Easterly Government Properties, Inc. Q2 FY2025 earnings call

• Focused on mission-critical infrastructure, long-term leases, and vital tenants for safety, health, and security. • Advanced key development projects with long-term noncancelable leases. • Strengthened relationships with federal, state, and local partners. • Disciplined in capital deployment, targeting opportunities that create durable value and align with strategic mission. • Dividend reset had a near-term impact on stock price and cost of capital, with focus on rebuilding shareholder base with long-term public investors. • Operational and financial results validated the approach, with progress on lease renewals and reduced soft term lease exposure. • Well-positioned balance sheet with current liquidity and projected inflows providing flexibility for growth opportunities

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. Our soft term lease exposure declined from 5.2% at year-end to 4.7% as of quarter end. We also have $122 million of revolver capacity available and expect an additional $115 million in liquidity later this year from the FDA Atlanta lump sum repayment, with our leverage ratio remaining within the target range of 6.5 to 7.5x

• Maintained full year 2025 core FFO per share guidance in the range of $2.98 to $3.03. • Impacted by $141 million in operating properties acquired year-to-date and expected $25 million to $75 million in development-related investment in 2025. • Liquidity from revolver capacity and expected FDA Atlanta repayment provides flexibility to pursue high-quality opportunities without straining the balance sheet

• Elevated cost of capital due to near-term overhang from dividend reset. • Market environment challenges affecting stock price and capital allocation decisions

Q: Can you talk about kind of your return expectations for the crime lab development project whether that's on an unlevered IRR basis or cap rate?

A: Sure. So that development is very consistent with our other sort of development growth targets in that we seek to create about a 150 basis point spread to our cost of capital. So that is certainly in line and that is being developed in the 10s on a cap rate basis.

Q: And then looking at the guidance assumptions, acquisitions and dispositions kind of underpinning guidance didn't change. I'm curious kind of what's the size of the pipeline of opportunities you're looking at? And just how do you think about kind of what the optimal capital structure is for you guys?

A: Sure. So in terms of the pipeline, I think we've shared a ton how we're seeing volume, $1 billion, $1.5 billion. 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 profiles going forward, we do seek to manage leverage typically on a 50-50 basis cost of equity, cost of debt. And we're in the 8s today from a cost of capital perspective. So that allows us to be accretive in the 9s