Easterly Government Properties, Inc. Q1 FY2026 earnings call

• Market environment: Operate in a market defined by volatility like interest rates, geopolitical uncertainty, or broader capital market disruption. Investors focus on businesses with durable cash flows, strong tenant credit, and disciplined capital allocation. Easterly stands out in these areas with its portfolio supporting essential government functions.
• Portfolio features: Portfolio supports essential government functions, with 97% occupancy and weighted average lease terms of approximately 9.4 years. Completed first mezzanine investment tied to development of a new VA outpatient clinic. VA facilities are large portfolio exposure, highly specialized, sticky, and backed by federal government credit. Development projects: Fort Myers, Florida lab project expected to complete and commence lease in Q4 2026; Flagstaff Courthouse in Arizona scheduled to deliver in Q1 2027; Medford Courthouse in Oregon anticipated to complete in second half of 2027.

Total revenue increased to $91.5 million in the first quarter of 2026, up from $78.7 million in the first quarter of 2025, a 16% year - over - year increase. EBITDA grew from $51 million to $57.3 million, representing approximately 12% growth. Net income per share on a fully diluted basis was $0.03. FFO per share increased to $0.76 from $0.71, approximately 7% growth. Core FFO per share increased to 77 cents from 73 cents, or roughly 5.5% growth year over year. Cash available for distribution was approximately $32.2 million. The portfolio supports essential government functions with durable cash flows, strong tenant credit, and the revenue contribution comes from facilities tied to critical federal missions, high credit state and municipal agencies, and select defense - related tenants, with the portfolio often misclassified alongside traditional office real estate but having specialized nature.

The low end of the full year guidance was raised by one penny from $3.05 to $3.06, resulting in a revised full year range of $3.06 to $3.12. The midpoint of the guidance assumes $50 to $100 million of gross development - related investment during the year and $50 million in wholly owned acquisitions. Maintains a $1.5 billion acquisition and development pipeline and is making progress on potential transactions that meet investment criteria and can be executed at a spread to cost of capital.

• Market volatility: Interest rates, geopolitical uncertainty, or broader capital market disruption can affect the business. Actual results may differ from forward - looking statements and be affected by risks beyond the company's control, including those in recent SEC filings.

Q: Just starting off with the mezzanine funding piece, is a $7 million kind of a one - off transaction or is it something you would look to kind of do more of and how should we think about kind of the sizing of that if that's something that you would kind of doing more of in the future?

A: I mean, it's a terrific way for us to get involved early in a project. And I think we could see ourselves allocating about $30 million to this pipeline. The VA pipeline over the next four, five, six years is quite significant...

Q: It sounds like you are moving forward with some investments in your acquisition pipeline of a billion and a half. So I'm just wondering why not update guidance in terms of investment activity? And can you just update us on what kind of spread you're looking for in terms of investments versus your cost of capital?

A: We've thought a lot about whether or not to update guidance, particularly with respect to the acquisitions pipeline this quarter. And as Daryl mentioned, we are being conservative as we continue to evaluate near - term opportunities within that pipeline...

Q: Regarding the mezzanine loan investments, Is this now the preferred way to do developments rather than the large cash outlays and the reimbursement later? Should we expect you to do more of that and less of the other?

A: It's a good question. I think it really depends. It depends on the project in that You look at these FDA labs...

Q: Darrell, you noted in the opening remarks the intention to achieve an investment - grade credit rating in 2027. Do you speak to the deleveraging strategy and other metrics you're focusing on to achieve this?

A: You know, there's a couple. One, if you just squinted at all, you can see that there are other firms that are, you know, quite similar to us that have a triple B plus rating or triple B...

Q: Regarding the mezzanine loan investments, Is this now the preferred way to do developments rather than the large cash outlays and the reimbursement later? Should we expect you to do more of that and less of the other?

A: It's a good question. I think it really depends. It depends on the project in that You look at these FDA labs...

Q: You kind of alluded to, I think, a little bit of conservatism maybe in the acquisition guidance and the FFO guidance. You know, if we annualize the first quarter results, it gets you to $3.10 for the year. The midpoint of the range is $3.09. I guess the question is just, you know, is that just a little bit of conservatism, or are there any drags through the rest of the year, you know, why you wouldn't have any sequential growth?

A: a few things uh one um as you can imagine and or i've even seen in the markets recently interest rates are like really wacky right now i think there's increased short - term volatility that we are seeing...