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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

OR

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.

1

 


 

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.

2

 


 

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.

3

 


 

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.

 

4

 


 

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

 

 

 

 

Recognition of liabilities related to operating lease right-of-use assets