Q1 2024 Easterly Government Properties Inc Earnings Call
[music].
Yeah.
Okay.
Greetings.
Speaker Change: Welcome to the easterly government properties first quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question answer session between the company's research analysts and eastern waste management tool.
So ask a question during the session and it also will need to press star one one on their telephone. They will then hear an automated message device in their hand as raised please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today Lindsay Winterhalter head of Investor Relations. Please go ahead.
Lindsay Winterhalter: Good morning before the call begins please note that certain statements made during this conference call May include statements that are not historical facts and are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Lindsay Winterhalter: Although the company believes that its expectations as reflected in any forward looking statements are reasonable it can give no assurance that these expectations will be attained or achieved.
Lindsay Winterhalter: Furthermore, actual results may differ materially from those described in the forward looking statements will be affected by a variety of risks and factors that are beyond the company's control.
Lindsay Winterhalter: And without limitation those contained in the company's most recent Form 10-K filed with the FCC and its other SEC filings. The company assumes no obligation to update publicly any forward looking statements.
Lindsay Winterhalter: Additionally, on this conference call the company may refer to certain non-GAAP financial measures such as funds from operation core funds from operations and cash available for distribution you can find a tabular reconciliation of these non-GAAP financial measures to the.
Lindsay Winterhalter: The most comparable current GAAP numbers in the company's earnings release.
Garo: So the separate supplemental information package on the Investor Relations page of the company's website at IR Guy easterly REIT Dot com and now I'd like to turn the conference call over Garo create CEO of easterly government properties.
Garo: Thanks, Lindsay and thank you to everyone for joining us.
Garo: We are pleased with our progress this quarter as we worked through opportunity is I'll keep it brief so we can get to Q&A, but I've got three important messages I'd like you all to take away from this call.
Garo: First we believe there is a path towards material earnings growth for shareholders and we're on it.
Lindsay Winterhalter: Alison will talk to you about the numerous drivers shortly.
Lindsay Winterhalter: We know the payout ratio of our dividend is high but we also believe there is a growth path. We can pursue that helps materially close that gap.
Lindsay Winterhalter: We're also actively reassessing and managing our expenses further.
Lindsay Winterhalter: Currently sit with just under $3 billion in rent coming from the U S government with the leases that we own today and as that portfolio, where shouldn't renew up 10% for 10 years, which are modest assumptions, we'd be collecting nearly $6 billion full facing credit rent from the U S government.
Speaker Change: We believe.
Speaker Change: As many dollars as we can do our shareholders and given the credit worthiness and duration of the cash flows backing our dividends, we remain very comfortable with the periods of higher payout.
Speaker Change: Our ratio.
Speaker Change: Third we occupy a unique place in the broader real estate industry.
Speaker Change: In designing our central infrastructure for the U S government's mission critical agencies.
Speaker Change: For example, our D. A drug labs enable homeland security to trace and stop send lower curtail activities amid an ongoing increase in drug traffic traffic in crimes.
Speaker Change: In 2022 phenol was responsible for 200 deaths every single day and over a quarter million dollars of Americans have died from fentanyl overdose since 2018.
Speaker Change: Let that sink in for a minute.
Speaker Change: Our facilities bolster the special agents actively combating those figures were not an office REIT and this year, we're going to continue ensuring that the market understands the breadth of what easterly offers.
Speaker Change: This may be boring, but these are the stats that I know youre going to ask.
Speaker Change: We beat the Street reported 29 cents and core <unk> per share and we sit comfortably at the midpoint of our target leverage of six five to seven and a half times.
Speaker Change: We continue to acquire and develop new facilities in our portfolio. These facilities are not offices for transient commercial use.
Speaker Change: <unk> got properties leased to government agencies in there.
Speaker Change: We've maintained the stability of our cash flow favorable renewal spreads and seen.
Speaker Change: And a robust pipeline of growth opportunities.
Speaker Change: Earlier this month, we announced the acquisition of an immigration and customs enforcement information technology facility near Dallas, Texas.
Speaker Change: Which enables ices sheet and phosphorus of human capital to modernize its it systems and bolster its technological capabilities.
Speaker Change: The rationale behind this deal is clear the facility has 95% leased as of $16 two year weighted average initial lease term for all three tenancies and maintains an additional 6154 square feet available for future leasing as a value add opportunity.
Speaker Change: All three factors enhance our cash flows maintain significant occupancy upside and strengthen our definable edge of specialists and mission critical real estate.
Speaker Change: This acquisition is in line with the existing properties in our portfolio such as Federal Emergency Management Agency as Tracy, California warehouse fee.
Speaker Change: Tracy is one of eight distribution centers within the United States for emergency response preparedness.
Speaker Change: The ongoing threat of wildfire and other natural disasters in California. The property helps provide on the ground support and crucial suppliers capable of mobilizing between three to 4 million meals and leaders of water that is stored at that facility within 30 minutes.
Speaker Change: Our drug enforcement administration laboratory in Pleasanton, California serves a similar mission critical purpose, providing scientific and forensic support to the DEA special agents and other law enforcement personnel, who prevent the distribution of deadly drugs like Sentinel into our society and we store over 35000.
Speaker Change: Pieces of illegal and oftentimes deadly evidence in that facility each year.
Speaker Change: Meanwhile, the DEA has approved funding increased over 6% between 2022 and 2023 and its total head count rose over 4% during the same period to combat the increased manufacture and distribution of controlled substances as the government strengthens its agencies, maintaining the safety of our country.
Speaker Change: We continue to fortify their abilities through mission critical real estate.
Speaker Change: These purpose built facilities serve as Easter release, definable edge in commercial real estate and continue to be the bedrock of the shareholder value, which we deliver we will continue to pursue accretive deals and we have no plans to sell buildings in the near future as we work to continue to expand the portfolio with high Creditworthy state.
Speaker Change: And local government agencies and U S government adjacent partners Fran.
Speaker Change: Frankly, we believe easterly is well positioned to continue to provide value to our stockholders by developing and buying more great mission critical buildings, continuing our strong partnership with the government and protecting our balance sheet.
Speaker Change: We are in constant dialogue with the board.
Speaker Change: And forward planning mode, and additionally to delivering external growth. We are laser focused on cutting operating costs. This year, both of which we believe will aid in our ability to meet or exceed our two 2% to 3% core <unk> growth trajectory.
Speaker Change: We're excited to continue delivering shareholder value and enhancing our portfolio with a foundation of cash flows backed by the full faith in credit in the U S government. The future remains bright for easterly in 2024, and now I will turn the call over to Meghan <unk>, the company's president and CEO.
Meghan: Thanks, Darryl and good morning.
Meghan: We started off our 2024 by establishing clearly defined goals for the company we are on pace to deliver.
Meghan: We believe we believe our government back to cash flows have been undervalued in the public markets. These past few years and we attribute that to our recent periods of low growth 2020 for sort of that change.
Meghan: We've launched our growth trajectory with the acquisition of ice Dallas, delivering strong predictable cash flow run rate accretion to our shareholders.
Meghan: See a pipeline of opportunities that we believe will further our ability to meet our stated goal of delivering 2% to 3% type of growth year over year for years to come for.
Meghan: For example, we are pursuing a unique opportunity to serve as buyers.
Meghan: Buyers of mission critical assets that we believe will further change the growth trajectory of this organization.
Meghan: We look forward to keeping you apprised as this develops.
Meghan: Meantime, we secured a brand new build to suit Federal Courthouse development project in Flagstaff, Arizona for an inaugural 20 year lease term. This important courthouse is expected to house the nation's first ever Native Americans E Mail Federal judge.
Meghan: Liked it to be the company's first ever meet silver net zero development projects.
Meghan: Our in place portfolio continues to perform as we achieve renewables at meaningful spreads we renewed DEA Albany for another 17 years, marking the third renewal of this asset while earned by Australia. You are probably sick of hearing me say it but once again this highlights just how far from the office sector. We are.
Meghan: As Daryl mentioned the importance of the work being performed in our buildings cannot be replicated at home in such a dynamic is apparent in our ongoing renewal discussions.
Meghan: Alison will go into greater detail, but we believe we are in a period, where the duration and credit worthiness of our cash flows the importance of our real estate and our defined edge in serving mission critical assets will accrue to our benefit and separate us from our peers.
Speaker Change: As we have seen notable names take down their earnings guidance are being shipped.
Speaker Change: Should stand apart from the crowd.
Alison: We're excited about the opportunities for growth at easterly, we see the growth trajectory filling in with new projects that further our mission of serving the government. While also delivering attractive returns for shareholders with that I will turn the call to Allison.
Allison: Thank you Meghan good morning, everyone I'm pleased to report the financial results for the first quarter bolt on a fully diluted basis net income per share was <unk> <unk> and core <unk> per share grew to 29.
Allison: Our cash available for distribution was $25 9 million.
Allison: Interest rates have certainly been a headwind for the broader real estate market is truly included.
Allison: We seek to minimize interest expense at a time of high underlying rates.
Speaker Change: Our focus towards strategic Treasury management or more recently, our ESG goals.
Speaker Change: We achieved a reduction in the margin spreads under the company's amended senior unsecured credit facility as a result of hitting a pre determined sustainability metric.
Speaker Change: <unk> also continues to sit comfortably at the mid point of our target leverage range of six five to seven five times and maintained ample capacity on our revolver, while limiting floating rate debt exposure.
Speaker Change: As Darryl mentioned, Megan mentioned external growth for mission critical real estate is our primary focus and we see a market of opportunities ahead.
Speaker Change: Our ability to manage our upcoming debt maturities plan for capital needs and access to debt and equity markets.
Speaker Change: The harvesting this growth.
Speaker Change: At easterly, we pride ourselves on our portfolio of purpose built buildings and we manage that portfolio with a purpose built team.
Speaker Change: Our organization is committed to finding operational efficiencies throughout the portfolio managing expense creep and releasing a positive spreads.
Speaker Change: Everyone at the company contributes to furthering the mission of driving value for shareholders.
Speaker Change: Today, we are maintaining our full year core <unk> per share guidance for 2024, and a range of $1 14 to $1 16, all on a fully diluted basis. This guidance assumes the closing of VA Jacksonville through the joint venture at its pro rata acquisition price of $40 9 million.
Speaker Change: Later, this year and that we will have $100 million to $110 million of gross development related.
Speaker Change: During 2024.
Speaker Change: At its midpoint this set the path for escalates deliver strong <unk> per share earnings growth to shareholders. This year.
Speaker Change: We believe this represents a market leading risk adjusted return and charts of course for delivering longstanding growth opportunities for our investors.
Speaker Change: With that we thank you for your time this morning, and appreciate your partnership I will now turn the call back to Shannon.
Shannon: Thank you.
Shannon: As a reminder to the analysts to ask a question you will need to press star one on your telephone.
Speaker Change: Please standby, while we compile the Q&A roster.
Shannon: Our first question comes from John Kim with BMO Capital markets. Please proceed with your question.
John P. Kim: Thank you.
John P. Kim: In your press release, you talked about earnings growth.
John P. Kim: 2% to 3% I think that's a little bit lower than what you were targeting back in January. So I was wondering if there was.
John P. Kim: Anything thats.
John P. Kim: A headwind to earnings in the near term, whether that's asset sales or known move outs that you have or is it simply just the spread investing has become more difficult.
Speaker Change: Yes, no. Thanks, Thanks for the question really appreciate it.
John P. Kim: Analyst day, one of the things I shared is that we're on a path to grow 4% for the company, which is that's what we're working to pursue every day I think it became clear in our discussions after analyst day that.
John P. Kim: Given given the environment that we're in the idea of going out with 4% sounded like we were going to be kind of yelling into the wind, especially as office guidance was continuing to decline. So we modified the expectations to 2% to 3%, which seems like a very reasonable step.
John P. Kim: And given the things that we're working on.
John P. Kim: We're going to hit those targets and where we can we may very well exceed them and we're working every day to make that happen. So our view on the business. Today is the same as it was at the beginning of the year, we're going to we're going to cut costs to make our numbers, we're going to we've got terrific.
John P. Kim: Pipeline that continues to build and we're developing properties into the eights with fantastic facilities that I think will be with the government for many decades.
John P. Kim: So as that all comes together, we're very excited for the next couple of quarters.
John P. Kim: Feel to lay that out which is also why.
John P. Kim: We have some exuberance in optimism also about our dividend.
Speaker Change: Just following up on that Daryl I mean, the interest rate environment has changed since January.
Daryl: So I'm wondering if that played into your outlook at all as.
Daryl: As well as there have been recent reports I think there was one by the <unk> earlier.
John P. Kim: I guess it was last months.
John P. Kim: On federal agencies, only using 12% of the headquarter space.
John P. Kim: Is that leading to any pressure to reduce costs among government.
John P. Kim: Just wondering with <unk>.
Speaker Change: Again not that specifically.
Speaker Change: Near term outlook, you're absolutely right.
Speaker Change: It goes up a little bit the model that we're creating and we're so excited we look at our five year model all the time.
Speaker Change: And it gets super annoying.
Speaker Change: For the for that yield curve to go up and it just means we have to work harder or cut costs to make it because.
Speaker Change: We're laying out a path for shareholders that said none of it.
Speaker Change: Just kind of changes the way we work we are just going to have to dig a little deeper and.
Speaker Change: And make it happen.
Speaker Change: That is that's all within our control Theres, nothing thats sort of seems beyond reach.
Speaker Change: And to the point about space utilization.
Speaker Change: We are not seeing that as a dynamic in our buildings and what we're going to do and sort of what Lindsay was referring to in my even though I said it'd be brief I did go onto a dialog about Sentinel.
Speaker Change: Shelly do we're going to start on our website instead of putting pretty buildings pictures on the outside if we're going to start showing folks what's on the inside and what you see there there is youll get an immediate sense that there is no need to reduce the floor plan.
Speaker Change: From everything from CBP folks know Theres, a problem on the border and nobody knows it more than.
Speaker Change: The border patrol people.
Speaker Change: When you look at the DEA if their budget is growing at a similar cartel is getting stronger.
Speaker Change: And we were just out in California, with some people who are intensely focused.
Speaker Change: And making sure of the American population stayed safer, we've got certain all coming from China.
Speaker Change: That is a serious problem.
Speaker Change: And people in our buildings are working on exactly that we're talking about facility projects about moving walls doing different things that again facilitate mission to make sure. They have the meeting rooms, they need to make sure. They have the secured facilities they need make sure that they have.
Speaker Change: What they can because they come together in these offices to plan and then move on their mission and making sure that they can do that.
Speaker Change: Well maintained building that has what they need in order to make that happen is what we do every day and that's how we've built that.
Speaker Change: Good partner with the government and we believe we've created a definable edge in what we do.
Speaker Change: Appreciate the color. Thanks.
Speaker Change: Yes. Thank you really appreciate it and look more on this call. We can get any of these sort of bits of skepticism or what's in the news.
Speaker Change: It's super helpful to us because we just it feels like we play whack a mole with.
Speaker Change: The department of Education is shrinking so people think the FBI is shrinking.
Speaker Change: Our investor calls.
Speaker Change: Investor meetings.
Speaker Change: Chronically the question with regard to work from home governments shrinking and then what's happening in your buildings and I. So wish we had a competitor direct competitor. So that we can show the good work, we're doing because I.
Speaker Change: I mean I've been out aggressively touring buildings, and we hear again and again and believe me the government.
Speaker Change: So it sounds like the IRS NZ a nice letter every year. So thanks for filing your taxes on time, we really appreciate it but I would say we are getting compliments from the government and they are not quick complementary.
Speaker Change: And about what we're doing and how we're focused on facilitating mission because we watch what they're doing in the facilities and we make suggestions around how we can modify this facility one our job one is to fight obsolescence.
Speaker Change: But we do that by deeply understanding their mission and giving them every opportunity to say Hey, we'll move this well we will do this we'll do that and would that help you and the reality is it does and sometimes it doesn't cost very much money at all and the government will pay for it and so when we are able to create the actual plan and say hey, send this back to head.
Speaker Change: Quarters and here's your rationale.
Speaker Change: Those projects can move forward and so again thats, how we are helping as a partner and the more we can have investors and folks who on our portfolio understand what we do each and every day, that's very different than anybody else out there I think that I think that folks will be proud of what they own and what we're building.
Speaker Change: I didn't expect.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Michael Griffin of Citi. Your line is now open.
Michael Anderson Griffin: Great. Thanks.
Michael Anderson Griffin: Just wanted to go back to the full year guidance for a second and maybe run through kind of some additional puts and takes so so as I see it 29 in the quarter a slight beat maybe you get some accretion from the deal.
Michael Anderson Griffin: Should we think about kind of the cadence of earnings throughout the year and then also if you could provide some more color on that I feel in terms of.
Michael Anderson Griffin: Overall valuation per square foot.
Michael Anderson Griffin: Anything on the cap rate would be helpful.
Speaker Change: Okay I can.
Michael Anderson Griffin: Start with what our guidance entails and what it comprises so our guidance reflects two to three pennies of same store improvement.
Michael Anderson Griffin: And growth in margins of 2% to 3%.
Michael Anderson Griffin: Two to three pennies of G&A savings and that is offset by three to four pennies of the interest rate headwinds from the 2023 swap Brent price.
Michael Anderson Griffin: And then Meg and I'll touch a little bit on Dallas.
Michael Anderson Griffin: So that was a little under $26 million script, it's about it's amid a cap.
Michael Anderson Griffin: At that site.
Michael Anderson Griffin: Level of cap rate.
Michael Anderson Griffin: Expecting that run rate accretion of about a third of a penny.
Meg: So it is absolutely a piece of our ability to can continue to build on our initial guidance and continue with Daryl said rate to grow from that seen in two to three to the higher end of that range or above that range.
Michael Anderson Griffin: It's a building block and that said as we continue through the year with strong performance in the portfolio continuing to.
Michael Anderson Griffin: Meet or beat that expectation of that Alex had laid out on the same store NOI as we look at cost structure.
Michael Anderson Griffin: It's also a place where we could see some upside.
Michael Anderson Griffin: Obviously external growth is going to be a big part of the story in order to drive earnings going forward. What would you say your weighted average cost of capital is today.
Michael Anderson Griffin: What's the minimum spread you'd need.
Michael Anderson Griffin: To justify investing in a property.
Michael Anderson Griffin: And is it correct to think about DEA has a spread of investor today.
Speaker Change: Yeah, So Joe Greff.
Michael Anderson Griffin: We look at our cost of capital today, given our understanding of where we can finance them.
Michael Anderson Griffin: Multiple avenues of the debt markets as being in the mid Sevens and.
Michael Anderson Griffin: Of course, we are looking to add spread investor to that level.
Michael Anderson Griffin: So acquiring assets in the high Sevens to mid eights is.
Michael Anderson Griffin: <unk>.
Michael Anderson Griffin: Very much what we're looking to do in Dallas as an example of that.
Speaker Change: Yeah, and in terms of maybe debt and equity.
Speaker Change: The differential there is it fair to say on your financing a deal it's half that half equity or maybe greater to the equity side as opposed to the death.
Speaker Change: Yes sure.
Speaker Change: Triangulating in looking at.
Speaker Change: Debt equity mix as EBITDA multiple to us here and that sort of 50%.
Speaker Change: Give or take rate as we think about weighted average cost of capital.
Speaker Change: Great. That's it for me thanks for the time.
Speaker Change: Thank you.
Speaker Change: Our next question is from Peter Abramowitz of Jefferies. Please proceed with your question.
Peter Dylan Abramowitz: Thanks, Yes.
Peter Dylan Abramowitz: Can you go a little bit more into some of the comments on guidance there that was helpful.
Peter Dylan Abramowitz: But just trying to square that with.
Peter Dylan Abramowitz: Some of your comments about revisiting your expense structure, just wondering if you could provide some brackets around.
Peter Dylan Abramowitz: Kind of expense reduction the impact that has to earnings whether it's kind of an absolute dollar number or from a margin perspective, what youre sort of targeting yes.
Speaker Change: Yes, no. It's a great question. We're a couple months into really just assessing the workflow of all our systems and processes because what we do is a little bit different than.
Speaker Change: Another REIT so.
Speaker Change: We are trying to again.
Speaker Change: We spend a lot of time talking about the relationship between value.
Speaker Change: And excellence and we want to be an outstanding partner to the government, but we also want to make sure that we are executing on that in a way that has the least burdened cost structure possible.
Speaker Change: And I think we'll see some cost savings in 2025 and beyond.
Speaker Change: So we don't have a target for what that's going to be but we're going to find inefficiency point in everything we do from property management to how we're financing our buildings to how we structure our leases and how we focus on renewals and that combination.
Speaker Change: We will we will find something under each of the rocks that we pick up and it's a great opportunity with interest rates.
Speaker Change: Moving for us to just.
Speaker Change: Reassess everything.
Speaker Change: That we do because we have we've had some very nice growth for.
Speaker Change: Almost 10 years since we've been public we've continued to grow every bit of our infrastructure.
Speaker Change: Sort of.
Speaker Change: In a way that we obtained some advantages of scale.
Speaker Change: But I think there is theres more defined and so we're going to be pursuing that exercise. While we're also I don't mean to make it sound easy we're going to find high quality buildings that match what works in our portfolio.
Speaker Change: Or in the high Sevens mid eights.
Speaker Change: If we had a cost of capital there was 60 basis points lower I think it's not unreasonable to.
Speaker Change: To say, we'd be doing $1 billion plus of acquisitions.
Speaker Change: Because we're seeing sellers.
Speaker Change: Balance sheet pressures and refinancing youre starting to see buildings come available.
Speaker Change: There is one building that gosh, we loved and was probably a.
Speaker Change: The seller would not have taken anything less than five five cap at one point, which is which is why it was a building that wasn't for us.
Speaker Change: But we put an offer and that was 150 basis points higher than that and and there is still a conversation to be had and this is we're seeing the market move in this direction.
Speaker Change: And it's our acquisitions team's job to find.
Speaker Change: Couple of hundred million dollars of buildings that are in that criteria that meet all the criteria of being a spread buyer.
Speaker Change: And for us to use our advantage and our relationships with the agencies and on the ground in order to.
Speaker Change: Get our buildings built and move forward I mean, I'll give you. One example, and I think you guys Dallas, it's kind of buried in there which is we do have the 6000 square feet of extra space and then we call it value add and we kind of skim through it.
Speaker Change: In the script.
Speaker Change: But.
Speaker Change: We do a good job at our buildings and because of that.
Speaker Change: There are areas to expand or there is a way to.
Speaker Change: Agency is today are doing more inter agency task force work than I've ever seen before so the idea of creating a special facility that's a joint facility.
Speaker Change: Joint activity space.
Speaker Change: Is it good terrific opportunity, our SBA lab in Atlanta.
Speaker Change: Some of you have come to see it but it is an amazing facility.
Speaker Change: It is it has <unk> of extra room in it.
Speaker Change: And I think it will be the premier FTA labs in the United States and with that there is there is a significant.
Speaker Change: <unk> opportunity to.
Speaker Change: I think that a center of excellence within FDA and none of that's in our underwriting today, So I don't need to make the growth path sound easy, but I think between the cost structures that we're talking about and finding.
Speaker Change: The acquisitions that are accretive on a spread basis will get us into a place for delivering some some very nice growth.
Speaker Change: Thanks, that's helpful.
Speaker Change: And then just to touch on I think you have three expirations remaining to address this year on the portfolio.
Speaker Change: Yes.
Speaker Change: So Allison laid out I think some parameters around what you're expecting from NOI growth for the full year.
Speaker Change: Just curious if you could touch on <unk>.
Speaker Change: Fully the rent roll up or roll down there.
Speaker Change: How you plug that into your guidance and what what sort of.
Speaker Change: For the rent assumptions.
Speaker Change: We're assuming to get.
Speaker Change: To get to your midpoint.
Peter Dylan Abramowitz: Yeah, So Peter.
Peter Dylan Abramowitz: We're successful at renewing DEA Albany in the quarter.
Speaker Change: And we'll speak again about the portfolio at the end of the year, but if I dial back to Arthur.
Speaker Change: The expectations that were stated on the fourth quarter call around the 32 leases that we had renewed regardless of whether or not the ti has been completed.
Speaker Change: The expected 18.
Speaker Change: In the 18% spread and duration of $17 two years right Albany.
Speaker Change: The nice thing with no material change to that expectation.
Speaker Change: And then as we look to the rest of 2024, and we're very optimistic about the process ongoing in Omaha, we.
Speaker Change: Do expect.
Speaker Change: The CIO.
Speaker Change: In Portland.
Speaker Change: To be extended to a renewal option.
Speaker Change: The restaurant drops off that sort of immaterial levels of leases, but rob.
Speaker Change: Broadly speaking we remain optimistic about the.
Speaker Change: Renewal success within our portfolio and sustained occupancy levels.
Speaker Change: Got it that's all for me thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from <unk> Chandra of RBC. Please proceed with your question.
Speaker Change: Hi.
Chandra: Good morning, Congrats on the Flagstaffs development.
Chandra: Just wondering if we get a little more information about that.
Speaker Change: Each provided ladies expect yield the budget when you're trying to break out things like that.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: So it would be a new award that we work we won in the court Federal this would put us in Flagstaff, Arizona.
Speaker Change: It's going to be an estimated project cost.
Speaker Change: $35 million.
Speaker Change: Third we're developing into the into the eight intermediates there it will do.
Speaker Change: Nine today and it will get underway as we get into.
Speaker Change: With four late third early fourth quarter of this year.
Speaker Change: Okay. Thanks.
Speaker Change: Go ahead.
Speaker Change: Our next question.
Harvey Topple: Comes from the line of Harvey toppled with pop Tech L. P. Your line is now open.
Harvey: Yes. Thank you.
Harvey Topple: You haven't talked much about the initiative New initiative, you previewed maybe six nine months ago about going into the state.
Harvey Topple: Property market.
Harvey Topple: Thing to report on that.
Harvey: Yes, I'd say the quick headlines are we continue to be exploring plenty of opportunities. We've got a robust pipeline we did buy.
Speaker Change: Our one building in Anaheim, California.
Speaker Change: That is basically adjudicates workers' compensation claims and.
Speaker Change: It's in a terrific place and when you look at.
Speaker Change: What is going to be developed in that area by the time the lease terminates we're very excited about it we continue to work across states and.
Speaker Change: And every week are going through a whole series of opportunities and I think that will that will be a.
Speaker Change: A real contributor too.
Speaker Change: Two our earnings.
Speaker Change: Certainly in 2025, maybe we will see a little bit of some accretive deals in 'twenty four it will be happening probably later.
Speaker Change: At that point.
Speaker Change: Probably the effect of this year's guidance, but it's a really significant total addressable market and we should be able to find some some some terrific long term opportunities in this space.
Speaker Change: Likewise, just to take the opportunity we've also talked about government adjacencies.
Speaker Change: This is a place, particularly where we have an opportunity to develop buildings for very high credit corporates that are building buildings today, because we're onshoring so.
Speaker Change: <unk>.
Speaker Change: New activities in the United States and in doing so we are building buildings that are just the buildings that we have for many of our U S government agencies and it is far easier for folks who have a government contract and may not have worked with government for a significant period of time to come to somebody like us and understand that the building that facility that will be.
Speaker Change: Built will be one that will enable them to meet their obligations under their government contract.
Speaker Change: In a way that is inhibited.
Speaker Change: Mhm.
Speaker Change: One would think that there's got to be pockets in some of the states of small.
Speaker Change: Sure.
Speaker Change: Property owners.
Speaker Change: Whether they are structured as reach from others.
Speaker Change: That might be Acquirable and certain states have you seen any opportunities to just acquire.
Speaker Change: The business that might hold several properties at this stage.
Speaker Change: I think yes, so I mean, we would call those.
Speaker Change: Portfolios and we certainly see plenty of portfolios because in the federal space for the last decade.
Speaker Change: <unk> been working with folks who have.
Speaker Change: Material portfolios, we attract each one of them, we understand which buildings we'd be most excited about and.
Speaker Change: Work and cultivate relationships with those folks.
Speaker Change: That sometimes are.
Speaker Change: Our fruitful in six to nine months and sometimes it's 345 years. So.
Speaker Change: Youre on to something which is we're getting to know the folks who develop those buildings or have us have created a portfolio learning about the dynamics and.
Speaker Change: Really spending a lot of time going to school on how they get there what happened how would it work and so that we can find.
Speaker Change: The right match for US, we don't want to be hasty and moving to this space, but we know that it's a.
Speaker Change: It's a strong opportunity not only because we can find very high quality buildings that satisfy states mission, but these leases also have escalators. So.
Speaker Change: My friend Alison here.
Speaker Change: We will not get at such a hard time for same store sales as we start looking into 2026 27 28.
Alison: We can.
Speaker Change: Really nice for us to start the year, knowing that we're growing over one.
Speaker Change: Somewhere in the range of 1% to 2% when we turn the lights on and one of the challenges that we found is that when we exercise a lot of discipline and it was the right thing to do in the market changed abruptly we found ourselves in a place where we werent growing and the equity markets don't like that and so.
Speaker Change: <unk>.
Speaker Change: <unk> sort of called it early I think probably three or four months, we stopped buying before other office.
Speaker Change: Rights, which we get bunched with.
Speaker Change: <unk> and I think you are finding us today.
Speaker Change: It may be being a harbinger of good news.
Speaker Change: For some of those folks because we are we're sorting through lots of opportunities. If we're picky about it we can find things that are accretive and that's our job and as we look forward to the end of the year beginning of year I think we're going to be a healthy space to announce acquisitions as part of our guidance again and doing.
Speaker Change: All of those things so.
Speaker Change: We're meeting with lots of folks who own portfolios. If you know of any send them our way.
Speaker Change: And we we are we are executing on each of these three lanes of opportunity and I very much hope in the next 36 months.
Speaker Change: Almost a third of the company is comprised both of adjacent properties, 15% adjacent properties, 15% state and local.
Speaker Change: Thank you very much thank.
Speaker Change: Thank you.
Speaker Change: Our next question is from Travis Turpin of seeking Alpha. Please proceed with your question.
Travis Turpin: Yes, good morning.
Travis Turpin: You guys have talked about the dividend a little bit but my question was I know the payout ratio is kind of high right. Now did you guys have a target range that you would target in the timeframe, but.
Travis Turpin: Yes, great question, because we obviously look at the dividend, each and everyday Travis and and and we.
Speaker Change: We look out and clearly getting our dividend.
Speaker Change: Dividends below that 100% payout ratio, which is always our goal.
Speaker Change: And even a little bit lower is where we want to get too.
Speaker Change: <unk>.
Speaker Change: Maybe just to be very clear about it we are noninterest in cutting our dividend because even though that may create some other pennies of growth in the future. The plans that we have more than offset it and we're on a path to you know in.
Speaker Change: In the next 24 to 36 months to be in a place where we're covering our dividend I hope it's sooner than that.
Speaker Change: And we've had periods like this where we've had high payout ratio relative to what the what the strategy is delivering but we believe given the stability of our cash flows delivering that consistent dividend is something we are capable of doing so.
Speaker Change: As we look out the next two to three years, we should get that solved hopefully sooner.
Speaker Change: <unk> been getting a payout ratio below 100%.
Speaker Change: Certainly certainly is the goal.
Speaker Change: Okay. Thank you and my next question is since you talked about in the next 24 to 36 36 months with the payout ratio below 100% I know you guys have talked about buybacks before is that something else. You are looking at once you get the payout ratio solved and making accretive acquisitions and things like that.
Speaker Change: I think thats right I mean, we.
Speaker Change: Do you try and take a corporate finance perspective to what we're doing and given where the stock prices relative to opportunities we see.
Speaker Change: We see some some real opportunity we imagine.
Speaker Change: It takes a little time for that to get recognized by investors.
Speaker Change: If it isn't we should be certainly in a mode of.
Speaker Change: Of generating some capital even even some longer term capital that could they could buy back stock at attractive prices.
Speaker Change: Okay.
Speaker Change: Thank you all I have thank.
Speaker Change: Thank you.
Speaker Change: Our next question is from Michael Lewis of True Securities. Please proceed with your question.
Michael Robert Lewis: Thank you you mentioned the 18% great spreads you talked a lot about the importance of the work that's happening in your buildings and the way the government complimenting you on that you just mentioned the escalators in the leases.
Michael Robert Lewis: What's the portfolio occupancy in the same store NOI and.
Michael Robert Lewis: Specific rent spreads and I think as you talk about some of the the organic growth potential.
Michael Robert Lewis: I think reporting that now might be helpful to help us.
Michael Robert Lewis: Where you are in and how youre doing on that calls on those calls.
Speaker Change: Thanks, Mike.
Speaker Change: The point the points taken from from a same store perspective, and I think as we continue to call it our goals around.
Speaker Change: Zero cost realignment.
Speaker Change: Yes.
Speaker Change: It's a nice opportunity I think we've historically given the structure of our leases right. We've always talked about however, the arc of time.
Speaker Change: Same store NOI growth sitting in that 250 to 100 basis point range.
Speaker Change: It has the potential to.
Speaker Change: Step out of that range and I think that.
Speaker Change: The communication to the market of how that is driving outcomes.
Speaker Change: It's something we can we can give you a shine further later on.
Speaker Change: And maybe just maybe stepping back Michael give us just a little more little perspective on it which is I think we're not comfortable nailing down a number right now because it might be some false precision I think.
Speaker Change: For folks who may not be as familiar with the story our leases are flat until they renew.
Speaker Change: I think I've done.
Speaker Change: Really good job of.
Speaker Change: Tagging out the maturities of leases. So if you were to draw a line through the company four five.
Speaker Change: Five years six years seven years as we look forward I think we can feel good about same store NOI that would be a couple of points but.
Speaker Change: And it should it should match inflation.
Speaker Change: That's how it should work the problem is there can be specific circumstances, where one building renews at a.
Speaker Change: Got it.
Speaker Change: Terrific experience, where we sometimes have 30%, 40% ups and sometimes we end up we are staying flat and when those happen. It creates this kind of volatility in same store growth and so as we looked at that at the end of last year and said this is something that's hard for us to explain to the market in the.
Speaker Change: Market is kind of you are as good as your last renewal.
Speaker Change: It only makes sense for us to get some leases into the portfolio that do have some escalators in it so that.
Speaker Change: Maybe it's disappointing to say the we're going to same store NOI growth.
Speaker Change: A half to 1% or it's going to be 2% to 3%, but it's always going to be positive and we're in a place where I think thats something we believe equity markets are going to better understand some of as I shared on our analyst day.
Speaker Change: We began this private equity business back in 2010.
Speaker Change: The overall concept was we were going to get a premium in the market for the high credit rating, we have and that proved to be almost true.
Speaker Change: We've never been able to take on the leverage and even the rating agencies I think we could take on given the stability of our cash flows because green Street and others and we've looked like an extreme outlier on the leverage front.
Speaker Change: We're in this place where we have leverage that's in the band of rights, but we are delivering a much higher stability in credit worthy cash flow.
Speaker Change: So thats why moving to a place where that cash flow begins to look more.
Speaker Change: More like.
Speaker Change: Other Reits and we're doing what we have a competitive advantage in which is being a great partner to government and making government facilities.
Speaker Change: That enhanced mission.
Speaker Change: And if we can find that spot on the venn diagram, and the third leg of that being that it's accretive.
Speaker Change: We think we are.
Speaker Change: It's the reason forgetting up every morning so.
Speaker Change: I know thats, a lot, but that says yes.
Speaker Change: Same store sales Thats, where we want to go there.
Speaker Change: That's good.
Speaker Change: You talked a lot about fighting this perception battle.
Speaker Change: And whether it's trailing four quarters or trailing eight quarters, even something to kind of show proof of concept.
Speaker Change: It would be helpful. At this point and so that's why I asked about the same store NOI I understand with the flat leases and they only they only mark on exploration and all of that.
Speaker Change: Yes.
Speaker Change: So totally agree and I would say and I think we're working very hard to again.
Speaker Change: We will we're going to illustrate a proof of concept here, we're linking together a bunch of quarters and we also know that if we can show some more growth.
Speaker Change: And I think Greg by expanding our total addressable market that becomes much easier in an accretive way.
Speaker Change: And we will.
Speaker Change: We will still be the best credit tenancy of any read out there.
Speaker Change: But we will be able to have a cash flow profile that is better understood by folks who are looking at the sector broadly and maybe don't take the time to see our buildings or spend time with us because.
Speaker Change: It's not lost on us that our market cap relative to the whole market cap of all races, Super tiny and and given that that's the case, we're not the first folks people look to that we just need to be looking a little bit more like the crowd continue to not lose what differentiate us and.
Speaker Change: And I think that those take high integrity action, that's all based on substance to bring that forward.
Speaker Change: Make sure we're not getting the form wrong, so that when people look at us and see us it's easy to understand the story of what we're bringing forward. But in addition, the numbers don't don't require a lot of explaining in a relative to other opportunities that folks have to invest in the real estate sector.
Speaker Change: Okay.
Speaker Change: Post kind of one internal growth question I have one external growth question. It relates to the <unk> already been asked about your cost of capital the cost of equity specifically right. So you just feel that a question about potential buybacks.
Speaker Change: Said earlier, Youll, probably do deals roughly 50% equity and 50% that <unk> been able to use the forwards.
Speaker Change: That you entered into a while back.
Speaker Change: Yes.
Speaker Change: Can you execute your plan right now the stock is trading below $11 50 a share.
Speaker Change: Can you execute your plan and make accretive acquisitions, if your stock prices stock here.
Speaker Change: Adding the tenure is 475.
Speaker Change: Yes.
Speaker Change: Answer is yes, it's obviously harder and Thats why <unk>.
Speaker Change: Developing in the eights and I mean, and we mean in the eights not like eight one.
Speaker Change: <unk> is very is.
Speaker Change: Very good for us and very accretive at these levels Sad part is it takes 24 months to build a building. So so we feel very good about that medium term view.
Speaker Change: You look at something like ice Dallas, that's accretive.
Speaker Change: And we will find other similar opportunities like that and I am very hopeful that as those get executed.
Speaker Change: And Alison and I will take your guidance up a little bit and we will be sort of on that path and to your point, we will be showing proof of concept, which is hopefully we have a conference call, we're saying well in November we changed our Tam Here's the research. We did this is what we've delivered and now here's what we're looking to to 2025 and.
Speaker Change: And I think Thats I think thats when the when we're going to start being able to show our results and we don't want to just blurt it all out right.
Speaker Change: Right now so if.
Speaker Change: If we had a $13 stock price this would be a no brainer and which is the marginal amount relative to where we are but.
Speaker Change: That kind of.
Speaker Change: That kind of motion one of the things, we basically have to make the make the case to folks is that we deserve having a 13% or $14 stock price and with that we will show you. The kinds of buildings that we can buy and we can show you how we're going to grow and we're fundamentally building the foundation for that story, right now and and Thats.
Speaker Change: We're executing on everyday and its frustrating as the world doesn't know faster, but it is.
Speaker Change: All we can do is try and be transparent and have people follow along and at some point, we think we're going to be rewarded for what were building and doing.
Speaker Change: Okay is it fair to say you would issue equity at 11%.
Speaker Change: If you match it up with an acquisition within Eaton App, yes, its accretive yes, its accretive if it's accretive sure and when I talk about stock buybacks.
Speaker Change: If we deliver all of this growth out there and find ourselves in a place where the stock is still what is it $11 48.
Speaker Change: Then we got to just look at the World and say, what's what's going on here.
Speaker Change: Cause I know the quality of what we're bringing forward and the IRR that we have in compared to everything else. That's out there it's pretty I don't know we feel we can make a case that it's that it's very compelling and and so but we're always interested in points of view around it and.
Speaker Change: All we can do is try and be incredibly transparent about what we're executing on and we are.
Speaker Change: We're putting a quarter to quarter together, we're very pleased with what we're doing we don't want to sound over enthusiastic which is why are we talking about 2% to 3% instead of a path of 4%.
Speaker Change: As we've shared with folks.
Speaker Change: But where we are in a transition period, we see great opportunity, we have a definable edge, we can bind very special real estate and we think we can create a cash flow profile.
Speaker Change: That should be.
Speaker Change: Materially valued.
Speaker Change: I was not thinking about buybacks, but maybe someday in the future we can talk about that.
Speaker Change: Yes.
Speaker Change: I appreciate it yeah, no look and I appreciate the conversation I think these transcripts or really a terrific opportunity for folks to get to know US you don't have time to get on the conference call. Because we are a smaller cap REIT.
Speaker Change: Maybe they'll pick up the paper hearing six months and read this transcript.
Speaker Change: Learn a little bit about what we've been.
Speaker Change: And working very hard to achieve.
Speaker Change: Sure.
Speaker Change: We wouldn't do it if we didn't think we could do it well.
Speaker Change: Thank you very much appreciate it yeah. Thank you thanks for paying attention and following the company.
Speaker Change: Our next question is from Bill Crow of Raymond James. Please proceed with your question.
William Andrew Crow: Hey, good morning, just a couple of clarifications.
William Andrew Crow: 7% cost of cap.
William Andrew Crow: Is that latest.
William Andrew Crow: Today's incremental cost of debt and today's stock price. It just feels like that number is too low.
William Andrew Crow: I just wanted to get clarification.
Speaker Change: Yes, good morning for taking my comment was closer to <unk>.
Speaker Change: Mid Sevens low seven and we got set as a perspective on.
Speaker Change: Where we can issue.
Speaker Change: When looking at multiple opportunities in the debt market from.
Speaker Change: The secured to unsecured grateful tenors.
Speaker Change: Continuing to work to match, our assets and our liabilities, but after yes in equity and equity price.
Speaker Change: And around.
Speaker Change: $12 today.
Speaker Change: Okay.
Speaker Change: So apparel that we ask that you referenced that you were.
Speaker Change: They wanted a five five cap rate now you're 150 basis points, while they are still talking.
Speaker Change: That was in the range of <unk>.
Speaker Change: The best right.
Speaker Change: Yes.
Speaker Change: Any spots right yes.
Speaker Change: Hey, they've made it more than halfway bill and it's a pretty snazzy building so yes.
Speaker Change: If you can give us a little stock price and they can get a little softer we're going to have a really a.
Speaker Change: The nine figure set to deliver that.
Speaker Change: Youre going to love.
Speaker Change: Yes, see billings, great, but if you don't have rollover in the early <unk>.
Speaker Change: 4% a year on rollover.
Speaker Change: That doesn't really buy units.
Speaker Change: Value.
Speaker Change: That's right.
Speaker Change: I'll quit challenge right, 18% average roll doesn't cover inflation.
Speaker Change: Look at it per year.
Speaker Change: That's kind of I think the sticking point here.
Speaker Change: Yes, no no no.
Speaker Change: Okay.
Speaker Change: But what I'm, saying is that is.
Speaker Change: Is that yes, we view you an ICI the eye on the math and the numbers and no doubt it's also.
Speaker Change: Why again.
Speaker Change: Changing our Tam so that we can.
Speaker Change: Have some profile that makes the cash flow a little bit better because the reality is the inflation that we've had over the last couple of years will be recognized in our cash flow.
Speaker Change: 6789 years from now which is just too long and it's beyond the horizon of antibody.
Speaker Change: Anybody on this call.
Speaker Change: But the reality is that that our buildings are more valuable today because of that than they were a year or two ago. We just don't have the cash flow to prove it yet.
Speaker Change: And that's why we need some things with escalators in it and some other projects that we're working on to develop can be in the eight and.
Speaker Change: I see ways that we can.
Speaker Change: Again path to growing 4% is what we're striving to do we're talking about 2% to 3% regularly and we're going to get there and.
Speaker Change: And thats it.
Speaker Change: And we can any suggestions you have on showing people.
Speaker Change: How we can get to.
Speaker Change: Again, like a 13 to $14 stock price.
Speaker Change: And they're doing a good job that will.
Speaker Change: That starts.
Speaker Change: Our whole different magnitude of growth for us.
Speaker Change: That you'd see at acquisitions that are far far far higher than we've ever achieved in our history.
Speaker Change: I understand that.
Speaker Change: I appreciate that just two real quick ones.
Speaker Change: Acquisitions were in Dallas is that.
Speaker Change: Most of the airport.
Speaker Change: Yeah.
Speaker Change: The Zip code.
Speaker Change: Okay.
Speaker Change: Well then it will send it to you bill.
Speaker Change: If you go through if you want to go visit we've got a bunch of facilities in Dallas.
Speaker Change: Really happy to have a business to us.
Speaker Change: I was just out there for the eclipse.
Speaker Change: Finally from me.
Speaker Change: The two non government tenant that are in that building, what sort of businesses that how many of those tenants exist within the portfolio.
Speaker Change: The vast majority of our of our tenancy obviously, it's still.
Speaker Change: What do we know governmental.
Speaker Change: Five tenants that are private and it's very few.
Speaker Change: The building.
Speaker Change: Nice people.
Speaker Change: 30% to 35% to two private tenants.
Speaker Change: Those are at least through.
Speaker Change: Early in late 2032.
Speaker Change: Okay perfect.
Speaker Change: Thank you all very much appreciate it. Thank you Bill really appreciate the effort and I appreciate the direct questions because.
Speaker Change: I think it's the only way it kind of shows the.
Speaker Change: The scaffolding of what we're trying to build really appreciate it. So it is helpful to have these conversations for investors.
Speaker Change: Thank you.
Speaker Change: Thank you as a reminder to ask a question at this time. Please press star one one Orient Hassan telephone.
Speaker Change: Our next question is from Merrill Ross of Compass point Research and trading. Please proceed with your question.
Speaker Change: Okay.
Speaker Change: Marathon.
Speaker Change: Eric.
Speaker Change: Hi.
Speaker Change: Alright, okay.
Speaker Change: How are you.
Speaker Change: Desire to cover the dividend might play are easing.
Speaker Change: The acquisition versus development pipeline.
Speaker Change: Which might be to the detriment of long term value creation.
Speaker Change: I'm, saying.
Speaker Change: Buildings.
Speaker Change: That have then Kathy.
Speaker Change: Capex budget, because theyre older right theyre not the new builds that you would bill.
Speaker Change: It has implications for the total return and value creation.
Speaker Change: Longer than 24 months out so how is the board looking at.
Speaker Change: Acquisition pipeline and steering you towards covering the dividend.
Speaker Change: Yes.
Speaker Change: You do find yourself and taking on a little bit more leverage although tiny.
Speaker Change: I can probably take a penny or so of recurring growth away from the from the future that said I think we don't we do see the dividend issue as a as a short term issue the degree to which we didn't think believe it's a short term issue in the context of our business.
Speaker Change: We would reassess it but as we look at the opportunity to.
Speaker Change: Our development pipeline is very strong.
Speaker Change: Given where the stock prices today that leads to some very accretive acquisitions, and we believe that sustaining the dividend today that the short term benefit.
Speaker Change: Sustaining the dividend just for consistency.
Speaker Change: Is that is it.
Speaker Change: Marginal detractor from from future earnings.
Speaker Change: But given the opportunities in front of US, we think goes well out west.
Speaker Change: So we.
Speaker Change: We are.
Speaker Change: Feeling optimistic about being in growth mode, not only from new state and local buildings with escalators to working closely with some government adjacent partners that can be substantial to the additional development that we're doing.
Speaker Change: We are very bullish on government real estate as we're going forward.
Speaker Change: As compared to if you look.
Speaker Change: 18 to 20 months ago.
Speaker Change: We were in a time, where I think it was like batten down the hatches real estate is uncertain interest rates, we're ratcheting up and that was a time of day.
Speaker Change: Got it circle the wagons.
Speaker Change: And you see every not just us, but every real estate.
Speaker Change: Business Fund.
Speaker Change: Was in flux.
Speaker Change: We find ourselves again, feeling very optimistic about where we're going what we're pursuing we're finding opportunity.
Speaker Change: And that makes us again.
Speaker Change: Okay feel that the dividend is a short term problem. If we didn't have that kind of optimism for where the business is going and what our definable edge in the government space can create.
Speaker Change: We wouldn't.
Speaker Change: We wouldn't be so so close to their dividend, we do need to get our dividend in line with our cash flow.
Speaker Change: <unk>.
Speaker Change: A lot of their friends of the fed don't take the yield curve up another couple of hundred basis points.
Speaker Change: We feel like things are very in reach for for that to be.
Speaker Change: Yes.
Speaker Change: We're on a very good path.
Speaker Change: But youre exactly right and I think the buildings were buying also I just wanted to make the things we're very cognizant of what the Capex burden is when we do the analysis and <unk> had some conversations with you just about portfolio segmentation and the Capex, that's required and what's required by the government.
Speaker Change: That's all in our underwriting as we.
Speaker Change: Think about saying something is accretive or not accretive.
Speaker Change: When we when we announce it.
Speaker Change: Yes. Thanks.
Speaker Change: Some guidance regarding.
Speaker Change: The contractual capex might help clarify.
Tyler: Hey, Tyler.
Tyler: So we'll pay the dividend.
Tyler: Yes, because then we would know more about why they are making that decision.
Speaker Change: No that makes sense.
Speaker Change: That makes sense to me.
Speaker Change: Yes. Thank you.
Tyler: Yes.
Tyler: And at the end of the day, we are just being very direct I mean, we we think about CAD just as much as we think about <unk> accretion when we're looking at deals and there are some deals that are strong in <unk>, but have some capital requirements upon acquisition for us to get to a place where over the life of the lease.
Tyler: Yeah.
Tyler: We're operating in the building in a way that is.
Tyler: Did that Optimizes the return that we can achieve and for some of those buildings that just means we've got to find a bigger pipeline. We've got to find buildings that don't have that problem today.
Tyler: And Thats why when I say, if we can get our stock price of $13 $14. There is plenty of opportunity set we're recovering that were either eliminating because a cat or eliminating because of some some.
Tyler: <unk> that is brought on by a lower stock price as a REIT is harder just harder and so it's our job to make the case that we can grow in a way, where we deserve a stock price.
Speaker Change: Fair enough.
Speaker Change: Enough investors believe that's true.
Speaker Change: We'll put ourselves in a position where we can.
Speaker Change: Deliver even more growth.
Speaker Change: That's about getting the right machine started again and everyone's facing is not not peculiar to us while we haven't he was talking about what we're doing each and everyday to try and make that happen.
Speaker Change: Alright, great.
Speaker Change #100: Thank you.
Speaker Change: Thank you so much Merrill.
Merrill Hadady Ross: Thank you I would now like to turn the conference back to Darrell Crate, Chief Executive Officer of easterly government properties for closing remarks.
Darrell William Crate: Well great. Thank you everyone for joining the easterly government properties first quarter 2024 conference call. We look forward to sharing meaningful updates in the coming quarters as we continue to focus on our growth trajectory and set a course to deliver premium risk adjusted returns for our shareholders again, thanks for joining today and we again.
Speaker Change: Stay tuned.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Thanks.
Speaker Change: Okay.
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