Q1 2020 Earnings Call
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
Now I'll turn the call over children GE Winterhalter, Vice President Investor Relations. Please go ahead.
Good morning.
The call weekend. Please note the use of forward looking statements by the company on this conference call.
Statements made on this call may include statements, which are not historical facts that are considered forward looking.
The company intends before looking statements can be covered by the safe Harbor provisions for forward looking statements contained in the private Securities litigation NACHER form of 1995, and it's making a statement for the purpose of combined with the safe Harbor provision.
Although the company believes that its plans intentions expectations strategies and prospects as reflected in order to justify those forward looking statements are reasonable it can give no assurance that these plans intentions expectations or strategies will be obtained or chief.
Furthermore, actual results may differ materially for most described in the forward looking statements and will be affected by a variety of risks and factors that are beyond the company's control, including without limitation. That's contained in item onea risk factors that at the annual report on form 10-K for the year ended December 31st 2019.
Oh I see on February 25th 2020 minutes, other SBC filings and risks and uncertainties uncertainties related to the adverse impact if koby 19 on the U.S. regional and global economy, and the potential adverse impact on the financial condition results of operation.
The company.
The company assumes no obligation to update publicly any Bert looking statements, whether as a result, with new information future events or otherwise.
Additionally, on this conference call the company may refer to certain non-GAAP financial measures such as funds from operation.
It's from operations as adjusted cash available for distribution.
You can find its ideally reconciliation of these non-GAAP financial measures to the most comparable current GAAP numbers in the company's earnings release and separate supplemental information package on the Investor Relations page of the company's website and I are state easterly read dotcom.
I would now like to turn the conference call over to Daryl create chairman easterly government properties.
Thank you Lindsay good morning, everyone and thank you for joining us for this first quarter conference call.
Today. In addition to Lindsay I'm also joined by Bill Trimble, The company CEO and make it into the or the company's CFO and COO.
Before we begin I want to extend my well wishes for the health and safety of everyone. On this call. These are unprecedented times and we all eagerly await today when we can meet face to face once again.
What a quarter. It is been we've witnessed the strength of the company's defensive and differentiated strategy the virtues of or revenue stream backed by the full faith and credit or the U.S. government are serving investor as well.
We spent the last five years as a public company carefully assembling the necessary tools to perform in any business environment. We've achieved scale in our operations meaningfully diversified and maintain the average length of our leases.
We've also maintained a disciplined investment grade balance sheet that has provided us with the attractive cost to capital that we can bend to play creatively through the acquisition and development of Bulls eye properties.
We are appreciative of the confidence or investors have placed on the company, which hasn't turned allowed us to continue to deploy capital in attractive and consistent manner at a time in the future feels less transparent than before you can see great comfort to service chairman of such a no drama read continue to stay safe and with that I'll turn the call over to Bill.
Thanks, Darryl and good morning.
Looking for joining us for first quarter earnings call. Given this unique backdrop, who will begin with our operations. It easterly. Unlike the cobot 19 pandemic and then continue with my more traditional discussion of our quarterly activities.
We commenced our work from home protocol for employees on Friday marks the 13th and thanks to our Super operations and I T staff, we enjoyed a near seamless transition from in office operations with efficiency remaining high end Morales from.
Let's just 40 employees companywide, our leadership team was able to maintain our closest structure with time to make sure. The easily team is doing well their families are staying safe and they have to support they need during these challenging time.
I'm proud of how easily has adapted to this change and I applaud our staff for being so ahead of the curve in terms of planning and preparedness.
We continue to monitor the effects of social distancing across the region and the country and look forward to returning to our opposite soon but only wanted to save to do so.
Our proactive approach extends to our strong commitment toward and partnership with our primary tenda. The U.S. federal government. The operations at many of our tenant agencies are deemed essential and or asset management team has been exceptional into playing a structured cobot 19 response plan across the portfolio well also meeting the unique needs of Sir.
Stun properties as they come back suspected and confirmed cobot cases today. There have been 17 suspected cases in three confirmed cases of cobot 19 throughout our entire portfolio. Our team has worked quickly with the government to address these situations as they arise and we'll continue to review our response plan to ensure that health and safety of our 10.
And our employees appraise, we have received from the G.S.A. and the underlying agencies with respect to our level of service an expeditious manner is just another example of our differentiated approach towards the U.S. government. These are trying times and he's really has and will continue to deliver.
Turning towards our first quarter results the acquisitions team started the quarter with an acquisition of a 101000 square foot Defense Health Agency facility located in a war, Colorado D.A.J. Aurora, a build to suit property specifically constructed the Tha was originally built 1998 and underwent a sizable renovation.
In 2018 upon the execution of a new 15 year lease facilities leased the G.S.A. beneficial use of the D.A.J. with a lease expiration up 2034.
We then announced our second acquisition at the quarter with a purchase of a 203000 square foot F.B. I and D.A. joint Federal Justice Center located in El Paso, Texas. This facility is really the tip of the sphere in terms of enduring missions for the federal government not only does is rebuilding compound serve is one of the 56 Bill.
All the offices for the FDR, but is also one of the de age 23 domestic division offices, both of which are strategically located throughout the country. This 100% leased facility was constructed in phases between the years or 1998, and 2005 with a lease term the expires in July 2028.
In April the company announced its third acquisition of the year and the first of the second quarter with the purchase of a 79000 square foot Department of Veterans Affairs outpatient facility in mobile, Alabama like our other outpatient facilities VA Imobile is a recently completed build to suit facility that is subject to an initial 15 year noncancelable lease.
That expires in December of 2033.
In addition, yesterday, we announced our fourth acquisition of the year with the purchase of a V outpatient facility located in Chico, California.
This 52000 square foot build to suit outpatient clinic was recently completed in mid 2019. The state of the our facility was designed to achieve a lead healthcare silver certification and is leased the V.A. for an initial noncancelable lease term of 15 years that expires in June 2034.
I'm proud of for acquisitions team, our ability to execute on our pipeline of actionable opportunities is truly exceptional.
It is because of the strength of our team are attractive cost of capital and our robust pipeline. We continue to feel confident in our ability to deliver on our stated goal of 200 million in acquisitions for 2020.
Mike IB and his team continued to make exceptional progress at our FDA Lenexa facility construction is progressing at a rapid pace with various trades working in chefs in response to safety measures put in place due to client of ours and we remain on track to deliver our brand new state of the art laboratory facility for the FDA.
In the fourth quarter of 2020.
We've also made significant progress with the FDA energy essay for the Atlanta Laboratory redevelopment project, we have submitted the final design intent drawings to the government and construction drawings are ongoing.
We do not expect any delays in our original timeline for FDA, Atlanta, and we look forward to delivering another state of the our facility for the FDA and 2022.
To summarize he's really continues to deliver on all fronts. The business our unique ability to operate during a global pandemic centers on the long arc of our business.
Our acquisition pipeline lease durations, releasing engagements with the federal government and development opportunities all take a long time to harvest because of that we had the benefit of time in our side further is calculated and methodical pace. The provides our company with the stability and dependability, we're known for and as it.
A result, we're not feeling any material levels of disruption because it covered 90.
Thank you again for your partnership and commitment to our investment thesis I'll turn the call over to make him to discuss the company's quarterly financial results.
Thank you Bill good morning, everyone.
Easter leaves unique portfolio of government leased real estate has once again allowed us to predictably post strong expectations meeting earnings.
Like Bill allow me a moment to discuss Easter always operations from a financial standpoint, we're pleased to report the financial impact from Cobot 19 on the easterly rent roll husband de Minimis and the first quarter uncollected rental income was approximately 1300, dollarss and we do not expect any material Albrecht collection issues for the second quarter and beyond.
Turning to our quarterly results as you saw on our earnings release for the first quarter net income per share on a fully diluted basis was two cents.
FFO per share on a fully diluted basis was 30 cents.
FFO as adjusted per share on a fully diluted basis was 29 cents and our cash available for distribution was $21.8 million.
As of March 31st we owned 72 operating properties, comprising approximately 6.8 million square feet of commercial real estate with two additional projects totaling approximately 222000 square feet under development or in design.
We did average age of our portfolio was 13.1 years.
Turning to the balance sheet at quarter end. The company had total indebtedness of approximately $943 million with 414 million available on our line of credit for future acquisitions and development related expenses.
As of March 31st easterly is not that to total enterprise value was 30.6% and its adjusted not that annualized quarterly pro forma EBITDA ratio was 6.3 times.
And the first quarter of 2020, the company's sold an issue 200000 shares of its common stock. The company's March 2019, ATM program I Didnt <unk> weighted average price of 24 17 per share raising net proceeds to the company of approximately $4.8 million.
Further during and subsequent to the quarter. The company entered into forward sales transactions under the company's ATM programs for the sale of an additional 3.8 million shares of our common stock at a weighted average initial forward sales price of 26 75 per share, but have not yet been settled.
Assuming the company's totaled 6.7 million shares bound by forward sales transactions under the company's ATM programs are physically settled in fall utilizing a weighted average initial forward sales price of $25.06 per share the company expects to receive net proceeds of approximately $166 million.
With these forward sales, it's really is very well poised to fund our acquisition and development pipeline at a highly attractive cost of capital what's just in time funding.
Turning to our earnings guidance for the 12 months ending December 31st 2020.
The company is maintaining its guidance for AFFO per share on a fully diluted basis of $1.22 to $1.24.
The midpoint of this guidance is based on the company completing $200 million of acquisitions and $40 million to $50 million of gross development related investment in there.
Walk over 19, maybe a financial disruptor for many companies. We believe at this time our business model can withstand any even grow through this storm.
As previously stated the midpoint of this 2020 guidance represents approximately 2.5% growth from our 2019 results.
In line with a long term goal of delivering 2% to 3% annual earnings growth to investors.
Long term steady growth is this company's objective and we expect our performance in 2020 won't meet that goal as always thank you for your time in partnership we wish you all the Boston Please stay safe without I will turn the call back to Sashi.
Thank you [laughter], we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad confirmation turn will indicate your line is in the question can you maybe press star too if you would like to remove your question from the Q.
For participants using speaker equipment and may be necessary to pick up your hands that before pressing the star keys.
One moment, please while they pull for questions.
The first question Mr. Manny Korchman of Citi. Please go ahead.
Good morning. This is Katy Mcconnell on for Manny spending if you could just provide some color on the pricing mplxs completed to date, and where you stand versus the 200.
For the year and then maybe talk about how the competitive landscape has changed as you look for additional opportunity or.
Absolutely good morning to so basically DHL wore a first purchase was 14 million RFP I.D.A. El Paso join facility was 38.7 million.
The Imobile was 39.5 million and the V.A. Chico was 33.1 million, which totals to 124.7 million.
Which for on our way to 200 million I'd say, we're in an awfully good start since last time I check we won't get to the year for a couple of half year wait for the year for a couple of months.
And we continue to see plenty of opportunities I think the landscape in their market in many ways remains the same I think there's an additional opportunity now in that some of the sellers and we're familiar with absolutely every one of them in our and I'd say hats off to acquisitions team, who are really dialing all day long and talking to our.
Friends that on these buildings there are a number of owners that also have other properties that are not in the government space.
Including hotel developments and the such and I think that we're going to see some opportunities as some of these develop regional developers take advantage of being able to sell those properties to us and an expeditious manner and build cash reserves for other opportunities. So from that standpoint, I think we'd have a bright pipeline this year.
And we will continue to execute on.
Okay, great. Thanks.
[noise]. The next question is from Michael Carroll of RBC capital markets. Please go ahead.
Yeah. Thanks, Oh, just kind of off some of that is left column in southern I know it seems like there are some opportunities for some more single asset type transactions, what about the a the portfolios I know those are harder to predict but are those owners to more willing to sell some of their properties and de risks during this time.
Environment or are they still holding tight.
Hey, Mike Good morning, I think it's the same there really but you can be assured that we're calling the owners of the smaller portfolios in the larger portfolios and obviously from an M&A standpoint, we think we're in a terrific position with our cost of capital right now to move forward.
Having said that I think internationally things are not moving quite as quickly today and people are still creating their own situations.
So I would say all in all its pretty much a steady state there, but I'm just to the my message would be that I have a a positive outlook on 'em, what we'd be able to accomplish in the pipeline this year.
Okay, and then on that the single assets like how much bigger communism today, how much bigger so pipeline today given these increased opportunities is there way to kind of quantify that.
No I mean, I I'd tell you. We've since 2010 have we just silly us, but we've stuck with 700 million out there that we think it's a good number to be familiar with.
And the 200 million is obviously based on what we're pretty darn sure we can execute on.
So I would just say that we are busy I'm trying to exceed that number and we have in many years you can't guarantee that sort of thing, but that's certainly our preference is to put the but the throttle for when where and when we're looking to situation where their cost of capital and this particular Todd.
Okay, and then on the the near term lease expirations that are coming due is there I guess any delay in those in is there are risks, but some of those leases go into a hold over or is the government still I guess working as typically we would expect and it's the activity is kind of inline with where it has been historically.
Hey, Michael This is my good you know did you say is a it's proven to be very efficient from working for most are we are in touch with a lease contracting officers and leasing activity in general is progressing and a and moving forward.
Okay, Great and then I guess last question for me is how should we think about the settlement of those forward equity commitments. I know you typically have 12 months to close those I mean is should we kind of straight line that are you going to assume that you close those is more deals kind of come through.
Yeah, Michael that's gonna be used for if you will just on time finding around deals being close to.
Okay, great. Thank you Uh huh.
The next question is from Peter Abramowitz of Jefferies. Please go ahead.
Hi, Thank you just wanted to get your thoughts on a kind of long term and in a recessionary environment obviously for.
Kind of more more traditional a real estate assets you would typically expect some some cap rate expansion now being kind of in the niche market that you guys are in what are your thoughts on a kind of.
How cap rate could potentially move or just given everything that that the economy's facing.
Good morning, I will tell you having done. This is 2000 started looking at this in 2009, it's been really quite incredible how little cap rates have moved through various events that we've seen since since over a decade ago.
Yeah, the scarcity of the buildings, which is an advantage we have because we know all the buildings out there I think is mostly the driving factor we've been very careful.
Not too as we said become the elephant in the swimming pool and start driving pricing up too much in front of us and you'll continue to see a really disciplined approach from us for long term growth.
Having said that in this Martin this market today, we're really seeing the same sorts of cap rate, so last year and into the first quarter. Most of those cap rates have been into that sort of low to mid six area.
Obviously, when you're looking at some of that most pristine properties and let's take a brand new FDI with a 15 or 20 year lease or maybe even one of our new Sta laboratories, which we were fortunate enough to build ourselves and have over seven yield on those sorts of facilities are gonna be down below six maybe 5958.
And I think they've always been there obviously with our current cost of capital even they could be attractive for pennies per share for our shareholders.
So I think you're going to see us maintain and hold a disciplined approach, but I think you might also see us.
Occasionally go out and get some pristine properties that not only a builder average lease term, but continue to drive us towards the center of the Bulls eye and quality for the portfolio as long, obviously as its accretive and a lot is accretive at our current cost of capital.
Sure. Okay. Thank you that's helpful. And then just one more kind of given the the shifting priorities for federal spending does that do you think that at all impacts.
Part of the concentration of different agencies that.
Or in the portfolio did you see that having any impact on just the mix of a tenant exposure government agencies are moving forward no I think that I think that utilize the largest employer in the world and largest obvious tend the United States. The federal government does not seem to be pulling back on.
On their expenditures right now and in fact, we might see more opportunities going forward. I'm. You know is government seems to be poised to has grown substantially. During this period of time I think we can only be beneficiaries of that obviously our portfolio has really been sort of targeted at about three dozen.
Agencies that we believe whether we have a Republican or Democrat an office will do just fine whether any storm, but you know I mean, I think or if you look at our FEMA facilities. You go to <unk> ft laboratories that we're building there's tend more to go I don't see really the federal government cutting back on the new Ft laboratories, I don't see the federal government cutting back on the VA.
[noise] outpatient clinics that are providing an incredible amount of service right now to our veterans.
22 million men and women.
And so you know the F.B. I certainly got a lot going on so I think the federal government is gonna be good place to be and it's certainly a certain place to be for the foreseeable future and I think are leaning into two development projects going forward.
All right that's it for me thank you.
[noise] as a reminder, it does star one to ask a question.
The next question is from Bill Crow Raymond James. Please go ahead.
Hey, good morning, everybody.
Any change in the.
Buyer pool out there that you're competing against and I'm just curious whether this.
Period is knocking folks out or was whether it's actually shifting more people into a more defensive mode and looking for this.
This longer term that lead slug structure. Good morning, Bill you know, it's it's hard to tell exactly what's happened I will tell you that we have won every single building and some of that obviously off market that we wanted to do this year. So from our standpoint, it's been clear sailing they were rumors.
At the beginning of March that others were going to think about getting into the government space because it was such a safe place to be that has not happened I think they daunting task of dealing with the federal government. If you don't have people that have been trained you don't have the verticals you don't have the government operations team.
Answering the databases in the knowledge Weve seen that just completely that was just a quick flashing and did not occur.
So I think from that standpoint, certainly from a cost of capital or friends, who are in the in the private area of the G.S.A. acquisitions, I think do not have a strong cost of capital right now so from our standpoint, you know we've got the we've got the Green light, we're going to be proof.
And we're going to execute but we have not seen a big change in the a in the landscape.
Appreciate that what are you seeing.
Releasing spreads.
Hey belt. This is Mike you know the the dynamic around how we approach leasing in what drives our releasing spreads really is.
Has not been impacted by this.
It's pandemic and so the the dynamic around the fact that the replacement costs of the asset remains the high watermark for for these conversations really hasn't shifted and are releasing it people process. He stay on track in line with that expectation.
Oh, Thanks, Meg and one more for you given from.
During the cost of capital today, or do you find yourself leaning more into equity on a relative basis are you trying to maintain your.
You're a debt equity balance as it has been historically what are your thoughts there.
Yeah. So obviously like the way we're positioned today, but as we continue to build into the year and and lean and to the 200 million plus type type goals in terms of acquisitions that is absolutely an opportunity for us to continue to use equity to de lever the balance sheet, while still delivering on earnings expectations. So.
That is a dynamic you can expect us to to add to take advantage of isn't enough that the here.
Okay. Thank you appreciate it thank you.
This concludes the question and answer session I would like to turn the floor back over to Daryl creates for closing comments Greg.
Well. Thank you everyone for joining the easterly government first quarter 2020 conference call.
While the company will not Miss a beat because the co vid, we all look forward to the end of quarantining being together with colleagues and investors and we wish everybody good health.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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