Q2 2025 Easterly Government Properties Inc Earnings Call

Greetings, welcome to easterly. Government properties, second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session between the company's research analyst and Easter lease management team.

And analysts will need to press star 1 1 and their telephone. They will then hear an automated message advising. Their hand is raised. Please be advised. That today's conference is being recorded, I would now like to hand the conference over to your speaker today. Alison Marino Executive, Vice President and Chief Financial Officer. Please go ahead.

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.

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.

Furthermore, actual results May differ materially from those 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. Those contained in the company's most recent form, 10 K filed with the SEC, and in its other SEC filings.

The company assumes. No obligation to update publicly any forward-looking statements.

Additionally, on this conference call, the company may refer to certain non-GAAP financial measures such as funds from operations, core funds from operations, and cash available for distribution. You can find a tabular 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 atir cam

I would now like to turn over the conference call to Daryl crate, president and CEO of easterly, Government properties.

Thanks, Alison. Good morning, and thank you for joining us today.

The second quarter of 2025 reflects continued execution on our long-term strategy, discipline growth, essential real estate and enduring value creation.

At Easterly, we've always focused on delivering reliable performance in uncertain times. This quarter is no exception; our business remains grounded in mission-critical infrastructure, long-term leases, and tenants whose work is vital to the safety, health, and security of our country.

Our portfolio continues to be a source of strength Diversified across geographies and agencies with long-term leases and outstanding credit quality.

We own and operate the kind of facilities that are indispensable to the day-to-day functioning of government.

Courses law, enforcement Labs, public health, clinics and secured facilities.

These are buildings that will stay full perform well and stand the test of time.

In the second quarter, we may continue progress across our platform.

We Advanced several key development projects each backed by long-term non-cancellable leases

We strengthened relationships with federal, state, and local partners who rely on our expertise to deliver secure, efficient, and modern facilities.

And we remain disciplined in our Capital deployment pursuing opportunities that meet our standards for credit Mission, alignment and value creation.

We're not in the business of chasing yield at the expense of long-term portfolio value. Our platform is designed to deliver durable returns supported by stable cash flows and thoughtful stewardship.

A big part of that discipline growth comes from the good work, being done by Mike Ivy, Chris Wong and Mark Bower.

Together. They lead our efforts in identifying underwriting and executing on a creative development and acquisition opportunities that meet our standards.

High credit quality strong alignment with government missions, and the potential to enhance the long-term value and durability of our portfolio.

Our work continues to be a core differentiator for easterly. It enables us to selectively grow into assets that are not only contributing to earnings but strengthening our overall strategic position as a go-to partner for government tendency

At the same time, we're mindful of today's market environment.

Our stock price and cost of capital remain modestly challenging in part due to the near-term. Overhang from our dividend reset earlier this year.

That was a difficult decision but a necessary 1 to preserve. Flexibility and position ourselves for sustainable growth.

As we work through this phase, our priority is to rebuild our shareholder base with long-term public investors who understand our mission believe in our strategy and have the resources to help fuel our growth.

We're confident that our fundamentals are people, and our execution will attract the right partners over time.

Both operational and financial continue to validate our approach.

We've been preparing for an environment where government real estate decisions are more strategic, more cost-conscious and more mission-driven that environment is now here.

Whether it's the federal government streamlining agency footprints or state and local agencies investing in modernized infrastructure, we're increasingly seen as a trusted partner—a firm that delivers what's promised and understands the nuance of public sector leasing.

This reputation is taken years to build and we protect it by staying consistent in how we operate and selective in what we pursue.

Well, I'll leave the details to Allison in a moment. I want to highlight that our second quarter, reflects strong growth, a solid, and improving balance sheet, and continue to alignment between our financial outcomes. And our long-term strategy.

The numbers you'll hear today reinforce, what? We've always believed that a focused strategy executed with discipline delivers, real and Lasting value.

As we enter the second half of 2025, our Focus remains clear continue to execute our development Pipeline with excellence.

Deep in our relationships, across federal state and local agencies.

Remain agile and disciplined in capital, allocation and above all stayed true to our mission of delivering critical real estate for the public good.

We're proud of the platform we've built, proud of the role we play in supporting government operations, and proud of the team that continues to execute at the highest level.

To our shareholders. Thank you for your continued trust we remain focused on delivering reliable performance today and building value for tomorrow. And with that, I'll turn the call over to Allison for a deeper. Look at our financial results.

Daryl.

Easterly delivered a solid second quarter that reflects both the strength of our real estate portfolio and the consistency of our execution.

Net income per share was $0.09 on a fully diluted basis. Core FFO per share was $0.74, a 3% increase year-over-year, and cash available for distribution was $29.3 million.

We exceeded consensus expectations for the quarter and remained firmly on track to achieve our full year core. Ffo per share, guidance reflecting 2 to 3% growth trajectories in 2025

we continue to actively manage a set of federal lease expirations, and our second quarter execution, demonstrates steady progress on both 2025 and 2026 renewals

While a few leases remain in process, I want to emphasize. We are not seeing any breaks and tendency or performance

We believe this reinforces the mission critical nature of our facilities and the value of our proactive approach to tenant engagement.

A great example is the recently finalized 5-year firm term renewal with the US Forest Service in Albuquerque.

This lease includes built-in annual rent escalators, and we view it as a positive signal that the federal government is modernizing its approach to real estate procurement.

This renewal validates both the quality of our asset and the strength of our tenant relationship.

It also highlights our team's ability to manage renewal risk in a complex leasing environment.

As of quarter, end our soft term, lease, exposure declined, from 5.2%. At year, end to 4.7%

The clear indication of 2 key strengths 1 continued progress on renewals and 2 our ability to work closely with federal agencies to meet evolving Mission needs.

We remain engaged on the remaining 3 leases that are set to roll this year and expect resolution consistent with government timelines.

Turning to the balance sheet, we remain well, positioned to support continued growth.

We have 122 million of revolver capacity available we expect an additional 115 million in liquidity. Later this year from the FDA Atlanta lump sum repayment.

And our leverage ratio remains within our target range of 6 and a half to 7 and a half times.

This combination of current liquidity and projected inflows. Gives us the flexibility to pursue high quality development and acquisition opportunities without stretching or balance sheet.

As Daryl noted, we continue to operate in an environment where our cost of capital is elevated a challenge, largely driven by the near-term, overhang from our dividend reset.

Our posture remains unchanged, though. We are focused on selectivity quality and discipline.

Looking ahead. We are maintaining our full year 2025 corfo per share guidance in the range of $2.98 to $33 on the fully diluted basis.

This guidance reflects the impact of 141 million dollars in operating properties, acquired year to date and an expected, 25 to 75 million. In development related investment, over the course of 2025.

We're pleased with the balance of stability and growth that this Outlook represents, and we look forward to keeping you updated on the progress of our pipeline in the second half of this year.

To wrap up, easterly remains strong, stable, and focused.

We're executing on renewals adding high-quality assets managing risk, proactively and maintaining Financial flexibility. Most importantly, we're continuing to deliver on the mission. Our platform was built for

providing critical real estate for the agencies that serve the American people.

Thank you again, for your time and continued partnership. I'll now turn the call back to Shannon to open the line for questions.

Thank you. As a reminder, to ask a question, you will need to press *1, 1, 1 on your telephone. Please stand by while we compile the Q&A roster.

Our first question is from Seth Bergie of City pleased to see you with your question.

Hi. Uh, thanks for taking my question. Can you talk about kind of your return expectations for the crime lab development project? You know, whether that's on um and I'm levered irr basis or cap rate.

So um, that development is very consistent with our other sort of development growth Targets in that we seek to create about 150 basis points, spread to our cost of capital. So that is certainly in line um, and that is being developed, um, in the 10th.

On a cap rate basis.

Thanks for that. And then, you know, looking at the guidance assumptions that Acquisitions and dispositions kind of underpinning. Guidance didn't change. I'm curious. Kind of, you know, what's the, the size of the pipeline of opportunities you're looking at? And, you know, just how do you think about kind of, um,

What the optimal capital structure is for you guys.

Sure. So

In terms of the pipeline, I think we've we've shared a ton how we're seeing, um, volume billion billion and a half dollars. But we're really looking at many deals to find the best view that allow us to meet our growth goals.

So, in terms of our profiles going forward, we do seek to manage leverage, um, typically on a 50-50 basis: cost of equity, cost of debt. And, um, you know, we're in the eights today from a cost of capital perspective, so that allows us to be accretive, um, in the nines.

Great, thanks.

Thank you as a reminder to ask a question at this time, please press star 1, 1 1 or you touch down telephone.

I'm currently showing no further questions at this time. I would now like to hand the conference back to Daryl crate, president and CEO of eso Government properties for closing remarks.

Great. Thanks everybody for joining us today for our second quarter conference call. Uh, we look forward to continuing to deliver a strong stable results and look forward to seeing all of you. Next quarter, all the best. This concludes today's conference call, thank you for participating, you may now disconnect