Easterly Government Properties(DEA)2023-05-02 17:25Financial Data and Key Metrics Changes - For Q1 2023, net income per share was 0.29, with cash available for distribution at 1.2 billion at a weighted average interest rate of 3.7%, with 96% of outstanding debt fixed [19] - The net debt to annualized quarterly EBITDA ratio stood at 7.2x, with over 50 million available under the 2018 term loan [19] Business Line Data and Key Metrics Changes - The company owned 86 operating properties comprising approximately 8.6 million lease square feet, with a weighted average age of 14.1 years and a weighted average remaining lease term of 10.4 years [33] - The average rent renewal spread from 2020 to present is expected to be 23% with an average term of over 18 years [14] Market Data and Key Metrics Changes - The office sector is facing challenges due to work-from-home trends, occupancy rates, local rental rates, and potential layoffs across various industries [13] - Only 51% of Easterly's annualized lease income comes from office assets, which is expected to decrease with the acquisition of additional VA properties [30] Company Strategy and Development Direction - The company is focused on acquiring mission-critical assets leased to the U.S. federal government, with plans to restart growth by acquiring such assets as inflation shows signs of cooling [27] - Easterly is maintaining an active presence in the acquisition market despite a decline in transaction volume, aiming for accretive acquisitions of bullseye properties [12] - The company is positioned to take advantage of potential distress in development projects over the next 18 months due to liquidity issues faced by over-leveraged developers [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the company will not face issues during potential government shutdowns, as they are funded through the end of the fiscal year [52] - The company believes it is well-positioned to capitalize on opportunities in the market, with a strong balance sheet compared to regional developers [27] - Management highlighted the importance of their unique portfolio focused on government infrastructure, differentiating them from typical office businesses [15][24] Other Important Information - The company has transitioned to a core FFO metric for 2023, which adjusts FFO to present a clearer picture of operating performance [34] - The full-year 2023 core FFO per share guidance is maintained in the range of 1.15, assuming the closing of specific properties and development-related investments [48] Q&A Session Summary Question: Are there any issues around OpEx or G&A to consider for forward earnings estimates? - Management indicated that they are running at a level just shy of the mid-point of guidance, with expectations for renewals and TI work to continue, offset by expiring interest rate swaps [38] Question: Do buildings shut down concurrently with government shutdowns? - Management confirmed that buildings do not shut down concurrently with government shutdowns [53] Question: What cap rates are needed for attractive bullseye properties? - Management stated that high-6s cap rates would be acceptable, and they are prepared to act on high-quality assets as they become available [54] Question: What types of investments are being targeted currently? - Management highlighted a healthy uptick in development opportunities and a narrowing in the acquisition market, indicating a readiness to pursue various types of deals [56][57] Question: How comfortable is the company with dividend coverage? - Management expressed confidence in the strength of underlying U.S. government-backed cash flows, maintaining a consistent dividend policy [70]