SEC Filing | Easterly Government Properties

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36834

EASTERLY GOVERNMENT PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		47-2047728
(State of Incorporation)		(IRS Employer Identification No.)

2001 K Street NW, Suite 775 North, Washington, D.C.		20006
(Address of Principal Executive Offices)		(Zip Code)

(202) 595-9500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock

DEA

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 25, 2022, the registrant had 90,814,021 shares of common stock, $0.01 par value per share, outstanding.

INDEX TO FINANCIAL STATEMENTS


	Page
Part I: Financial Information

Item 1: Financial Statements:
Consolidated Financial Statements

Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)	1

Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	2

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	3

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	4

Notes to the Consolidated Financial Statements	6

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3: Quantitative and Qualitative Disclosures About Market Risk	41

Item 4: Controls and Procedures	41

Part II: Other Information

Item 1: Legal Proceedings	42

Item 1A: Risk Factors	42

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3: Defaults Upon Senior Securities	42

Item 4: Mine Safety Disclosures	42

Item 5: Other Information	42

Item 6: Exhibits	43

Signatures

Easterly Government Properties, Inc.

Consolidated Balance Sheets (unaudited)

(Amounts in thousands, except share amounts)


	September 30, 2022			December 31, 2021
Assets
Real estate properties, net	$	2,463,961		$	2,399,188
Cash and cash equivalents		11,032			11,132
Restricted cash		10,462			9,011
Tenant accounts receivable		60,250			58,733
Investment in unconsolidated real estate venture		199,338			131,840
Intangible assets, net		178,327			186,307
Interest rate swaps		4,515			—
Prepaid expenses and other assets		33,765			29,901
Total assets	$	2,961,650		$	2,826,112

Liabilities
Revolving credit facility		177,750			14,500
Term loan facilities, net		248,879			248,579
Notes payable, net		695,935			695,589
Mortgage notes payable, net		247,969			252,421
Intangible liabilities, net		19,139			19,718
Deferred revenue		85,510			87,134
Interest rate swaps		—			5,700
Accounts payable, accrued expenses and other liabilities		67,673			60,890
Total liabilities		1,542,855			1,384,531

Equity
Common stock, par value $0.01, 200,000,000 shares authorized, 90,814,021 and 90,147,868 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		908			901
Additional paid-in capital		1,622,628			1,604,712
Retained earnings		77,203			62,023
Cumulative dividends		(451,917	)		(379,895	)
Accumulated other comprehensive income (loss)		3,987			(5,072	)
Total stockholders’ equity		1,252,809			1,282,669
Non-controlling interest in Operating Partnership		165,986			158,912
Total equity		1,418,795			1,441,581
Total liabilities and equity	$	2,961,650		$	2,826,112

The accompanying notes are an integral part of these consolidated financial statements.

Easterly Government Properties, Inc.

Consolidated Statements of Operations (unaudited)

(Amounts in thousands, except share and per share amounts)


	For the three months ended September 30,						For the nine months ended September 30,
	2022			2021			2022			2021
Revenues
Rental income	$	72,643		$	67,439		$	214,238		$	197,713
Tenant reimbursements		1,616			1,527			3,676			3,746
Asset management income		377			—			942			—
Other income		405			642			1,244			1,764
Total revenues		75,041			69,608			220,100			203,223
Expenses
Property operating		17,802			15,188			48,811			41,578
Real estate taxes		8,177			7,626			23,854			22,465
Depreciation and amortization		25,050			22,765			73,552			67,615
Acquisition costs		275			518			939			1,488
Corporate general and administrative		5,870			5,893			17,819			17,469
Total expenses		57,174			51,990			164,975			150,615
Other income (expense)
Income from unconsolidated real estate venture		830			—			2,286			—
Interest expense, net		(12,408	)		(9,353	)		(34,729	)		(27,739	)
Gain on the sale of operating property		—			777			—			1,307
Impairment loss		(5,540	)		—			(5,540	)		—
Net income		749			9,042			17,142			26,176
Non-controlling interest in Operating Partnership		(107	)		(1,065	)		(1,962	)		(3,007	)
Net income available to Easterly Government Properties, Inc.	$	642		$	7,977		$	15,180		$	23,169
Net income available to Easterly Government Properties, Inc. per share:
Basic	$	0.01		$	0.09		$	0.16		$	0.27
Diluted	$	0.01		$	0.09		$	0.16		$	0.27
Weighted-average common shares outstanding
Basic		90,772,706			83,961,693			90,560,471			83,306,654
Diluted		91,119,372			84,472,257			90,886,108			83,774,752
Dividends declared per common share	$	0.265		$	0.265		$	0.795		$	0.785

The accompanying notes are an integral part of these consolidated financial statements.

Easterly Government Properties, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

(Amounts in thousands)


	For the three months ended September 30,						For the nine months ended September 30,
	2022			2021			2022			2021
Net income	$	749		$	9,042		$	17,142		$	26,176
Other comprehensive income:
Unrealized gain on interest rate swaps, net		1,806			1,180			10,216			4,275
Other comprehensive income		1,806			1,180			10,216			4,275
Comprehensive income		2,555			10,222			27,358			30,451
Non-controlling interest in Operating Partnership		(107	)		(1,065	)		(1,962	)		(3,007	)
Other comprehensive income attributable to non-controlling interest		(212	)		(167	)		(1,157	)		(450	)
Comprehensive income attributable to Easterly Government Properties, Inc.	$	2,236		$	8,990		$	24,239		$	26,994

The accompanying notes are an integral part of these consolidated financial statements.

Easterly Government Properties, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)


	For the nine months ended September 30,
	2022			2021
Cash flows from operating activities
Net income	$	17,142		$	26,176
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		73,552			67,615
Straight line rent		559			(4,317	)
Income from unconsolidated real estate venture		(2,286	)		—
Amortization of above- / below-market leases		(2,373	)		(3,569	)
Amortization of unearned revenue		(4,313	)		(4,217	)
Amortization of loan premium / discount		(844	)		(57	)
Amortization of deferred financing costs		1,538			1,164
Amortization of lease inducements		640			647
Gain on the sale of operating property		—			(1,307	)
Impairment loss		5,540			—
Distributions from investment in unconsolidated real estate venture		5,432			—
Non-cash compensation		4,891			3,700
Other		—			69
Net change in:
Tenant accounts receivable		544			(3,217	)
Prepaid expenses and other assets		(2,598	)		(4,890	)
Deferred revenue associated with operating leases		2,689			761
Principal payments on operating lease obligations		(314	)		(256	)
Accounts payable, accrued expenses and other liabilities		3,984			16,157
Net cash provided by operating activities		103,783			94,459
Cash flows from investing activities
Real estate acquisitions and deposits		(93,737	)		(115,440	)
Additions to operating properties		(16,128	)		(14,070	)
Additions to development properties		(8,804	)		(5,278	)
Proceeds from sale of operating property, net		—			7,336
Distributions from investment in unconsolidated real estate venture		609			—
Investment in unconsolidated real estate venture		(71,253	)		—
Net cash used in investing activities		(189,313	)		(127,452	)
Cash flows from financing activities
Payment of deferred financing costs		—			(3,575	)
Issuance of common shares		9,504			90,914
Credit facility draws		200,750			159,500
Credit facility repayments		(37,500	)		(126,250	)
Repayments of mortgage notes payable		(3,942	)		(2,948	)
Dividends and distributions paid		(81,795	)		(74,106	)
Payment of offering costs		(136	)		(1,463	)
Net cash provided by financing activities		86,881			42,072
Net increase in Cash and cash equivalents and Restricted cash		1,351			9,079
Cash and cash equivalents and Restricted cash, beginning of period		20,143			14,669
Cash and cash equivalents and Restricted cash, end of period	$	21,494		$	23,748

The accompanying notes are an integral part of these consolidated financial statements.

Easterly Government Properties, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)

Supplemental disclosure of cash flow information is as follows:


	For the nine months ended September 30,
	2022		2021
Cash paid for interest, net of capitalized interest	$	25,805	$	27,395
Supplemental disclosure of non-cash information
Additions to operating properties accrued, not paid	$	2,731	$	1,029
Additions to development properties accrued, not paid		2,550		1,022
Offering costs accrued, not paid		—		16
Deferred asset acquisition costs accrued, not paid		—		144
Contingent consideration accrued, not received		125		—
Contingent consideration accrued, not paid		—		336
Unrealized gain on interest rate swaps, net		10,216		4,275
Properties acquired for Common Units		17,361		20,790
Recognition of operating lease right-of-use assets		101