EASTERLY GOVERNMENT PROPERTIES, INC. 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, 2021 and the
factors included under the heading "Risk Factors" in the Company's other
public filings;
• risks associated with our dependence on the
agencies for substantially all of our revenues, including credit risk and
risk that the
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")
pandemic on the
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 actual or threatened terrorist attacks;
• risks associated with our joint venture activities;
• 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;
• risks associated with capital allocation strategies, including any share
repurchases;
20
--------------------------------------------------------------------------------
• 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, 2021 , as may be supplemented or amended from time to time.
Overview
References to "we," "our," "us" and "the Company" refer toEasterly Government Properties, Inc. , aMaryland corporation, together with our consolidated subsidiaries, includingEasterly Government Properties LP , aDelaware limited partnership, which we refer to herein as the "operating partnership." We present certain financial information and metrics "at Easterly Share," which is calculated on an entity-by-entity basis. "At Easterly Share" information, which we also refer to as being "at share," "pro rata," "our pro rata share" or "our share" is not, and is not intended to be, a presentation in accordance with GAAP. 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 toU.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 theU.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 managingU.S. Government -leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for theU.S. Government , working closely with the tenant agency to meet its needs and objectives. As ofMarch 31, 2022 , we wholly owned 85 operating properties and four operating properties through an unconsolidated joint venture, which we refer to herein as the "JV," inthe United States encompassing approximately 8.6 million leased square feet (8.3 million pro rata), including 88 operating properties that were leased primarily toU.S. Government tenant agencies and one operating property with approximately 0.1 million leased square feet that was entirely leased to a private tenant. As ofMarch 31, 2022 , 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 89.0% of the aggregate limited partnership interests in the operating partnership, which we refer to herein as common units, as ofMarch 31, 2022 . 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 forU.S. federal income tax purposes commencing with our taxable year endedDecember 31, 2015 .
Investment in unconsolidated real estate venture
OnOctober 13, 2021 , we formed a new 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"). We own a 53.0% interest in the JV, subject to preferred allocations as provided in the JV agreement. During 2021, the JV closed on four of the ten properties included in the Portfolio Acquisition.
On
We expect the JV to close on the remaining Portfolio Acquisition during 2022 and 2023.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has caused, and continues to cause significant disruptions to theU.S. , 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, including the emergence of new variants, and its potential impact on our business. We are following guidelines established by theCenters 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 the COVID-19 pandemic, including, but not limited to, implementing non-essential 21 -------------------------------------------------------------------------------- travel restrictions when necessary 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 ourU.S. Government tenant agencies. To date, the impact of the COVID-19 pandemic on our business and financial condition has not been significant. 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 the section entitled "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for a discussion of the potential adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition. Operating Properties As ofMarch 31, 2022 , our operating properties were 99% leased with a weighted average annualized lease income per leased square foot of$34.25 ($34.10 pro rata) and a weighted average age of approximately 13.9 years based on the date the property was built or renovated-to-suit, where applicable. We calculate annualized lease income as annualized contractual base rent for the last month in a specified period, plus the annualized straight line rent adjustments for the last month in such period and the annualized net expense reimbursements earned by us for the last month in such period. The table set forth below shows information relating to the properties we owned, or in which we had an ownership interest, atMarch 31, 2022 , and it includes properties held by the JV: Annualized Percentage Lease of Total Income per Tenant Lease Leased Annualized Annualized Leased Property Expiration Square Lease Lease Square Property Name Location Type (1) Year (2) Feet Income Income FootWholly Owned U.S. Government Leased Properties VA - Loma Linda Loma Linda, CA OC 2036 327,614$ 16,475,732 5.7 %$ 50.29 USCIS - Kansas City (3) Lee's Summit, MO O/W 2042 489,316 11,562,444 4.0 % 23.63 JSC - Suffolk Suffolk, VA O 2028 403,737 8,176,525 2.8 % 20.25 Various GSA - Buffalo (4) Buffalo, NY O 2036 270,809 7,079,104 2.4 % 26.14 IRS - Fresno Fresno, CA O 2033 180,481 7,034,675 2.4 % 38.98 FBI - Salt Lake Salt Lake City, UT O 2032 169,542 6,817,719 2.3 % 40.21 Various GSA - Chicago Des Plaines, IL O 2023 202,185 6,812,395 2.3 % 33.69 Various GSA - Portland (5) Portland, OR O 2025 210,239 6,603,668 2.2 % 31.41 PTO - Arlington Arlington, VA O 2035 190,546 6,389,014 2.2 % 33.53 VA - San Jose San Jose, CA OC 2038 90,085 5,719,246 1.9 % 63.49 EPA - Lenexa Lenexa, KS O 2027 169,585 5,603,247 1.9 % 33.04 FBI - San Antonio San Antonio, TX O 2025 148,584 5,189,147 1.8 % 34.92 FDA - Alameda Alameda, CA L 2039 69,624 4,667,346 1.6 % 67.04 FEMA - Tracy Tracy, CA W 2038 210,373 4,644,079 1.6 % 22.08 FBI - Omaha Omaha, NE O 2024 112,196 4,391,661 1.5 % 39.14 TREAS - Parkersburg Parkersburg, WV O 2041 182,500 4,278,888 1.5 % 23.45 EPA - Kansas City Kansas City, KS L 2042 71,979 4,239,672 1.4 % 58.90 FBI / DEA - El Paso El Paso, TX O/W 2028 203,683 4,175,129 1.4 % 20.50 ICE - Charleston (6) North Charleston, SC O 2022 86,733 4,044,329 1.4 % 46.63 VA - South Bend Mishakawa, IN OC 2032 86,363 4,020,301 1.4 % 46.55 FDA - Lenexa Lenexa, KS L 2040 59,690 3,966,225 1.4 % 66.45 USCIS - Lincoln Lincoln, NE O 2025 137,671 3,809,481 1.3 % 27.67 DOI - Billings Billings, MT O/W 2033 149,110 3,768,201 1.3 % 25.27 FBI - Pittsburgh Pittsburgh, PA O 2027 100,054 3,693,747 1.3 % 36.92 22
--------------------------------------------------------------------------------
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
Wholly Owned U.S. Government Leased Properties (Cont.)
FBI - Birmingham Birmingham, AL O 2042 96,278 3,683,969 1.3 % 38.26
FBI - New Orleans New Orleans, LA O 2029 137,679 3,667,889 1.2 % 26.64
DOT - Lakewood Lakewood, CO O 2024 122,225 3,579,204 1.2 % 29.28
VA - Mobile Mobile, AL OC 2033 79,212 3,520,213 1.2 % 44.44
FBI - Knoxville Knoxville, TN O 2025 99,130 3,504,570 1.2 % 35.35
FBI - Richmond Richmond, VA O 2041 96,607 3,252,338 1.1 % 33.67
VA - Chico Chico, CA OC 2034 51,647 3,243,060 1.1 % 62.79
USFS II - Albuquerque Albuquerque, NM O 2026 98,720 3,141,254 1.1 % 31.82
DEA - Vista Vista, CA L 2035 52,293 3,067,840 1.0 % 58.67
FDA - College Park College Park, MD L 2029 80,677 3,060,351 1.0 % 37.93
USCIS - Tustin Tustin, CA O 2034 66,818 3,059,690 1.0 % 45.79
OSHA - Sandy Sandy, UT L 2024 75,000 3,039,951 1.0 % 40.53
USFS I - Albuquerque Albuquerque, NM O 2026 92,455 3,000,837 1.0 % 32.46
VA - Orange Orange, CT OC 2034 56,330 2,925,702 1.0 % 51.94
VA - Midwest Brownsburg, IN OC 2041 80,000 2,913,917 1.0 % 36.42
JUD - Del Rio Del Rio, TX C/O 2024 89,880 2,791,775 1.0 % 31.06
ICE - Albuquerque Albuquerque, NM O 2027 71,100 2,789,429 1.0 % 39.23
DEA - Upper Marlboro Upper Marlboro, MD L 2037 50,978 2,745,468 0.9 % 53.86
DEA - Pleasanton Pleasanton, CA L 2035 42,480 2,714,017 0.9 % 63.89
JUD - El Centro El Centro, CA C/O 2034 43,345 2,701,669 0.9 % 62.33
FBI - Mobile Mobile, AL O 2029 76,112 2,681,926 0.9 % 35.24
SSA - Charleston Charleston, WV O 2024 110,000 2,648,946 0.9 % 24.08
FBI - Albany Albany, NY O 2036 69,476 2,611,361 0.9 % 37.59
DEA - Sterling Sterling, VA L 2037 49,692 2,589,287 0.9 % 52.11
USAO - Louisville Louisville, KY O 2031 60,000 2,506,169 0.9 % 41.77
TREAS - Birmingham Birmingham, AL O 2029 83,676 2,489,513 0.8 % 29.75
DEA - Dallas Lab Dallas, TX L 2022 49,723 2,356,701 0.8 % 47.40
JUD - Charleston Charleston, SC C/O 2040 52,339 2,333,282 0.8 % 44.58
DHA - Aurora Aurora, CO O 2034 101,285 2,328,334 0.8 % 22.99
FBI - Little Rock Little Rock, AR O 2022 102,377 2,316,507 0.8 % 22.63
DEA - Dallas Dallas, TX O 2041 71,827 2,256,089 0.8 % 31.41
Various GSA - Cleveland (7) Brooklyn Heights, OH O 2031 61,384 2,229,291 0.8 % 36.32
MEPCOM - Jacksonville Jacksonville, FL O 2025 30,000 2,215,072 0.8 % 73.84
CBP - Savannah Savannah, GA L 2033 35,000 2,191,933 0.7 % 62.63
DOE - Lakewood Lakewood, CO O 2029 115,650 2,126,332 0.7 % 18.39
NWS - Kansas City Kansas City, MO O 2033 94,378 2,114,806 0.7 % 22.41
JUD - Jackson Jackson, TN C/O 2023 73,397 2,071,774 0.7 % 28.23
DEA - Santa Ana Santa Ana, CA O 2024 39,905 1,900,432 0.6 % 47.62
DEA - North Highlands Sacramento, CA O 2033 37,975 1,864,151 0.6 % 49.09
ICE - Otay San Diego, CA O 2022 49,457 1,813,841 0.6 % 36.68
NPS - Omaha Omaha, NE O 2024 62,772 1,788,348 0.6 % 28.49
VA - Golden Golden, CO O/W 2026 56,753 1,735,882 0.6 % 30.59
CBP - Sunburst Sunburst, MT O 2028 33,000 1,649,287 0.6 % 49.98
USCG - Martinsburg Martinsburg, WV O 2027 59,547 1,640,946 0.6 % 27.56
JUD - Aberdeen Aberdeen, MS C/O 2025 46,979 1,522,812 0.5 % 32.41
GSA - Clarksburg Clarksburg, WV O 2024 63,750 1,498,199 0.5 % 23.50
VA - Charleston North Charleston, SC W 2040 97,718 1,434,707 0.5 % 14.68
23
--------------------------------------------------------------------------------
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
Wholly Owned U.S. Government Leased Properties (Cont.)
DEA - Birmingham Birmingham, AL O 2023 35,616 1,392,673 0.5 % 39.10
DEA - Albany Albany, NY O 2025 31,976 1,379,851 0.5 % 43.15
USAO - Springfield Springfield, IL O 2038 43,600 1,357,401 0.5 % 31.13
DEA - Riverside Riverside, CA O 2032 34,354 1,283,654 0.4 % 37.37
SSA - Dallas Dallas, TX O 2035 27,200 1,036,871 0.4 % 38.12
HRSA - Baton Rouge Baton Rouge, LA O 2040 27,569 945,283 0.3 % 34.29
VA - Baton Rouge Baton Rouge, LA OC 2024 30,000 804,727 0.3 % 26.82
ICE - Pittsburgh (8) Pittsburgh, PA O 2032 25,369 803,239 0.3 % 31.66
JUD - South Bend South Bend, IN C/O 2027 30,119 789,781 0.3 % 26.22
ICE - Louisville Louisville, KY O 2022 17,420 715,988 0.2 % 41.10
DEA - San Diego San Diego, CA W 2032 16,100 543,354 0.2 % 33.75
SSA - San Diego San Diego, CA O 2032 10,059 433,098 0.1 % 43.06
DEA - Bakersfield Bakersfield, CA O 2038 9,800 389,559 0.1 % 39.75
Subtotal 8,028,907 $ 274,356,525 93.6 % $ 34.17 Wholly Owned Privately Leased Property501 East Hunter Street - Lummus Corporation Lubbock, TX W/D 2028 70,078 410,344 0.1 % 5.86 Subtotal 70,078$ 410,344 0.1 %$ 5.86 Wholly Owned Properties Total / Weighted Average 8,098,985$ 274,766,869 93.7 %$ 33.93
Unconsolidated Real Estate Venture
2041 226,148 $ 9,413,858 3.2 % $ 41.63
VA - Chattanooga (9) Chattanooga, TN OC 2035 94,566 4,154,710 1.4 % 43.93
VA - Lubbock (9) (10) Lubbock, TX OC 2040 120,916 3,961,655 1.3 % 32.76
VA - Lenexa (9) Lenexa, KS OC 2041 31,062 1,277,946 0.4 % 41.14
Subtotal 472,692 $ 18,808,169 6.3 % $ 39.79
Total / Weighted Average 8,571,677 $ 293,575,038 100.0 % $ 34.25
Total / Weighted Average at Easterly's Share 8,349,511 $ 284,735,198 $ 34.10 (1) OC=
D=Distribution.
(2) The year of lease expiration does not include renewal options.
(3) Private tenants occupy 172,998 leased square feet.
(4) Private tenants occupy 14,274 leased square feet.
(5) Private tenants occupy 41,108 leased square feet.
(6) A private tenant occupies 21,609 leased square feet.
(7) A private tenant occupies 11,402 leased square feet.
(8) A private tenant occupies 3,854 leased square feet.
(9) We own 53.0% of the property through an unconsolidated joint venture.
(10) Asset is subject to a ground lease where we are the lessee.
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 17.4
years as of March 31, 2022 ), the mission-critical focus of the properties
subject to the leases and the current level of operations at such properties.
24
--------------------------------------------------------------------------------
The following table sets forth a schedule of lease expirations for leases in
place (including for wholly owned properties and properties held by the JV) as
of March 31, 2022 :
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
2022 7 234,014 2.7 % $ 7,699,690 2.6 % $ 32.90
2023 12 375,974 4.4 % 12,153,264 4.1 % 32.32
2024 12 790,700 9.2 % 24,323,429 8.3 % 30.76
2025 15 679,124 7.9 % 22,827,474 7.8 % 33.61
2026 6 295,783 3.5 % 9,240,909 3.1 % 31.24
2027 7 502,963 5.9 % 18,070,180 6.2 % 35.93
2028 9 794,819 9.3 % 16,988,032 5.8 % 21.37
2029 5 493,794 5.8 % 14,026,011 4.8 % 28.40
2030 - - 0.0 % - 0.0 % -
2031 2 100,502 1.2 % 4,022,326 1.4 % 40.02
Thereafter 49 4,304,004 50.1 % 164,223,723 55.9 % 38.16
Total / Weighted Average 124 8,571,677 100.0 % $ 293,575,038 100.0 % $ 34.25 (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
square feet and contributing approximately 5.7% 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 ofMarch 31, 2022 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. 25
--------------------------------------------------------------------------------
Results of Operations
Comparison of Results of Operations for the three months ended
The financial information presented below summarizes our results of operations
for the three months ended
For the three months ended March 31,
2022 2021 Change
Revenues
Rental income $ 70,439 $ 64,179 $ 6,260
Tenant reimbursements 1,144 320 824
Asset management income 248 - 248
Other income 471 502 (31 )
Total revenues 72,302 65,001 7,301
Expenses
Property operating 15,458 12,094 3,364
Real estate taxes 7,826 7,286 540
Depreciation and amortization 24,159 22,325 1,834
Acquisition costs 362 487 (125 )
Corporate general and administrative 5,983 5,808 175
Total expenses 53,788 48,000 5,788
Other income (expense)
Income from unconsolidated real
estate venture 631 - 631
Interest expense, net (10,882 ) (9,121 ) (1,761 )
Net income $ 8,263 $ 7,880 $ 383
Revenues
Total revenues increased
The$6.3 million increase in Rental income is primarily attributable to an increase in revenues from the five operating properties acquired sinceMarch 31, 2021 , as well as a full period of operations from the three operating properties acquired during the three months endedMarch 31, 2021 , offset by two properties disposed of sinceMarch 31, 2021 .
The
The
Expenses
Total expenses increased
The$3.4 million increase in Property operating expenses is primarily attributable to the five operating properties acquired sinceMarch 31, 2021 , as well as a full period of operations from the three operating properties acquired during the three months endedMarch 31, 2021 , and an increase in expenses associated with tenant project reimbursements, offset by two properties disposed of sinceMarch 31, 2021 . The$0.5 million increase in Real estate taxes is also primarily attributable to the five operating properties acquired sinceMarch 31, 2021 , as well as a full period of operations from the three operating properties acquired during the three months endedMarch 31, 2021 , offset by two properties disposed of sinceMarch 31, 2021 . The$1.8 million increase in Depreciation and amortization is primarily related to depreciation attributable to the five operating properties acquired sinceMarch 31, 2021 , as well as a full period of operations from the three operating properties acquired during the three months endedMarch 31, 2021 , offset by a decrease in fully amortized lease intangibles. 26 --------------------------------------------------------------------------------
Additionally, Corporate general and administrative costs increased by
Income from unconsolidated real estate venture
OnOctober 13, 2021 , we formed the JV to fund the Portfolio Acquisition in which we own a 53.0% interest. The increase in Income from unconsolidated real estate venture is attributable to our pro rata share of operations from properties acquired by the JV in the fourth quarter of 2021.
Interest expense
The
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, planned and possible acquisitions of properties, including the remaining Portfolio Acquisition properties through the JV, stockholder distributions to maintain our qualification as a REIT, repurchases of common stock under our share repurchase program and other capital obligations associated with conducting our business. AtMarch 31, 2022 , we had$7.8 million available in cash and cash equivalents and there was$414.9 million available under our revolving credit facility.
Our primary expected sources of capital are as follows:
• cash and cash equivalents; • operating cash flow; • distribution of cash flows from the JV; • 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;
• distribution payments; and
• repurchases of common stock under our share repurchase program.
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.
27
--------------------------------------------------------------------------------
Equity
Offering of Common Stock on a Forward Basis
OnAugust 11, 2021 , we and the operating partnership completed an underwritten public offering of 6,300,000 shares of common stock offered on a forward basis. In connection with the offering, we 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 our common stock. OnDecember 28, 2021 , we issued 3,991,000 shares of our common stock for net proceeds of$85.0 million , which shares were issued in partial settlement of the Forward Sales Agreements entered into in connection with the underwritten public offering. No shares were issued during the three months endedMarch 31, 2022 . We expect to physically settle the remaining Forward Sales Agreements and receive proceeds, subject to certain adjustments, from the sale of those shares of our common stock upon one or more such physical settlements within approximately one year from the date of the offering. Although we expect to settle the Forward Sales Agreements entirely by the physical delivery of shares of our common stock for cash proceeds, we may also elect to cash or net-share settle all or a portion of our obligations under the Forward Sales Agreements, in which case, we may receive, or may owe, cash or shares of our common stock from or to the forward purchasers. The Forward Sales 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 Sales Agreements. The Forward Sales Agreements are subject to early termination or settlement under certain circumstances.
ATM Programs
We entered into separate equity distribution agreements on each ofDecember 20, 2019 (the "2019 ATM Program") andJune 22, 2021 (the "2021 ATM Program" and, together with the 2019 ATM Program, the "ATM Programs") with various financial institutions pursuant to which it may issue and sell shares of its common stock having an aggregate offering price of up to$300.0 million under each ATM Program from time to time in negotiated transactions or transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act. Under each of the ATM Programs, we may 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 the various financial institutions party to the respective ATM Program 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 the 2019 ATM Program during the quarter endedMarch 31, 2022 (amounts in thousands, except share amounts): 2019 ATM Program For the Three Months Ended: Number of Shares Issued(1) Net Proceeds(1) March 31, 2022 434,925 $ 9,409 Total 434,925 $ 9,409
(1) Shares issued by us, which were all issued in settlement of forward sales
transactions. Additionally, as of
forward sales transactions under the 2019 ATM Program for the sale of an
additional 1,950,000 shares of its common stock that have not yet been
settled. Subject to its 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 June 2022 to January 2023 . Assuming the forward salestransactions are physically settled in full utilizing a net weighted
average initial forward sales price of
receive net proceeds of approximately
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 our common stock were made under the 2021 ATM Program
during the quarter ended
We used the net proceeds received from such sales for general corporate purposes. As ofMarch 31, 2022 , we had approximately$300.0 million of gross sales of its common stock available under the 2021 ATM Program and$87.4 million of gross sales of its common stock available under the 2019 ATM Program.
Share Repurchase Program
OnApril 28, 2022 , our Board of Directors authorized a share repurchase program whereby we may repurchase up to 4,538,994 shares of our common stock, or approximately 5% of our outstanding shares as of the authorization date. Under this authorization, we 28
-------------------------------------------------------------------------------- are not required to purchase shares, but may choose to do so in the open market or through privately negotiated transactions at times and amounts based on our evaluation of market conditions and other factors.
Debt
The following table sets forth certain information with respect to our
outstanding indebtedness as of
Principal
Outstanding Interest Current
Loan March 31, 2022 Rate (1) Maturity
Revolving credit facility:
Revolving credit facility (2) $ 35,000 L + 120 bps July 2025 (3)
Total revolving credit facility 35,000
Term loan facilities:
2016 term loan facility 100,000 2.62% (5) March 2024
2018 term loan facility (4) 150,000 3.91% (6) July 2026
Total term loan facilities 250,000
Less: Total unamortized deferred
financing fees (1,321 )
Total term loan facilities, net 248,679
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
2021 series A senior notes 50,000 2.62% October 2028
2021 series B senior notes 200,000 2.89% October 2030
Total notes payable 700,000
Less: Total unamortized deferred
financing fees (4,297 )
Total notes payable, net 695,703
Mortgage notes payable:
DEA - Pleasanton 15,700 L + 150bps (7) October 2023
VA - Golden 8,784 5.00% (7) April 2024
MEPCOM - Jacksonville 6,465 4.41% (7) October 2025
USFS II - Albuquerque 14,723 4.46% (7) July 2026
ICE - Charleston 14,484 4.21% (7) January 2027
VA - Loma Linda 127,500 3.59% (7) July 2027
CBP - Savannah 11,002 3.40% (7) July 2033
USCIS - Kansas City 51,500 3.68% (7) August 2024
Total mortgage notes payable 250,158
Less: Total unamortized deferred
financing fees (1,743 )
Less: Total unamortized
premium/discount 2,530
Total mortgage notes payable,
net 250,945
Total debt $ 1,230,327 (1) At
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
(our "revolving credit facility"), our
loan facility (as amended, our "2018 term loan facility") and our
million senior unsecured term loan facility (our "2016 term loan facility")
is based on our consolidated leverage ratio, as defined in the respective
loan agreements.
29
--------------------------------------------------------------------------------
(2) Our revolving credit facility had available capacity of
additional lender commitments for up to
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.
(4) Our 2018 term loan facility has undrawn capacity up to
which is available during a delayed draw period.
(5) Entered into two interest rate swaps with an effective date of
2017 with an aggregate notional value of
the interest rate at 2.62% annually, based on our consolidated leverage
ratio, as defined in our 2016 term loan facility agreement.
(6) Entered into four interest rate swaps with an effective date of December
13, 2018 with an aggregate notional value of
fix the interest rate at 3.91% annually, based on our consolidated leverage
ratio, as defined in our 2018 term loan facility agreement.
(7) Effective interest rates are as follows: DEA - Pleasanton 1.80%, VA -Charleston 3.93%,VA -Loma Linda 3.78%, CBP -Savannah 4.12%,USCIS -Kansas City 2.05%. 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 ofMarch 31, 2022 , we were in compliance with all applicable financial covenants. The chart below details our debt capital structure as ofMarch 31, 2022 (dollar amounts in thousands): Debt Capital Structure March 31, 2022 Total principal outstanding$ 1,235,158 Weighted average maturity 6.5 years Weighted average interest rate 3.5 % % Variable debt 4.1 % % Fixed debt (1) 95.9 % % Secured debt 20.4 %
(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.
Material Cash Commitments During the three months endedMarch 31, 2022 , there were no material changes to the cash commitment information presented in Item 7 of Part II of our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Unconsolidated Real Estate Venture
We consolidate entities in which we have a controlling interest or are the primary beneficiary in a variable interest entity. From time to time, we may have off-balance sheet unconsolidated real estate ventures and other unconsolidated arrangements with varying structures.
As of
As of
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 forU.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. 30
--------------------------------------------------------------------------------
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 2022
(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 LTIPunits, 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.
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 three months
ended
For the three months ended March 31,
2022 2021
Net cash (used in) provided by:
Operating activities $ 24,112 $ 26,012
Investing activities (28,461 ) (72,096 )
Financing activities 1,544 44,554
Operating Activities
We generated $24.1 million and $26.0 million of cash from operating activities
during the three months ended March 31, 2022 and 2021, respectively. Net cash
provided by operating activities for the three months ended March 31, 2022
includes $30.6 million in net cash from rental activities net of expenses and
$1.8 million related to distributions from investment in unconsolidated real
estate venture, offset by $8.3 million related to the change in tenant accounts
receivable, prepaid expenses and other assets, deferred revenue associated with
operating leases, principal payments on operating lease obligations, and
accounts payable, accrued expenses and other liabilities. Net cash provided by
operating activities for the three months ended March 31, 2021 includes $28.0
million in net cash from rental activities net of expenses, offset by $2.0
million related to the change in tenant accounts receivable, prepaid expenses
and other assets, deferred revenue associated with operating leases, principal
payments on operating lease obligations, and accounts payable, accrued expenses
and other liabilities.
Investing Activities
We used $28.5 million and $72.1 million in cash for investing activities during
the three months ended March 31, 2022 and 2021, respectively. Net cash used in
investing activities for the three months ended March 31, 2022 includes $21.7
million in investment in unconsolidated real estate venture, $5.3 million in
additions to operating properties, $1.0 million in additions to development
properties and $0.5 million in deposits on acquisitions. Net cash used in
investing activities for the three months ended March 31, 2021 includes $63.0
million in real estate acquisitions, $3.4 million in additions to development
properties and $5.6 million in additions to operating properties.
Financing Activities
We generated$1.5 million and$44.6 million in cash from financing activities during the three months endedMarch 31, 2022 and 2021, respectively. Net cash generated by financing activities for the three months endedMarch 31, 2022 includes$32.0 million in draws under our revolving credit facility and$9.5 million in gross proceeds from issuances of shares of our common stock, offset by$27.0 million in dividend payments,$11.5 million in net pay downs under our revolving credit facility,$1.3 million in mortgage notes payable repayment and$0.1 million in the payment of offering costs. Net cash generated by financing activities for the three months endedMarch 31, 2021 includes$80.0 million in draws under our revolving credit facility and$40.4 million in gross proceeds 31 -------------------------------------------------------------------------------- from issuances of shares of our common stock, offset by$50.3 million in net pay downs under our revolving credit facility,$24.2 million in dividend payments,$0.9 million in mortgage notes payable repayment and$0.5 million in the payment of offering costs. Non-GAAP Financial Measures We use and present Funds From Operations ("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 currentNational Association of Real Estate Investment Trusts , or Nareit, definition set forth in the Nareit FFO White Paper - Restatement 2018. FFO includes the REIT's share of FFO generated by unconsolidated affiliates. 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 and the
unconsolidated real estate venture's allocated share of these adjustments. 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.
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.
32
--------------------------------------------------------------------------------
The following table sets forth a reconciliation of our net income to FFO and
FFO, as Adjusted for the three months ended March 31, 2022 and 2021 (amounts in
thousands):
For the three months ended March 31,
2022 2021
Net income $ 8,263 $ 7,880
Depreciation of real estate assets 23,912 22,318
Unconsolidated real estate venture allocated share
of above adjustments 878 -
FFO 33,053 30,198
Adjustments to FFO:
Acquisition costs 362 487Straight-line rent and other non-cash
adjustments (982 ) (1,413 )
Amortization of above-/below-market
leases (860 ) (1,286 ) Amortization of deferred revenue (1,398 ) (1,421 ) Non-cash interest expense 225 363 Non-cash compensation 1,629 1,334 Depreciation of non-real estate assets 247 7 Unconsolidated real estate venture allocated share of above adjustments (299 ) - FFO, as Adjusted $ 31,977 $ 28,269 Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base these estimates, judgments, and assumptions on historical experience, current trends, and various other factors that we believe to be reasonable under the circumstances. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or a different presentation of our financial statements.
Our Annual Report on Form 10-K for the year ended
33--------------------------------------------------------------------------------
© Edgar Online, source
