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EASTERLY GOVERNMENT PROPERTIES, INC.

(DEA)
  Report
Delayed Nyse  -  04:00 2022-09-26 pm EDT
15.81 USD   -5.05%
09/14Truist Securities Trims Price Target on Easterly Government Properties to $20 From $21, Reiterates Hold Rating
MT
09/07Easterly Government Properties Releases Inaugural Environmental, Social, and Governance (ESG) Report
BU
08/29RBC Capital Trims Price Target on Easterly Government Properties to $20 From $21, Maintains Sector Perform Rating
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EASTERLY GOVERNMENT PROPERTIES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/02/2021 | 03:05pm EDT

Forward-Looking Statements


This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We
caution investors that forward-looking statements are based on management's
beliefs and on assumptions made by, and information currently available to,
management. When used, the words "anticipate", "believe", "estimate", "expect",
"intend", "may", "might", "plan", "potential", "project", "result", "seek",
"should", "target", "will", and similar expressions which do not relate solely
to historical matters are intended to identify forward-looking statements. These
statements are subject to risks, uncertainties, and assumptions and are not
guarantees of future performance, which may be affected by known and unknown
risks, trends, uncertainties, and factors that are beyond our control. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, or projected. We expressly disclaim any responsibility
to update our forward-looking statements, whether as a result of new
information, future events, or otherwise. Accordingly, investors should use
caution in relying on forward-looking statements, which are based on results and
trends at the time they are made, to anticipate future results or trends.

Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

• the factors included under the heading "Risk Factors" in the Company's

        Annual Report on Form 10-K for the year ended December 31, 2020 and the
        factors included under the heading "Risk Factors" in the Company's other
        public filings;

• risks associated with our dependence on the U.S. Government and its

agencies for substantially all of our revenues, including credit risk and

risk that the U.S. Government reduces its spending on real estate or that

        it changes its preference away from leased properties;


  • risks associated with ownership and development of real estate;


  • the risk of decreased rental rates or increased vacancy rates;


  • loss of key personnel;

• the continuing adverse impact of the novel coronavirus (COVID-19) on the

        U.S., regional and global economies and our financial condition and
        results of operations;

• general volatility of the capital and credit markets and the market price

        of our common stock;


  • the risk we may lose one or more major tenants;


  • difficulties in completing and successfully integrating acquisitions;

• failure of acquisitions or development projects to occur at anticipated

        levels or yield anticipated results;


  • risks associated with our joint venture activities;


  • risks associated with actual or threatened terrorist attacks;

• intense competition in the real estate market that may limit our ability

to attract or retain tenants or re-lease space;

• insufficient amounts of insurance or exposure to events that are either

uninsured or underinsured;

• uncertainties and risks related to adverse weather conditions, natural

disasters and climate change;

• exposure to liability relating to environmental and health and safety

matters;

• limited ability to dispose of assets because of the relative illiquidity

        of real estate investments and the nature of our assets;


  • exposure to litigation or other claims;


  • risks associated with breaches of our data security;

• risks associated with our indebtedness, including failure to refinance

current or future indebtedness on favorable terms, or at all; failure to

        meet the restrictive covenants and requirements in our existing and new
        debt agreements; fluctuations in interest rates and increased costs to
        refinance or issue new debt;


                                       21


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  • risks associated with derivatives or hedging activity; and


    •   risks associated with mortgage debt or unsecured financing or the
        unavailability thereof, which could make it difficult to finance or
        refinance properties and could subject us to foreclosure.


For a further discussion of these and other factors, see the section entitled
"Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2020, as may be supplemented or amended from time to time.

Overview


References to "we," "our," "us" and "the Company" refer to Easterly Government
Properties, Inc., a Maryland corporation, together with our consolidated
subsidiaries including Easterly Government Properties LP, a Delaware limited
partnership, which we refer to herein as the Operating Partnership.

We are an internally managed real estate investment trust, or 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, or 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 September 30, 2021, we wholly
owned 83 operating properties in the United States, encompassing approximately
7.5 million leased square feet in the aggregate, including 82 operating
properties that were leased primarily to U.S. Government tenant agencies, and
one operating property that was entirely leased to a private tenant. As of
September 30, 2021, our operating properties were 99% leased. For purposes of
calculating percentage leased, we exclude from the denominator total square feet
that was unleased and to which we attributed no value at the time of
acquisition. In addition, we wholly owned one property under development that we
expect will encompass approximately 0.2 million leased square feet upon
completion.

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 and owned approximately 88.5% of the aggregate limited
partnership interests in the Operating Partnership, which we refer to herein as
common units, as of September 30, 2021. We have elected to be taxed as a REIT
and we believe that we have operated and have been organized in conformity with
the requirements for qualification and taxation as a REIT for U.S. federal
income tax purposes commencing with our taxable year ended December 31, 2015.

Impact of the COVID-19 Pandemic


The novel coronavirus, or COVID-19, pandemic has caused and continues to cause
significant disruptions to the United States, regional and global economies and
has contributed to significant volatility and negative pressure in financial
markets.

We continue to carefully monitor the COVID-19 pandemic and its potential impact
on our business. We are following guidelines established by the Centers for
Disease Control and the World Health Organization and orders issued by the state
and local governments where we operate. In addition, we have taken a number of
precautionary steps to safeguard our business and our employees from COVID-19,
including, but not limited to, implementing non-essential travel restrictions
and facilitating telecommuting arrangements for our employees. We have taken
these precautionary steps while maintaining business continuity so that we can
continue to deliver service to and meet the demands of our tenants, including
our U.S. Government tenant agencies.

The ability of our employees, including those working remotely, to securely
access our IT networks and related systems has been a critical component of our
ability to maintain business continuity during the COVID-19 pandemic. During
this time, we have made additional investments in our IT networks and enhanced
our existing cybersecurity plan, which utilizes standards established by
reference to the National Institute of Standards ("NIST") framework. As part of
our ongoing cybersecurity plan, we conduct cybersecurity awareness training at
least annually for all our employees, carry out quarterly control reviews,
periodic penetration tests and annual investments in our security
infrastructure, perform an assessment at least annually of our cybersecurity
program against the NIST framework and conduct ongoing phishing simulations to
raise awareness of critical security threats. The Audit Committee of our Board
of Directors oversees our risk management processes related to cybersecurity,
including discussing no less than annually our cybersecurity plan with
management or our internal auditor.

The operations of many of our U.S. Government tenant agencies are deemed
essential. We are working closely with our tenants to follow directions from the
various federal government tenant agencies with respect to building operations
within our portfolio, and

                                       22


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have issued guidance for our vendors and building engineers grounded in
applicable federal, state and local guidelines. Whenever we learn of a confirmed
case of COVID-19 involving an individual known to have been in one of our
buildings, we immediately take additional steps in collaboration with our
tenants and vendors to disinfect and sanitize the affected spaces and all common
areas in the building.

To date, the impact of the COVID-19 pandemic on our business and financial
condition has not been significant. Substantially all of our revenue continues
to be generated through the receipt of rental payments from U.S. Government
tenant agencies, which accounted for 98.6% of our annualized lease income as of
September 30, 2021. We expect that leases to agencies of the U.S. Government
will continue to be the primary source of our revenues for the foreseeable
future. Notwithstanding the recent volatility in the financial markets, we also
believe that our capital structure will continue to provide us with the
resources, financial flexibility and the capacity to support the continued
growth of our business. Since January 1, 2021, we have issued an aggregate of
3,671,232 shares of our common stock, which were all issued in settlement of
forward sales transactions, under our March 2019 ATM Program and December 2019
ATM Program (each as described below). As of October 26, 2021, there are
1,885,289 shares underlying forward sale transactions that have not yet been
settled. Subject to our right to elect net share settlement, we expect to
physically settle the forward sales transactions between January 2022 and July
2022. As of September 30, 2021, we also had $337.5 million available under our
$450.0 million senior unsecured revolving credit facility.

The future impact of the COVID-19 pandemic on our operations and financial
condition will, however, depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the scope, severity
and duration of the pandemic, the actions taken to contain the pandemic or
mitigate its impact, and the direct and indirect economic effects of the
pandemic and containment measures, among others. See "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2020 for a
discussion of the potential adverse impact of the COVID-19 pandemic on our
business, results of operations and financial condition.

2021 Activity

Acquisitions


On March 17, 2021, we acquired a 99,130 leased square foot Federal Bureau of
Investigation ("FBI") field office in Knoxville, Tennessee. The building is a
built-to-suit property completed in 2010. The facility is leased to the GSA for
beneficial use of the FBI with a lease expiration of August 2025.

On March 17, 2021, we acquired a 60,000 leased square foot U.S Attorney's Office
("USAO") facility in Louisville, Kentucky. The building is a built-to-suit
property completed in 2011. The facility is leased to the GSA for beneficial use
of the USAO with a lease expiration of December 2031.

On March 17, 2021, we acquired a 17,420 square foot U.S Immigration and Customs
Enforcement ("ICE") office in Louisville, Kentucky. The building is a
built-to-suit office facility completed in 2011. The facility is leased to the
GSA for beneficial use of ICE with a lease expiration of May 2021.

On April 22, 2021, we acquired a 43,600 square foot U.S. Attorney's Office ("USAO") in Springfield, Illinois. The building is a build-to-suit property completed in 2002. The facility is leased to the GSA for beneficial use of the USAO with a lease expiration of March 2038.


On May 20, 2021, we acquired a 94,378 square foot National Weather Service
Facility ("NWS") in Kansas City, Missouri. The building was originally
constructed in 1998 and substantially renovated in 2020. The facility is leased
to the GSA for beneficial use of the NWS with a lease expiration of December
2038.

On July 22, 2021, we acquired a 61,384 square foot U.S. Department of Homeland
Security facility in Cleveland, Ohio. The building was originally constructed in
1981 and substantially renovated in 2016 and 2021. The facility is primarily
leased to the GSA for beneficial use of ICE and the NWS and has lease
expirations ranging from August 2031 to September 2040.

On October 14, 2021, we acquired a 489,316 leased square foot U.S. Citizenship
and Immigration Services ("USCIS") facility in Kansas City, Missouri. The
building was substantially renovated-to-suit in 1999. The facility is primarily
leased to the GSA for beneficial use of the USCIS and has lease expirations
ranging from 2024 to 2042. In conjunction with the acquisition, we assumed $51.5
million of mortgage notes payable.

                                       23



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On November 1, 2021, we acquired an 80,000 square foot Department of Veteran
Affairs ("VA") facility located in the Midwest United States. The building is a
build-to-suit property that was completed during 2021. The facility is leased to
the VA and has a lease expiration of May 2041.

Dispositions


On June 4, 2021, we sold SSA - Mission Viejo to a third party. Net proceeds from
the sale of operating property were approximately $3.3 million and we recognized
a gain on the sale of operating property of approximately $0.5 million for the
nine months ended September 30, 2021.

On September 28, 2021, we sold United Technologies Midland to a third party. Net
proceeds from the sale of operating property were approximately $4.0 million and
we recognized a gain on the sale of operating property of approximately $0.8
million for the nine months ended September 30, 2021.

Other Transactions


On October 13, 2021, we formed a new joint venture (the "JV") with a global
investor (the "JV Partner") to fund the acquisition of a portfolio of ten
properties anticipated to encompass 1,214,165 leased square feet (the "Portfolio
Acquisition") in exchange for a 47.0% stake in the JV. We will retain a 53.0%
stake in the JV, subject to adjustment as set forth in the applicable JV
documentation, and will act as manager of the Portfolio Acquisition properties,
with customary rights and obligations, and will receive customary fees and
incentives.

The JV will serve as the acquisition vehicle for the Portfolio Acquisition and
has been assigned the rights of the purchase and sale agreement entered into by
the Operating Partnership on September 30, 2021. The aggregate contractual
purchase price for the Portfolio Acquisition is $635.6 million and the portfolio
is 100% leased to the Department of Veterans Affairs (VA) with a weighted
average lease term of 19.6 years. On October 13, 2021, the JV closed on two of
the ten properties included in the Portfolio Acquisition, consisting of VA
outpatient clinics located in Lubbock, Texas (VA - Lubbock) and Lenexa, Kansas
(VA - Lenexa). The remaining eight properties are either ready for future
acquisition or currently under construction. We expect the JV to close on the
remaining Portfolio Acquisition properties on a rolling basis by the end of
2023.

Operating Properties


As of September 30, 2021, our 83 operating properties were 99% leased with a
weighted average annualized lease income per leased square foot of $34.47 and a
weighted average age, based on the date of when the property was renovated or
built-to-suit, of approximately 13.8 years. We calculate annualized lease income
as annualized contractual base rent for the last month in a specified period,
plus the annualized straight-line rent adjustments for the last month in such
period and the annualized expense reimbursements earned by us for the last month
in such period.

                                       24


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Information about our leased operating properties as of September 30, 2021 is
set forth in the table below:

                                                                                                                    Annualized
                                                                                                   Percentage         Lease
                                                                                                    of Total        Income per
                                                Tenant Lease        Leased        Annualized       Annualized         Leased
                                  Property       Expiration         Square          Lease            Lease            Square
 Property Name      Location      Type (1)        Year (2)           Feet           Income           Income            Foot
U.S. Government
Leased
VA - Loma Linda   Loma Linda,     OC                  2036           327,614     $ 16,412,702              6.2 %   $      50.10
                  CA
JSC - Suffolk     Suffolk, VA     O                   2028           403,737        8,214,348              3.1 %          20.35
Various GSA -     Buffalo, NY     O            2021 - 2036           270,809        8,042,038              3.0 %          29.70
Buffalo (3)
IRS - Fresno      Fresno, CA      O                   2033           180,481        6,967,344              2.7 %          38.60
FBI - Salt Lake   Salt Lake       O                   2032           169,542        6,754,537              2.6 %          39.84
                  City, UT
Various GSA -     Des Plaines,    O                   2023           202,185        6,720,376              2.6 %          33.24
Chicago           IL
Various GSA -     Portland, OR    O            2022 - 2028           211,156        6,538,366              2.5 %          30.96
Portland (4)
PTO - Arlington   Arlington, VA   O                   2035           190,546        6,177,283              2.4 %          32.42
VA - San Jose     San Jose, CA    OC                  2038            90,085        5,856,687              2.3 %          65.01
EPA - Lenexa      Lenexa, KS      O                   2027           169,585        5,541,749              2.1 %          32.68
FBI - San         San Antonio,    O                   2025           148,584        5,215,515              2.0 %          35.10
Antonio           TX
FDA - Alameda     Alameda, CA     L                   2039            69,624        4,664,712              1.8 %          67.00
FEMA - Tracy      Tracy, CA       W                   2038           210,373        4,611,427              1.8 %          21.92
FBI - Omaha       Omaha, NE       O                   2024           112,196        4,458,634              1.7 %          39.74
TREAS -           Parkersburg,    O                   2041           182,500        4,250,040              1.6 %          23.29
Parkersburg       WV
EPA - Kansas      Kansas City,    L                   2023            71,979        4,226,457              1.6 %          58.72
City              KS
FBI / DEA - El    El Paso, TX     O/W                 2028           203,269        4,102,400              1.6 %          20.18

Paso

VA - South Bend   Mishakawa, IN   OC                  2032            86,363        4,034,394              1.6 %          46.71
ICE -             North           O            2022 / 2027            86,733        3,948,509              1.5 %          45.52

Charleston (5) Charleston,

                  SC
FDA - Lenexa      Lenexa, KS      L                   2040            59,690        3,904,552              1.5 %          65.41
USCIS - Lincoln   Lincoln, NE     O                   2025           137,671        3,813,570              1.5 %          27.70
VA - Mobile       Mobile, AL      OC                  2033            79,212        3,801,080              1.5 %          47.99
DOI - Billings    Billings, MT    O/W                 2033           149,110        3,774,591              1.5 %          25.31
FBI -             Birmingham,     O                   2022            96,278        3,705,569              1.4 %          38.49
Birmingham        AL
FBI - New         New Orleans,    O                   2029           137,679        3,678,345              1.4 %          26.72
Orleans           LA
FBI -             Pittsburgh,     O                   2027           100,054        3,672,014              1.4 %          36.70
Pittsburgh        PA
DOT - Lakewood    Lakewood, CO    O                   2024           122,225        3,540,410              1.4 %          28.97
FBI - Knoxville   Knoxville, TN   O                   2025            99,130        3,506,460              1.4 %          35.37
VA - Chico        Chico, CA       OC                  2034            51,647        3,277,010              1.3 %          63.45
USFS II -         Albuquerque,    O                   2026            98,720        3,143,422              1.2 %          31.84
Albuquerque       NM
FDA - College     College Park,   L                   2029            80,677        3,060,351              1.2 %          37.93
Park              MD
FBI - Richmond    Richmond, VA    O                   2041            96,607        3,057,054              1.2 %          31.64
USCIS - Tustin    Tustin, CA      O                   2034            66,818        3,038,090              1.2 %          45.47
OSHA - Sandy      Sandy, UT       L                   2024            75,000        3,010,443              1.2 %          40.14
USFS I -          Albuquerque,    O                   2026            92,455        3,003,143              1.2 %          32.48
Albuquerque       NM
FBI - Albany      Albany, NY      O                   2036            69,476        2,874,579              1.1 %          41.38
VA - Orange       Orange, CT      OC                  2034            56,330        2,811,585              1.1 %          49.91
DEA - Upper       Upper           L                   2037            50,978        2,773,915              1.1 %          54.41
Marlboro          Marlboro, MD
ICE -             Albuquerque,    O                   2027            71,100        2,752,678              1.1 %          38.72
Albuquerque       NM
JUD - Del Rio     Del Rio, TX     C/O                 2024            89,880        2,726,978              1.1 %          30.34
DEA - Vista       Vista, CA       L                   2035            54,119        2,690,635              1.0 %          49.72
DEA -             Pleasanton,     L                   2035            42,480        2,688,502              1.0 %          63.29
Pleasanton        CA
JUD - El Centro   El Centro, CA   C/O                 2034            43,345        2,659,873              1.0 %          61.37
FBI - Mobile      Mobile, AL      O                   2029            76,112        2,638,190              1.0 %          34.66
SSA -             Charleston,     O                   2024           110,000        2,606,498              1.0 %          23.70
Charleston        WV
DEA - Sterling    Sterling, VA    L                   2036            49,692        2,575,432              1.0 %          51.83
USAO -            Louisville,     O                   2031            60,000        2,451,797              0.9 %          40.86
Louisville        KY
TREAS -           Birmingham,     O                   2029            83,676        2,448,654              0.9 %          29.26
Birmingham        AL
DEA - Dallas      Dallas, TX      L                   2021            49,723        2,415,077              0.9 %          48.57

Lab

DHA - Aurora      Aurora, CO      O                   2034           101,285        2,340,113              0.9 %          23.10
JUD -             Charleston,     C/O                 2040            52,339        2,333,282              0.9 %          44.58
Charleston        SC
FBI - Little      Little Rock,    O                   2021           102,377        2,314,757              0.9 %          22.61
Rock              AR
Various GSA -     Brooklyn        O            2028 - 2040            61,384        2,232,202              0.9 %          36.36
Cleveland (6)     Heights, OH
DEA - Dallas      Dallas, TX      O                   2041            71,827        2,224,141              0.9 %          30.97
MEPCOM -          Jacksonville,   O                   2025            30,000        2,204,839              0.8 %          73.49
Jacksonville      FL


                                       25


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                                                                                                                       Annualized
                                                                                                      Percentage         Lease
                                                                                                       of Total        Income per
                                                Tenant Lease         Leased         Annualized        Annualized         Leased
                                  Property       Expiration          Square            Lease            Lease            Square
 Property Name       Location     Type (1)        Year (2)            Feet            Income            Income            Foot
U.S. Government Leased (Cont.)
CBP - Savannah     Savannah, GA   L                   2033              35,000         2,191,933              0.8 %          62.63
DOE - Lakewood     Lakewood, CO   O                   2029             115,650         2,093,583              0.8 %          18.10
NWS - Kansas       Kansas City,   O                   2033              94,378         2,088,585              0.8 %          22.13
City               MO
JUD - Jackson      Jackson, TN    C/O                 2023              73,397         2,072,436              0.8 %          28.24
DEA - Santa Ana    Santa Ana,     O                   2024              39,905         1,901,162              0.7 %          47.64
                   CA
NPS - Omaha        Omaha, NE      O                   2024              62,772         1,790,405              0.7 %          28.52
ICE - Otay         San Diego,     O            2022 - 2027              49,457         1,788,962              0.7 %          36.17
                   CA
VA - Golden        Golden, CO     O/W                 2026              56,753         1,742,022              0.7 %          30.69
CBP - Sunburst     Sunburst, MT   O                   2028              33,000         1,619,940              0.6 %          49.09
USCG -             Martinsburg,   O                   2027              59,547         1,613,158              0.6 %          27.09
Martinsburg        WV
DEA - Birmingham   Birmingham,    O                   2021              35,616         1,590,100              0.6 %          44.65
(7)                AL
JUD - Aberdeen     Aberdeen, MS   C/O                 2025              46,979         1,505,573              0.6 %          32.05
GSA - Clarksburg   Clarksburg,    O                   2024              63,750         1,472,868              0.6 %          23.10
                   WV
DEA - North        Sacramento,    O                   2033              37,975         1,464,798              0.6 %          38.57
Highlands          CA
USAO -             Springfield,   O                   2038              43,600         1,408,624              0.5 %          32.31
Springfield        IL
VA - Charleston    North          W                   2040              97,718         1,383,687              0.5 %          14.16
                   Charleston,
                   SC
DEA - Albany       Albany, NY     O                   2025              31,976         1,360,800              0.5 %          42.56
DEA - Riverside    Riverside,     O                   2032              34,354         1,254,917              0.5 %          36.53
                   CA
SSA - Dallas       Dallas, TX     O                   2035              27,200         1,036,871              0.4 %          38.12
HRSA - Baton       Baton Rouge,   O                   2040              27,569           850,262              0.3 %          30.84
Rouge              LA
VA - Baton Rouge   Baton Rouge,   OC                  2024              30,000           804,186              0.3 %          26.81
                   LA
ICE - Pittsburgh   Pittsburgh,    O            2023 / 2032              25,245           803,823              0.3 %          31.84
(8)                PA
JUD - South Bend   South Bend,    C/O                 2027              30,119           792,569              0.3 %          26.31
                   IN
ICE - Louisville   Louisville,    O                   2021              17,420           713,911              0.3 %          40.98
                   KY
DEA - San Diego    San Diego,     W                   2032              16,100           543,355              0.2 %          33.75
                   CA
SSA - San Diego    San Diego,     O                   2032              10,059           424,038              0.2 %          42.16
                   CA
DEA -              Bakersfield,   O
Bakersfield        CA                                 2038               9,800           389,559              0.2 %          39.75
Subtotal                                                             7,461,796     $ 259,189,476             99.8 %   $      34.74
Privately Leased
501 East Hunter
Street -
  Lummus
Corporation        Lubbock, TX    W/D                 2028              70,078           410,157              0.2 %           5.85
Subtotal                                                                70,078     $     410,157              0.2 %   $       5.85
Total / Weighted
Average                                                              7,531,874     $ 259,599,633            100.0 %   $      34.47


(1) OC=Outpatient Clinic; O=Office; C=Courthouse; L=Laboratory; W=Warehouse;

       D=Distribution.


  (2) The year of lease expiration does not include renewal options.


  (3) Private tenants occupy 14,274 leased square feet.


  (4) Private tenants occupy 42,025 leased square feet.


  (5) A private tenant occupies 21,609 leased square feet.


  (6) A private tenant occupies 11,402 leased square feet.


  (7) The ATF occupies 8,680 leased square feet.


  (8) A private tenant occupies 3,854 leased square feet.


Certain of our leases are currently in the "soft-term" period of the lease,
meaning that the U.S. Government tenant agency has the right to terminate the
lease prior to its stated lease end date. We believe that, from the U.S.
Government's perspective, leases with such provisions are helpful for budgetary
purposes. While some of our leases are contractually subject to early
termination, we do not believe that our tenant agencies are likely to terminate
these leases early given the build-to-suit features at the properties subject to
the leases, the weighted average age of these properties based on the date the
property was built or renovated-to-suit, where applicable (approximately 15.9
years as of September 30, 2021), the mission-critical focus of the properties
subject to the leases and the current level of operations at such properties.

                                       26


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The following table sets forth a schedule of lease expirations for leases in place as of September 30, 2021:

                                                                                                            Percentage        Annualized
                                                                     Percentage of                           of Total        Lease Income
                                Number of        Leased Square         Portfolio          Annualized        Annualized        per Leased
                                  Leases            Footage          Leased Square       Lease Income      Lease Income       Square Foot
Year of Lease Expiration (1)     Expiring          Expiring         Footage Expiring       Expiring          Expiring          Expiring
2021                                      5             242,718                  3.2 %   $   8,274,814               3.2 %   $       34.09
2022                                      5             160,772                  2.1 %       5,944,406               2.3 %           36.97
2023                                     11             395,208                  5.2 %      14,536,364               5.6 %           36.78
2024                                     10             727,374                  9.7 %      22,955,119               8.8 %           31.56
2025                                     14             619,541                  8.2 %      21,459,657               8.3 %           34.64
2026                                      5             263,740                  3.5 %       8,349,558               3.2 %           31.66
2027                                      7             502,963                  6.7 %      17,876,156               6.9 %           35.54
2028                                      9             794,405                 10.5 %      16,881,043               6.5 %           21.25
2029                                      5             493,794                  6.6 %      13,919,123               5.4 %           28.19
2030                                      -                   -                  0.0 %               -               0.0 %               -
Thereafter                               42           3,331,359                 44.3 %     129,403,393              49.8 %           38.84
Total / Weighted Average                113           7,531,874                100.0 %   $ 259,599,633             100.0 %   $       34.47



(1) The year of lease expirations is pursuant to current contract terms. Some

tenants have the right to vacate their space during a specified period, or

"soft term," before the stated terms of their leases expire. As of

September 30, 2021, 17 tenants occupying approximately 5.9% of our leased

square feet and contributing approximately 5.4% of our annualized lease

income have exercisable rights to terminate their lease before the stated

term of their respective lease expires.



Information about our development property as of September 30, 2021 is set forth
in the table below:

                                                                                      Estimated
                                                                                        Leased
                                                             Property                   Square
Property Name   Location      Tenant                         Type (1)   Lease Term       Feet
FDA - Atlanta   Atlanta, GA   Food and Drug Administration   L            20-year        162,000


  (1) L=Laboratory.


Results of Operations

Comparison of Results of Operations for the three months ended September 30, 2021 and 2020


The financial information presented below summarizes our results of operations
for the three months ended September 30, 2021 and 2020 (amounts in thousands).

                                                 For the three months ended September 30,
                                              2021                 2020                Change
Revenues
Rental income                            $       67,439       $       59,843       $        7,596
Tenant reimbursements                             1,527                  682                  845
Other income                                        642                  606                   36
Total revenues                                   69,608               61,131                8,477
Expenses
Property operating                               15,188               12,313                2,875
Real estate taxes                                 7,626                6,803                  823
Depreciation and amortization                    22,765               23,522                 (757 )
Acquisition costs                                   518                  467                   51
Corporate general and administrative              5,893                4,577                1,316
Total expenses                                   51,990               47,682                4,308
Other expense
Interest expense                                 (9,353 )             (8,628 )               (725 )
Gain on the sale of operating property              777                    -                  777
Net income                               $        9,042       $        4,821       $        4,221


                                       27


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Revenues

Total revenues increased $8.5 million to $69.6 million for the three months ended September 30, 2021 compared to $61.1 million for the three months ended September 30, 2020.


The $7.6 million increase in Rental income is primarily attributable to an
increase in revenues from the ten operating properties acquired since September
30, 2020, as well as a full period of operations from the one operating property
acquired during the three months ended September 30, 2020, offset by three
properties disposed of since September 30, 2020.

The $0.8 million increase in Tenant reimbursements is primarily attributable to an increase in tenant project reimbursements.

Expenses

Total expenses increased $4.3 million to $52.0 million for the three months ended September 30, 2021 compared to $47.7 million for the three months ended September 30, 2020.


The $2.9 million increase in Property operating expenses is primarily
attributable to the ten operating properties acquired since September 30, 2020,
as well as a full period of operations from the one operating property acquired
during the three months ended September 30, 2020, and an increase in expenses
associated with tenant project reimbursements, offset by three properties
disposed of since September 30, 2020.

The $0.8 million increase in Real estate taxes is also primarily attributable to
the ten operating properties acquired since September 30, 2020, as well as a
full period of operations from the one operating property acquired during the
three months ended September 30, 2020, offset by three properties disposed of
since September 30, 2020.

The $0.8 million decrease in Depreciation and amortization is primarily related
to the timing of intangible amortization and the three properties disposed of
since September 30, 2020. This decrease is offset by an increase in depreciation
attributable to the ten operating properties acquired since September 30, 2020,
as well as a full period of operations from the one operating property acquired
during the three months ended September 30, 2020.

Additionally, Corporate general and administrative costs increased by $1.3 million, primarily due to an increase in employee costs.

Interest expense


The $0.7 million increase in Interest expense is primarily related to increased
borrowings from our senior unsecured revolving credit facility and a decrease in
capitalized interest on our development projects.

Gain on the sale of operating property


On September 28, 2021, we sold United Technologies - Midland to a third party.
Net proceeds from the sale of operating property were approximately $4.0 million
and we recognized a gain on the sale of operating property of approximately $0.8
million for the three months ended September 30, 2021.

                                       28



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Comparison of Results of Operations for the nine months ended September 30, 2021 and 2020


The financial information presented below summarizes our results of operations
for the nine months ended September 30, 2021 and 2020 (amounts in thousands).

                                             For the nine months ended September 30,
                                              2021                 2020           Change
Revenues
Rental income                            $      197,713       $      175,976     $ 21,737
Tenant reimbursements                             3,746                2,269        1,477
Other income                                      1,764                1,630          134
Total revenues                                  203,223              179,875       23,348
Expenses
Property operating                               41,578               34,486        7,092
Real estate taxes                                22,465               19,982        2,483
Depreciation and amortization                    67,615               70,732       (3,117 )
Acquisition costs                                 1,488                1,673         (185 )
Corporate general and administrative             17,469               15,565        1,904
Total expenses                                  150,615              142,438        8,177
Other income (expense)
Interest expense                                (27,739 )            (26,535 )     (1,204 )
Gain on the sale of operating property            1,307                    -        1,307
Net income                               $       26,176       $       10,902     $ 15,274


Revenues

Total revenues increased $23.3 million to $203.2 million for the nine months
ended September 30, 2021 compared to $179.9 million for the nine months ended
September 30, 2020.

The $21.7 million increase in Rental income is primarily attributable to an
increase in revenues from the ten operating properties acquired since September
30, 2020, as well as a full period of operations from the five operating
properties acquired during the nine months ended September 30, 2020, offset by
three properties disposed of since September 30, 2020.

The $1.5 million increase in Tenant reimbursements is primarily attributable to an increase in tenant project reimbursements.

Expenses

Total expenses increased $8.2 million to $150.6 million for the nine months ended September 30, 2021 compared to $142.4 million for the nine months ended September 30, 2020.

The $7.1 million increase in Property operating expenses is primarily attributable to the ten operating properties acquired since September 30, 2020, as well as a full period of operations from the five operating properties acquired during the nine months ended September 30, 2020 and an increase in expenses associated with tenant reimbursements, offset by three properties disposed of since September 30, 2020.


The $2.5 million increase in Real estate taxes is also primarily attributable to
the ten operating properties acquired since September 30, 2020, as well as a
full period of operations from the five operating properties acquired during the
nine months ended September 30, 2020, offset by three properties disposed of
since September 30, 2020.

The $3.1 million decrease in Depreciation and amortization is primarily related
to the timing of intangible amortization and the three properties disposed of
since September 30, 2020. This decrease is offset by an increase in depreciation
attributable to the ten operating properties acquired since September 30, 2020,
as well as a full period of operations from the five operating properties
acquired during the nine months ended September 30, 2020.

Additionally, Corporate general and administrative costs increased by $1.9 million, primarily due to an increase in employee costs.

                                       29



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Interest expense


The $1.2 million increase in Interest expense is primarily related to increased
borrowings from our senior unsecured revolving credit facility and a decrease in
capitalized interest on our development projects.

Gain on the sale of operating property


On June 4, 2021, we sold SSA - Mission Viejo to a third party. Net proceeds from
the sale of operating property were approximately $3.3 million and we recognized
a gain on the sale of operating property of approximately $0.5 million for the
nine months ended September 30, 2021.

On September 28, 2021, we sold United Technologies - Midland to a third party.
Net proceeds from the sale of operating property were approximately $4.0 million
and we recognized a gain on the sale of operating property of approximately $0.8
million for the nine months ended September 30, 2021.

Liquidity and Capital Resources


We anticipate that our cash flows from the sources listed below will provide
adequate capital for the next 12 months for all anticipated uses, including all
scheduled principal and interest payments on our outstanding indebtedness,
current and anticipated tenant improvements, stockholder distributions to
maintain our qualification as a REIT and other capital obligations associated
with conducting our business. At September 30, 2021, we had $16.1 million
available in cash and cash equivalents and there was $337.5 million available
under our revolving credit facility.

Our primary expected sources of capital are as follows:

  • cash and cash equivalents;


  • operating cash flow;


  • available borrowings under our revolving credit facility;


  • issuance of long-term debt;

• issuance of equity, including under our ATM Programs (as described below);

        and


  • asset sales.

Our short-term liquidity requirements consist primarily of funds to pay for the following:

• development and redevelopment activities, including major redevelopment,

renovation or expansion programs at individual properties;

• property acquisitions under contract, including our JV share of the

        remaining Portfolio Acquisition properties;


  • tenant improvements allowances and leasing costs;


  • recurring maintenance and capital expenditures;


  • debt repayment requirements;


  • corporate and administrative costs;


  • interest payments on our outstanding indebtedness;


  • interest swap payments; and


  • distribution payments.


Our long-term liquidity needs, in addition to recurring short-term liquidity
needs as discussed above, consist primarily of funds necessary to pay for
acquisitions, non-recurring capital expenditures, and scheduled debt maturities.
Although we may be able to anticipate and plan for certain of our liquidity
needs, unexpected increases in uses of cash that are beyond our control and
which affect our financial condition and results of operations may arise, or our
sources of liquidity may be fewer than, and the funds available from such
sources may be less than, anticipated or required. As of the date of this
filing, there were no known commitments or events that would have a material
impact on our liquidity.

                                       30


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Equity

Offering of Common Stock on a Forward Basis


On August 11, 2021, the Company and the Operating Partnership entered into an
underwriting agreement with RBC Capital Markets, LLC and BMO Capital Markets
Corp., as underwriters, RBC Capital Markets, LLC and BMO Capital Markets Corp.,
as forward sellers, and Royal Bank of Canada and Bank of Montreal, as forward
purchasers, in connection with an offering of 6,300,000 shares of the Company's
common stock. The Company also entered into separate forward sale agreements
with each of the forward purchasers (the "Forward Sales Agreements"), pursuant
to which the forward purchasers borrowed and sold to the underwriters an
aggregate of 6,300,000 shares of the Company's common stock. The Company expects
to physically settle the Forward Sale Agreements and receive proceeds, subject
to certain adjustments, from the sale of those shares of common stock upon one
or more such physical settlements within approximately one year. Although the
Company expects to settle the Forward Sale Agreements entirely by the physical
delivery of shares of its common stock for cash proceeds, the Company may also
elect to cash or net-share settle all or a portion of its obligations under the
Forward Sale Agreements, in which case, the Company may receive, or may owe,
cash or shares of its common stock from or to the forward purchasers. The
Forward Sale Agreements provide for an initial forward price of $21.64 per
share, subject to certain adjustments pursuant to the terms of each of the
Forward Sale Agreements. The Forward Sale Agreements are subject to early
termination or settlement under certain circumstances.

ATM Programs


On each of March 4, 2019 and December 20, 2019, the Company entered into
separate equity distribution agreements with each of Citigroup Global Markets
Inc., BMO Capital Markets Corp., BTIG, LLC, Capital One Securities, Inc.,
Jefferies LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC,
Truist Securities, Inc. (f/k/a SunTrust Robinson Humphrey, Inc.) and Wells Fargo
Securities, LLC pursuant to which it may issue and sell shares of its common
stock having an aggregate offering price of up to $200.0 million and $300.0
million, respectively, from time to time (the "2019 ATM Programs") in negotiated
transactions or transactions that are deemed to be "at the market" offerings as
defined in Rule 415 under the Securities Act. The 2019 ATM Programs implemented
on March 4, 2019 and December 20, 2019 are referred to as the "March 2019 ATM
Program" and "December 2019 ATM Program" respectively. Under each of the 2019
ATM Programs, the Company may also enter into one or more forward transactions
(each, a "forward sale transaction") under separate master forward sale
confirmations and related supplemental confirmations with each of Citibank,
N.A., Bank of Montreal, Jefferies LLC, Raymond James & Associates, Inc., Royal
Bank of Canada and Wells Fargo Bank, National Association and, under the
December 2019 ATM Program only, Truist Bank, for the sale of shares of its
common stock on a forward basis.

On June 22, 2021, the Company entered into separate equity distribution
agreements with each of Citigroup Global Markets Inc., BMO Capital Markets
Corp., BTIG, LLC, Capital One Securities, Inc., CIBC World Markets Corp.,
Jefferies LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC,
Truist Securities, Inc. and Wells Fargo Securities, LLC pursuant to which it may
issue and sell shares of its common stock having an aggregate offering price of
up to $300.0 million from time to time (the "2021 ATM Program") in negotiated
transactions or transactions that are deemed to be "at the market" offerings as
defined in Rule 415 under the Securities Act. Under the 2021 ATM Program, the
Company may also enter into one or more forward sale transactions under separate
master forward sale confirmations and related supplemental confirmations with
each of Citigroup Global Markets Limited, Bank of Montreal, Canadian Imperial
Bank of Commerce, Jefferies LLC, Raymond James & Associates, Inc., Royal Bank of
Canada, Truist Bank and Wells Fargo Bank, National Association for the sale of
shares of its common stock on a forward basis.

The following table sets forth certain information with respect to issuances
under each of the 2019 ATM Programs during the quarters ended March 31, 2021,
June 30, 2021 and September 30, 2021 (amounts in thousands, except share
amounts):

                                       March 2019 ATM Program               

December 2019 ATM Program

                              Number of Shares                              Number of Shares
For the Three Months Ended:       Issued(1)            Net Proceeds(1)         Issued(1)            Net Proceeds(1)
March 31, 2021                                -       $               -            1,556,824       $          39,998
June 30, 2021                                 -                       -                    -                       -
September 30, 2021                      246,363                   6,451            1,868,045                  43,556
Total                                   246,363       $           6,451            3,424,869       $          83,554





                                       31


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(1) Shares issued by us, which were all issued in settlement of forward sales

transactions. Additionally, as of September 30, 2021, we had entered into

forward sales transactions under the December 2019 ATM Program for the sale

of an additional 1,885,289 shares of our common stock that have not yet

been settled. Subject to our right to elect net share settlement, we expect

to physically settle the forward sales transactions by the maturity dates

set forth in each applicable forward sale transaction placement notice,

which dates range from January 2022 to July 2022. Assuming the forward

sales transactions are physically settled in full utilizing a net weighted

average initial forward sales price of $21.94 per share, we expect to

receive net proceeds of approximately $41.4 million, after deducting

offering costs, subject to adjustments in accordance with the applicable

forward sale transaction. We accounted for the forward sale agreements as

equity.

No sales of shares of the Company's common stock were made under the 2021 ATM Program during the quarters ended June 30, 2021 and September 30, 2021.


The Company used the net proceeds received from such sales for general corporate
purposes. As of September 30, 2021, the Company had approximately $300.0 million
of gross sales of its common stock available under the 2021 ATM Program, $98.9
million of gross sales of its common stock available under the December 2019 ATM
Program and no remaining availability under the March 2019 ATM Program.

Contribution of Property for Common Units


On May 20, 2021, the Company acquired NWS - Kansas City for which it paid, as
partial consideration, 975,452 common units. The issuance of the common units
was effected in reliance upon an exemption from registration provided by Section
4(a)(2) under the Securities Act.

                                       32



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Debt

The following table sets forth certain information with respect to our outstanding indebtedness as of September 30, 2021 (amounts in thousands):

                                         Principal
                                        Outstanding             Interest              Current
                                       September 30,
Loan                                        2021                Rate (1)              Maturity
Revolving credit facility:
Revolving credit facility (2)         $        112,500         L + 125bps          July 2025 (3)
Total revolving credit facility                112,500

Term loan facilities:
2016 term loan facility                        100,000          2.67% (4)            March 2024
2018 term loan facility                        150,000          3.91% (5)            July 2026
Total term loan facilities                     250,000
Less: Total unamortized deferred
financing fees                                  (1,521 )
Total term loan facilities, net                248,479

Notes payable:
2017 series A senior notes                      95,000            4.05%               May 2027
2017 series B senior notes                      50,000            4.15%               May 2029
2017 series C senior notes                      30,000            4.30%               May 2032
2019 series A senior notes                      85,000            3.73%            September 2029
2019 series B senior notes                     100,000            3.83%            September 2031
2019 series C senior notes                      90,000            3.98%            September 2034
Total notes payable                            450,000
Less: Total unamortized deferred
financing fees                                  (2,785 )
Total notes payable, net                       447,215

Mortgage notes payable:
DEA - Pleasanton                                15,700       L + 150bps (6)         October 2023
VA - Golden                                      8,878          5.00% (6)            April 2024
MEPCOM - Jacksonville                            7,059          4.41% (6)           October 2025
USFS II - Albuquerque                           15,543          4.46% (6)            July 2026
ICE - Charleston                                15,161          4.21% (6)           January 2027
VA - Loma Linda                                127,500          3.59% (6)            July 2027
CBP - Savannah                                  11,402          3.40% (6)            July 2033
Total mortgage notes payable                   201,243
Less: Total unamortized deferred
financing fees                                  (1,285 )
Less: Total unamortized
premium/discount                                    63
Total mortgage notes payable, net              200,021

Total debt                            $      1,008,215


(1) At September 30, 2021, the one-month LIBOR ("L") was 0.08%. The current

interest rate is not adjusted to include the amortization of deferred

financing fees or debt issuance costs incurred in obtaining debt or any

unamortized fair market value premiums. The spread over the applicable rate

for each of our revolving credit facility, our 2018 term loan facility and

       our 2016 term loan facility (each as defined below) is based on the
       Company's consolidated leverage ratio, as defined in the respective loan
       agreements.

(2) Our revolving credit facility had available capacity of $337.5 million at

September 30, 2021 with an accordion feature that permits us to request

additional lender commitments for up to $250.0 million of additional

capacity, subject to the satisfaction of customary terms and conditions.

(3) Our revolving credit facility has two six-month as-of-right extension

options subject to certain conditions and the payment of an extension fee.


                                       33


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(4) Entered into two interest rate swaps with an effective date of March 29,

2017 with an aggregate notional value of $100.0 million to effectively fix

the interest rate at 2.67% annually, based on our consolidated leverage

ratio, as defined in our 2016 term loan facility agreement.

(5) Entered into four interest rate swaps with an effective date of December

13, 2018 with an aggregate notional value of $150.0 million to effectively

fix the interest rate at 3.91% annually, based on our consolidated leverage

ratio, as defined in our 2018 term loan facility agreement. The four

interest rate swaps mature on June 19, 2023, which is not coterminous with

       the maturity date of 2018 term loan facility.


   (6) Effective interest rates are as follows: DEA - Pleasanton 1.80%, VA -

Golden 5.03%, MEPCOM - Jacksonville 3.89%, USFS II Albuquerque 3.92%, ICE -

Charleston 3.93%, VA - Loma Linda 3.78%, CBP - Savannah 4.12%.



Our revolving credit facility, term loan facilities, notes payable, and mortgage
notes payable are subject to ongoing compliance with a number of financial and
other covenants. As of September 30, 2021, we were in compliance with all
applicable financial covenants.

The chart below details our debt capital structure as of September 30, 2021 (dollar amounts in thousands):


Debt Capital Structure            September 30, 2021

Total principal outstanding $ 1,013,743 Weighted average maturity

                   6.5 years
Weighted average interest rate                    3.5 %
% Variable debt                                  12.6 %
% Fixed debt (1)                                 87.4 %
% Secured debt                                   19.8 %

(1) Our 2016 term loan facility and 2018 term loan facility are swapped to be

fixed and as such are included as fixed rate debt in the table above.

Private Placement of Senior Unsecured Notes


On May 11, 2021, the Company and the Operating Partnership entered into a note
purchase agreement pursuant to which the Operating Partnership would issue and
sell an aggregate of up to $250.0 million of fixed rate, senior unsecured notes
(the "Notes") consisting of (i) 2.62% Series A Senior Notes due October 14,
2028, in an aggregate principal amount of $50.0 million, and (ii) 2.89% Series B
Senior Notes due October 14, 2030, in an aggregate principal amount of up to
$200.0 million.

On September 30, 2021, the Operating Partnership exercised its option under the note purchase agreement to increase the Series B tranche of the Notes to a principal amount of $200.0 million.


On October 14, 2021, the Operating Partnership issued and sold, an aggregate of
$250.0 million of the Notes pursuant to the note purchase agreement entered into
on May 11, 2021. The Notes are unconditionally guaranteed by the Company and
various subsidiaries of the Operating Partnership.


                                       34


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Senior Unsecured Credit Facility and 2016 Term Loan Facility


On July 23, 2021, we entered into a second amended and restated senior unsecured
credit agreement (the "second amended senior unsecured credit agreement")
governing our senior unsecured credit facility. The second amended senior
unsecured credit agreement increased the borrowing capacity under our prior
senior unsecured credit facility by $50.0 million for a total credit facility
size of $650.0 million, consisting of: (i) a $450.0 million senior unsecured
revolving credit facility (our "revolving credit facility"), and (ii) a $200.0
million senior unsecured term loan facility (our "2018 term loan facility"), up
to $50.0 million of which will be available for a 364-day delayed draw period.
Our revolving credit facility also includes an accordion feature that will
provide us with additional capacity, subject to the satisfaction of customary
terms and conditions, of up to $250.0 million.

The Operating Partnership is the borrower, and certain of our subsidiaries that
directly own certain of our properties are guarantors under our senior unsecured
credit facility. Our revolving credit facility has an initial four-year term and
will mature in July 2025, with two six-month as-of-right extension options,
subject to certain conditions and the payment of an extension fee. Our 2018 term
loan facility has a five-year term and will mature in July 2026. In addition,
our 2018 term loan facility is prepayable without penalty for the entire term of
the loan.

Borrowings under our senior unsecured credit facility bear interest, at our option, at floating rates equal to either:

• a Eurodollar rate equal to a periodic fixed rate equal to LIBOR plus, a

margin ranging from 1.20% to 1.80% for advances under our revolving

credit facility and a margin ranging from 1.20% to 1.70% for advances

          under our 2018 term loan facility; or




       •  a fluctuating rate equal to the sum of (a) the highest of (x) Citibank,

N.A.'s base rate, (y) the federal funds effective rate plus 0.50% and

(z) the one-month Eurodollar rate plus 1.00% plus (b) a margin ranging

from 0.20% to 0.80% for advances under our revolving credit facility and

a margin ranging from 0.20% to 0.70% for advances under our 2018 term

loan facility, in each case with a margin based on our leverage ratio.



If the Operating Partnership achieves certain sustainability targets as defined
in the second amended senior unsecured credit agreement, the applicable margin
will decrease by 0.01%.

In addition, on July 23, 2021, we entered into a fourth amendment to the loan
agreement governing our $100.0 million senior unsecured term loan facility (our
"2016 term loan facility"). The fourth amendment amends certain provisions in
the loan agreement governing our 2016 term loan facility to conform to certain
changes made to corresponding provisions in our second amended senior unsecured
credit agreement.

Dividend Policy

In order to qualify as a REIT, we are required to distribute to our
stockholders, on an annual basis, at least 90% of our REIT taxable income,
determined without regard to the deduction for dividends paid and excluding net
capital gains. We anticipate distributing all of our taxable income. We expect
to make quarterly distributions to our stockholders in a manner intended to
satisfy this requirement. Prior to making any distributions for U.S. federal tax
purposes or otherwise, we must first satisfy our operating and debt service
obligations. It is possible that it would be necessary to utilize cash reserves,
liquidate assets at unfavorable prices or incur additional indebtedness in order
to make required distributions. It is also possible that our board of directors
could decide to make required distributions in part by using shares of our
common stock.

A summary of dividends declared by the board of directors per share of common stock and per common unit at the date of record is as follows:

Quarter   Declaration Date      Record Date        Payment Date      Dividend (1)
Q1 2021    April 29, 2021      May 14, 2021        May 26, 2021      $    0.260
Q2 2021    July 27, 2021      August 12, 2021     August 24, 2021    $    0.265
Q3 2021   October 28, 2021   November 12, 2021   November 24, 2021   $    0.265





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(1) Prior to the end of the performance period as set forth in the applicable

LTIP unit award, holders of performance-based LTIP units are entitled to

        receive dividends per LTIP unit equal to 10% of the dividend paid per
        common unit. After the end of the performance period, the number of LTIP

units, both vested and unvested, that LTIP award recipients have earned,

if any, are entitled to receive dividends in an amount per LTIP unit equal

to dividends, both regular and special, payable per common unit. Holders

        of LTIP units that are not subject to the attainment of performance goals
        are entitled to receive dividends per LTIP unit equal to 100% of the
        dividend paid per common unit beginning on the grant date.

Off-balance Sheet Arrangements

We had no material off-balance sheet arrangements as of September 30, 2021.

Inflation


Substantially all of our leases provide for operating expense escalations. We
believe inflationary increases in expenses may be at least partially offset by
the operating expenses that are passed through to our tenants and by contractual
rent increases. We do not believe inflation has had a material impact on our
historical financial position or results of operations.

Cash Flows

The following table sets forth a summary of cash flows for the nine months ended September 30, 2021 and 2020 (amounts in thousands):


                                     For the nine months ended September 

30,

                                         2021                      2020
Net cash (used in) provided by:
Operating activities              $            94,459       $           108,625
Investing activities                         (127,452 )                (181,316 )
Financing activities                           42,072                    71,016


Operating Activities

The Company generated $94.5 million and $108.6 million of cash from operating
activities during the nine months ended September 30, 2021 and 2020,
respectively. Net cash provided by operating activities for the nine months
ended September 30, 2021 includes $85.9 million in net cash from rental
activities net of expenses and $8.6 million related to the change in tenant
accounts receivable, prepaid expenses and other assets, deferred revenue
associated with operating leases, and accounts payable, accrued expenses and
other liabilities. Net cash provided by operating activities for the nine months
ended September 30, 2020 includes a $77.7 million increase in net cash from
rental activities net of expenses and $30.9 million related to the change in
tenant accounts receivable, prepaid expenses and other assets, deferred revenue
associated with operating leases, and accounts payable, accrued expenses and
other liabilities.

Investing Activities

The Company used $127.5 million and $181.3 million in cash for investing
activities during the nine months ended September 30, 2021 and 2020,
respectively. Net cash used in investing activities for the nine months ended
September 30, 2021 includes $115.4 million in real estate acquisitions, $14.1
million in additions to operating properties and $5.3 million in additions to
development properties, offset by $7.3 million in proceeds from the sale of SSA
- Mission Viejo and United Technologies - Midland. Net cash used in investing
activities for the nine months ended September 30, 2020 includes $130.1 million
in real estate acquisitions, $38.3 million in additions to development
properties and $13.0 million in additions to operating properties.

Financing Activities


The Company generated $42.1 million and $71.0 million in cash from financing
activities during the nine months ended September 30, 2021 and 2020,
respectively. Net cash generated by financing activities for the nine months
ended September 30, 2021 includes $159.5 million in draws under our revolving
credit facility and $90.9 million in gross proceeds from issuances of shares of
our common stock, offset by $126.3 million in net pay downs under our revolving
credit facility, $74.1 million in dividend payments, $3.6 million in payment of
deferred financing fees, $2.9 million in mortgage notes payable repayment and
$1.5 million in payment of offering costs. Net cash generated by financing
activities for the nine months ended September 30, 2020 includes $183.5 million
in draws under our revolving credit facility and $143.2 million in gross
proceeds from issuances of shares of our common stock, offset by $183.5 million
in net pay downs under our revolving credit facility, $67.9 million in dividend
payments, $2.6 million in mortgage notes payable repayment and $1.7 million in
payment of offering costs.

                                       36


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Non-GAAP Financial Measures


We use and present Funds From Operations, or FFO, and FFO, as Adjusted as
supplemental measures of our performance. The summary below describes our use of
FFO and FFO, as Adjusted, provides information regarding why we believe these
measures are meaningful supplemental measures of our performance and reconciles
these measures from net income, presented in accordance with GAAP.

Funds From Operations and Funds From Operations, as Adjusted


FFO is a supplemental measure of our performance. We present FFO calculated in
accordance with the current National Association of Real Estate Investment
Trusts, or Nareit, definition set forth in the Nareit FFO White Paper -
Restatement 2018. In addition, we present FFO, as Adjusted for certain other
adjustments that we believe enhance the comparability of our FFO across periods
and to the FFO reported by other publicly traded REITs. FFO is a supplemental
performance measure that is commonly used in the real estate industry to assist
investors and analysts in comparing results of REITs.

FFO is defined by Nareit as net income, (calculated in accordance with GAAP), excluding:

  • Depreciation and amortization related to real estate.


  • Gains and losses from the sale of certain real estate assets.


  • Gains and losses from change in control.

• Impairment write-downs of certain real estate assets and investments in

entities when the impairment is directly attributable to decreases in

the value of depreciable real estate held by the entity.



We present FFO because we consider it an important supplemental measure of our
operating performance, and we believe it is frequently used by securities
analysts, investors and other interested parties in the evaluation of REITs,
many of which present FFO when reporting results.

We adjust FFO to present FFO, as Adjusted as an alternative measure of our
operating performance, which, when applicable, excludes the impact of
acquisition costs, straight-line rent, amortization of above-/below-market
leases, amortization of deferred revenue (which results from landlord assets
funded by tenants), non-cash interest expense, non-cash compensation,
depreciation of non-real estate assets and other non-cash items. By excluding
these income and expense items from FFO, as Adjusted, we believe we provide
useful information as these items have no cash impact. In addition, by excluding
acquisition related costs we believe FFO, as Adjusted provides useful
information that is comparable across periods and more accurately reflects the
operating performance of our properties. Certain prior year amounts have been
updated to conform to the current year FFO, as Adjusted definition.

FFO and FFO, as Adjusted are presented as supplemental financial measures and do
not fully represent our operating performance. Other REITs may use different
methodologies for calculating FFO and FFO, as Adjusted or use other definitions
of FFO and FFO, as Adjusted and, accordingly, our presentation of these measures
may not be comparable to other REITs. Neither FFO nor FFO, as Adjusted is
intended to be a measure of cash flow or liquidity. Please refer to our
financial statements, prepared in accordance with GAAP, for purposes of
evaluating our financial condition, results of operations and cash flows.

                                       37



--------------------------------------------------------------------------------


The following table sets forth a reconciliation of our net income to FFO and
FFO, as Adjusted for the three and nine months ended September 30, 2021 and 2020
(amounts in thousands):

                               For the three months ended September 30,     

For the nine months ended September 30,

                                   2021                        2020                    2021                        2020
Net income                  $             9,042         $             4,821     $            26,176         $            10,902
Depreciation of real
estate assets                            22,741                      23,522                  67,561                      70,732
Gain on sale of operating
property                                   (777 )                         -                  (1,307 )                         -
FFO                                      31,006                      28,343                  92,430                      81,634
Adjustments to FFO:
Acquisition costs                           518                         467                   1,488                       1,673
Straight-line rent and
other non-cash
  adjustments                            (1,580 )                      (777 )                (4,317 )                    (2,106 )
Amortization of
above-/below-market
  leases                                 (1,058 )                    (1,451 )                (3,569 )                    (4,499 )
Amortization of deferred
revenue                                  (1,398 )                      (744 )                (4,217 )                    (2,138 )
Non-cash interest expense                   380                         360                   1,107                       1,078
Non-cash compensation                     1,333                       1,035                   3,700                       3,056
Depreciation of non-real
estate assets                                24                           -                      54                           -
FFO, as Adjusted            $            29,225         $            27,233     $            86,676         $            78,698





                                       38


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