UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in Its Charter)
|
||
(State of Incorporation) |
|
(IRS Employer Identification No.) |
|
||
(Address of Principal Executive Offices) |
|
(Zip Code) |
(
(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 |
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.
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).
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.
|
☒ |
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
As of April 25, 2023, the registrant had
INDEX TO FINANCIAL STATEMENTS
|
Page |
Part I: Financial Information |
|
|
|
Item 1: Financial Statements: |
|
Consolidated Financial Statements |
|
|
|
Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 (unaudited) |
1 |
|
|
Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 (unaudited) |
2 |
|
|
3 |
|
|
|
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (unaudited) |
4 |
|
|
6 |
|
|
|
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
|
|
Item 3: Quantitative and Qualitative Disclosures About Market Risk |
34 |
|
|
34 |
|
|
|
|
|
|
|
34 |
|
|
|
34 |
|
|
|
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds |
34 |
|
|
34 |
|
|
|
35 |
|
|
|
35 |
|
|
|
36 |
|
|
|
|
Easterly Government Properties, Inc.
Consolidated Balance Sheets (unaudited)
(Amounts in thousands, except share amounts)
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Assets |
|
|
|
|
|
|
||
Real estate properties, net |
|
$ |
|
|
$ |
|
||
Cash and cash equivalents |
|
|
|
|
|
|
||
Restricted cash |
|
|
|
|
|
|
||
Tenant accounts receivable |
|
|
|
|
|
|
||
Investment in unconsolidated real estate venture |
|
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
|
||
Interest rate swaps |
|
|
|
|
|
|
||
Prepaid expenses and other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Revolving credit facility |
|
|
|
|
|
|
||
Term loan facilities, net |
|
|
|
|
|
|
||
Notes payable, net |
|
|
|
|
|
|
||
Mortgage notes payable, net |
|
|
|
|
|
|
||
Intangible liabilities, net |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Interest rate swaps |
|
|
|
|
|
— |
|
|
Accounts payable, accrued expenses and other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Equity |
|
|
|
|
|
|
||
Common stock, par value $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
|
||
Cumulative dividends |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
||
Total stockholders’ equity |
|
|
|
|
|
|
||
Non-controlling interest in Operating Partnership |
|
|
|
|
|
|
||
Total equity |
|
|
|
|
|
|
||
Total liabilities and equity |
|
$ |
|
|
$ |
|
||
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 March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Revenues |
|
|
|
|
|
|
||
Rental income |
|
$ |
|
|
$ |
|
||
Tenant reimbursements |
|
|
|
|
|
|
||
Asset management income |
|
|
|
|
|
|
||
Other income |
|
|
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
||
Expenses |
|
|
|
|
|
|
||
Property operating |
|
|
|
|
|
|
||
Real estate taxes |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Acquisition costs |
|
|
|
|
|
|
||
Corporate general and administrative |
|
|
|
|
|
|
||
Total expenses |
|
|
|
|
|
|
||
Other income (expense) |
|
|
|
|
|
|
||
Income from unconsolidated real estate venture |
|
|
|
|
|
|
||
Interest expense, net |
|
|
( |
) |
|
|
( |
) |
Net income |
|
|
|
|
|
|
||
Non-controlling interest in Operating Partnership |
|
|
( |
) |
|
|
( |
) |
Net income available to Easterly Government |
|
$ |
|
|
$ |
|
||
Net income available to Easterly Government |
|
|
|
|
|
|
||
Basic |
|
$ |
|
|
$ |
|
||
Diluted |
|
$ |
|
|
$ |
|
||
Weighted-average common shares outstanding |
|
|
|
|
|
|
||
Basic |
|
|
|
|
|
|
||
Diluted |
|
|
|
|
|
|
||
Dividends declared per common share |
|
$ |
|
|
$ |
|
||
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 March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net income |
|
$ |
|
|
$ |
|
||
Other comprehensive income: |
|
|
|
|
|
|
||
Unrealized gain (loss) on interest rate swaps, net |
|
|
( |
) |
|
|
|
|
Other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
||
Non-controlling interest in Operating Partnership |
|
|
( |
) |
|
|
( |
) |
Other comprehensive (income) loss attributable to |
|
|
|
|
|
( |
) |
|
Comprehensive income attributable to |
|
$ |
|
|
$ |
|
||
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 three months ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net income |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Straight line rent |
|
|
( |
) |
|
|
( |
) |
Income from unconsolidated real estate venture |
|
|
( |
) |
|
|
( |
) |
Amortization of above- / below-market leases |
|
|
( |
) |
|
|
( |
) |
Amortization of unearned revenue |
|
|
( |
) |
|
|
( |
) |
Amortization of loan premium / discount |
|
|
( |
) |
|
|
( |
) |
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Amortization of lease inducements |
|
|
|
|
|
|
||
Distributions from investment in unconsolidated real estate venture |
|
|
|
|
|
|
||
Non-cash compensation |
|
|
|
|
|
|
||
Net change in: |
|
|
|
|
|
|
||
Tenant accounts receivable |
|
|
|
|
|
|
||
Prepaid expenses and other assets |
|
|
( |
) |
|
|
( |
) |
Deferred revenue associated with operating leases |
|
|
|
|
|
|
||
Principal payments on operating lease obligations |
|
|
( |
) |
|
|
( |
) |
Accounts payable, accrued expenses and other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
|
||
Real estate acquisitions and deposits |
|
|
|
|
|
( |
) |
|
Additions to operating properties |
|
|
( |
) |
|
|
( |
) |
Additions to development properties |
|
|
( |
) |
|
|
( |
) |
Investment in unconsolidated real estate venture |
|
|
— |
|
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Issuance of common shares |
|
|
|
|
|
|
||
Credit facility draws |
|
|
|
|
|
|
||
Credit facility repayments |
|
|
( |
) |
|
|
( |
) |
Repayments of mortgage notes payable |
|
|
( |
) |
|
|
( |
) |
Dividends and distributions paid |
|
|
( |
) |
|
|
( |
) |
Payment of offering costs |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
( |
) |
|
|
|
|
Net increase (decrease) in Cash and cash equivalents and Restricted cash |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents and Restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents and Restricted cash, end of period |
|
$ |
|
|
$ |
|
||
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 three months ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash paid for interest (net of capitalized interest of $ |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of non-cash information |
|
|
|
|
|
|
||
Additions to operating properties accrued, not paid |
|
$ |
|
|
$ |
|
||
Additions to development properties accrued, not paid |
|
|
|
|
|
|
||
Offering costs accrued, not paid |
|
|
|
|
|
|
||
Deferred asset acquisition costs accrued, not paid |
|
|
|
|
|
|
||
Unrealized gain (loss) on interest rate swaps, net |
|
|
( |
) |
|
|
|
|
Properties acquired for Common Units |
|
|
|
|
|
— |
|
|
Recognition of operating lease right-of-use assets |
|
|
— |
|
|
|
|
|
Recognition of liabilities related to operating lease right-of-use assets |
|
|
— |
|
|
|
|
|
Exchange of Common Units for Shares of Common Stock |
|
|
|
|
|
|
||
Non-controlling interest in Operating Partnership |
|
$ |
( |
) |
|
$ |
( |
) |
Common stock |
|
|
— |
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
||
Total |
|
$ |
— |
|
|
$ |
— |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
Easterly Government Properties, Inc.
Notes to the Consolidated Financial Statements (unaudited)
1. Organization and Basis of Presentation
The information contained in the following notes to the consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2022, and related notes thereto, included in the Annual Report on Form 10-K of Easterly Government Properties, Inc. (the “Company”) for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 28, 2023.
The Company is a Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2015. The operations of the Company are carried on primarily through Easterly Government Properties LP (the “Operating Partnership”) and the wholly owned subsidiaries of the Operating Partnership. As used herein, the “Company,” “we,” “us,” or “our” refer to Easterly Government Properties, Inc. and its consolidated subsidiaries and partnerships, including the Operating Partnership, except where context otherwise requires.
We are an internally managed REIT, focused primarily on the acquisition, development, and management of Class A commercial properties that are leased to U.S. Government agencies that serve essential functions. We generate substantially all of our revenue by leasing our properties to such agencies, either directly or through the U.S. General Services Administration (“GSA”). Our objective is to generate attractive risk-adjusted returns for our stockholders over the long-term through dividends and capital appreciation.
We focus on acquiring, developing and managing U.S. Government leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the U.S. Government, working closely with the tenant agency to meet its needs and objectives. As of March 31, 2023, we wholly owned
The Operating Partnership holds substantially all of our assets and conducts substantially all of our business. We are the sole general partner of the Operating Partnership. We owned approximately
Principles of Consolidation
The accompanying consolidated financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company, Easterly Government Properties TRS, LLC, Easterly Government Services, LLC, the Operating Partnership and its other subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation
The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the consolidated financial position of the Company at March 31, 2023 and December 31, 2022, the consolidated results of operations for the three months ended March 31, 2023 and 2022, and the consolidated cash flows for the three months ended March 31, 2023 and 2022. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the balance sheet, and the
6
reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including the impact of extraordinary events, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
2. Summary of Significant Accounting Policies
The significant accounting policies used in the preparation of our condensed consolidated financial statements are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
3. Real Estate and Intangibles
Consolidated Real Estate and Intangibles
Real estate and intangibles consisted of the following as of March 31, 2023 (amounts in thousands):
|
|
Total |
|
|
Real estate properties, net |
|
|
|
|
Land |
|
$ |
|
|
Building and improvements |
|
|
|
|
Acquired tenant improvements |
|
|
|
|
Construction in progress |
|
|
|
|
Accumulated depreciation |
|
|
( |
) |
Total Real estate properties, net |
|
|
|
|
Intangible assets, net |
|
|
|
|
In-place leases |
|
|
|
|
Acquired leasing commissions |
|
|
|
|
Above market leases |
|
|
|
|
Payment in lieu of taxes |
|
|
|
|
Accumulated amortization |
|
|
( |
) |
Total Intangible assets, net |
|
|
|
|
Intangible liabilities, net |
|
|
|
|
Below market leases |
|
|
( |
) |
Accumulated amortization |
|
|
|
|
Total Intangible liabilities, net |
|
|
( |
) |
During the three months ended March 31, 2023, we incurred $
The following table summarizes the scheduled amortization of our acquired above- and below-market lease intangibles for each of the five succeeding years as of March 31, 2023 (amounts in thousands):
|
|
Acquired Above-Market Lease Intangibles |
|
|
Acquired Below-Market Lease Intangibles |
|
||
2023 (1) |
|
$ |
|
|
$ |
( |
) |
|
2024 |
|
|
|
|
|
( |
) |
|
2025 |
|
|
|
|
|
( |
) |
|
2026 |
|
|
|
|
|
( |
) |
|
2027 |
|
|
|
|
|
( |
) |
|
Above-market lease amortization reduces Rental income on our Consolidated Statements of Operations and below-market lease amortization increases Rental income on our Consolidated Statements of Operations.
7
4. Investment in Unconsolidated Real Estate Venture
The following is a summary of our investment in the JV (dollars in thousands):
|
|
|
|
As of March 31, |
|
|
Joint Venture |
|
Ownership Interest |
|
2023 |
|
|
MedBase Venture |
|
|
$ |
|
||
On October 13, 2021, we formed an unconsolidated real estate venture, which we refer to as the JV, with a global investor to fund the acquisition of a portfolio of
We provide asset management services to the JV. We recognized asset management service revenue of $
The following is a summary of financial information for the JV (amounts in thousands):
|
|
As of March 31, |
|
|
Balance sheet information: |
|
2023 |
|
|
Real estate, net |
|
$ |
|
|
Other assets, net (1) |
|
|
|
|
Total assets |
|
$ |
|
|
|
|
|
|
|
Total liabilities (2) |
|
$ |
|
|
Total equity |
|
|
|
|
Total liabilities and equity |
|
$ |
|
|
|
|
|
|
|
Company’s share of equity |
|
$ |
|
|
Basis differential (3) |
|
|
|
|
Carrying value of the Company’s investment in the unconsolidated venture |
|
$ |
|
|
|
|
For the three months ended March 31, |
|
|||||
Income statement information: |
|
2023 |
|
|
2022 |
|
||
Total revenue |
|
$ |
|
|
$ |
|
||
Operating income |
|
|
|
|
|
|
||
Net income |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Company’s share of net income |
|
$ |
|
|
$ |
|
||
8
5. Debt
At March 31, 2023, our consolidated borrowings consisted of the following (amounts in thousands):
|
|
Principal Outstanding |
|
|
Interest |
|
Current |
|
|
Loan |
|
March 31, 2023 |
|
|
Rate (1) |
|
Maturity |
|
|
Revolving credit facility: |
|
|
|
|
|
|
|
|
|
Revolving credit facility (2) |
|
$ |
|
|
|
|
|||
Total revolving credit facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan facilities: |
|
|
|
|
|
|
|
|
|
2016 term loan facility |
|
|
|
|
|
|
|||
2018 term loan facility (4) |
|
|
|
|
|
|
|||
Total term loan facilities |
|
|
|
|
|
|
|
|
|
Less: Total unamortized deferred financing fees |
|
|
( |
) |
|
|
|
|
|
Total term loan facilities, net |
|
|
|
|
|
|
|
|
|