancing your strong cost of capital, especially your strong stock price between driving and creative growth and then also showing up the balance sheet. So you kind of have a lower leverage profile. Maybe when when the stock price isn't favorable and I can't imagine you guys are going to issue Equity to pay down debt, but maybe another way of thinking about it is when you think about Acquisitions going forward, how should we think about the breakdown in funding between you know, how much Equity will raise to the ATM and how much debt you'll issue. I mean, there's again the market will present the SS that the market presents off. Of course, we will be vigilant about finding, you know, those assets that are in the bull's-eye. They can be most creative. There's no doubt. You know, they have creating a little dry powder on the liability side of the bath.
She is helpful because we can't control the timing of when the best buildings become available, but we can certainly prepare ourselves to be ready.
Okay, and then, you know curious any progress on you know.
working towards an investment-grade credit ratings
You know every day we really guide ourselves in the balance sheet with keeping an investment-grade profile. And so when the time is right and the scale is appropriate we've got great receptivity in the private placement off, but we think that would be an easy and easy transition. Okay, and then sorry one more balance sheet question. I think on the on the the duration of your of your your debt outstanding right now, I'm kind of looking at the thirty-year treasury trading in an all-time low. I think it's at 1.79% right now. If you think about pushing out the duration at all on some of your debt or just how he's about how how to how to manage that.
Yeah, so we have a surgically tried to keep it well matched between assets and liabilities. It's something we we do think about a lot and talk about but it does get harder to to believe that given, you know, a lot of credit for for extending past kind of the seven eight years IP code where we are today. So we think that's appropriate for the profile of the of the portfolio. We may be opportunistic wage and there but we like the position today. Okay. Thank you so much.
We have reached the end of the question answer session and I will now turn the call back over to Darryl great for closing remarks. Thank you everybody for joining the easterly Government properties fourth quarter 2019 conference call. We appreciate your time and we look forward to keeping you posted on all of our work as we strive to build a portfolio of pristine assets back by the full faith and credit of the US government.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.