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EASTERLY GOVERNMENT PROPERTIES, INC.

(DEA)
  Report
Delayed Nyse  -  04:00 2022-12-09 pm EST
15.28 USD   +0.26%
11/30Easterly Government Properties, Inc. : Entry into a Material Definitive Agreement, Financial Statements and Exhibits (form 8-K)
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11/29Easterly Government Properties : Investor Presentation - November 2022
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11/28Easterly Government Properties Completes Acquisition of VA - Phoenix, the Eighth of 10 Properties in the VA Portfolio
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EASTERLY GOVERNMENT PROPERTIES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/02/2022 | 04:08pm EST

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 our Annual Report

on Form 10-K for the year ended December 31, 2021 and the factors included

under the heading "Risk Factors" in our 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")

pandemic 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 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;


                                       22
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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, 2021, 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 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 to U.S. Government agencies that serve essential
functions. We generate substantially all of our revenue by leasing our
properties to such agencies, either directly or through the U.S. General
Services Administration ("GSA"). Our objective is to generate attractive
risk-adjusted returns for our stockholders over the long term through dividends
and capital appreciation.

We focus on acquiring, developing and managing U.S. Government-leased properties
that are essential to supporting the mission of the tenant agency and strive to
be a partner of choice for the U.S. Government, working closely with the tenant
agency to meet its needs and objectives. As of June 30, 2022, we wholly owned 87
operating properties and six operating properties through an unconsolidated
joint venture, which we refer to herein as the "JV," in the United States
encompassing approximately 9.0 million leased square feet (8.7 million pro
rata), including 92 operating properties that were leased primarily to U.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 of
June 30, 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 88.3% of the aggregate limited
partnership interests in the operating partnership, which we refer to herein as
common units, as of June 30, 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 for U.S. federal income
tax purposes commencing with our taxable year ended December 31, 2015.

2022 Activity

Acquisitions


On May 10, 2022, we acquired a 161,730 leased square foot National Archives and
Record Administration ("NARA") federal records center in Broomfield, Colorado.
The building is a build-to-suit warehouse completed in 2012. The facility is
leased to the GSA for beneficial use of the NARA with a lease expiration of May
2032.

On May 18, 2022, we acquired a 138,000 leased square foot Federal Bureau of Investigation ("FBI") field office in Tampa, Florida. The building is a build-to suit property completed in 2005. The facility is leased to the GSA for beneficial use of the FBI with a lease expiration of November 2040.

Investment in unconsolidated real estate venture


On October 13, 2021, we formed a new JV with a global investor 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.

                                       23

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On April 1, 2022, the JV acquired a 77,128 square foot Veterans Affairs ("VA")
outpatient facility located in Birmingham, Alabama. The building is a
build-to-suit property that was completed during 2021. The outpatient facility
is leased to the VA and has a lease expiration of October 2041.

On May 20, 2022, the JV acquired a 76,882 square foot VA outpatient facility
located in Marietta, Georgia. The building is a build-to-suit property that was
completed during 2021. The outpatient facility is leased to the VA and has a
lease expiration of December 2041.

On July 14, 2022, the JV acquired a 67,793 square foot VA outpatient facility
located in Columbus, Georgia. The building is a build-to-suit property that was
completed during 2021. The outpatient facility is leased to the VA and has a
lease expiration of January 2042.

We expect the JV to close the three remaining properties in the 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 the U.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 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 the COVID-19 pandemic, including, but not
limited to, implementing non-essential 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
our U.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 ended December 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 of June 30, 2022, our operating properties were 99% leased with a weighted
average annualized lease income per leased square foot of $34.23 ($33.99 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.

                                       24

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The table set forth below shows information relating to the properties we owned,
or in which we had an ownership interest, at June 30, 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            Foot
Wholly Owned U.S. Government Leased Properties
VA - Loma Linda              Loma Linda, CA           OC             2036            327,614     $ 16,475,732              5.4 %   $      50.29
USCIS - Kansas City (3)      Lee's Summit, MO         O/W            2042            489,316       11,604,014              3.8 %          23.71
JSC - Suffolk                Suffolk, VA              O              2028            403,737        8,310,226              2.7 %          20.58
Various GSA - Buffalo (4)    Buffalo, NY              O              2036            270,809        7,070,734              2.3 %          26.11
IRS - Fresno                 Fresno, CA               O              2033            180,481        6,957,301              2.3 %          38.55
FBI - Salt Lake              Salt Lake City, UT       O              2032            169,542        6,890,852              2.2 %          40.64
Various GSA - Chicago        Des Plaines, IL          O              2023            202,185        6,812,395              2.2 %          33.69
Various GSA - Portland (5)   Portland, OR             O              2025            210,239        6,600,241              2.1 %          31.39
PTO - Arlington              Arlington, VA            O              2035            190,546        6,059,382              2.0 %          31.80
VA - San Jose                San Jose, CA             OC             2038             90,085        5,719,264              1.9 %          63.49
EPA - Lenexa                 Lenexa, KS               O              2027            169,585        5,603,247              1.8 %          33.04
FBI - San Antonio            San Antonio, TX          O              2025            148,584        5,189,147              1.7 %          34.92
FBI - Tampa                  Tampa, FL                O              2040            138,000        5,057,412              1.6 %          36.65
FDA - Alameda                Alameda, CA              L              2039             69,624        4,667,346              1.5 %          67.04
FEMA - Tracy                 Tracy, CA                W              2038            210,373        4,611,775              1.5 %          21.92
FBI - Omaha                  Omaha, NE                O              2024            112,196        4,431,693              1.4 %          39.50
TREAS - Parkersburg          Parkersburg, WV          O              2041            182,500        4,299,472              1.4 %          23.56
EPA - Kansas City            Kansas City, KS          L              2042             71,979        4,291,659              1.4 %          59.62
FBI / DEA - El Paso          El Paso, TX              O/W            2028            203,683        4,125,896              1.3 %          20.26
FBI - Pittsburgh             Pittsburgh, PA           O              2027            100,054        4,059,046              1.3 %          40.57
VA - South Bend              Mishakawa, IN            OC             2032             86,363        4,000,046              1.3 %          46.32
FDA - Lenexa                 Lenexa, KS               L              2040             59,690        3,966,224              1.3 %          66.45
DOI - Billings               Billings, MT             O/W            2033            149,110        3,886,057              1.3 %          26.06
USCIS - Lincoln              Lincoln, NE              O              2025            137,671        3,879,753              1.3 %          28.18
VA - Mobile                  Mobile, AL               OC             2033             79,212        3,835,525              1.2 %          48.42
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        3,638,432              1.2 %          29.77
FBI - Knoxville              Knoxville, TN            O              2025             99,130        3,504,570              1.1 %          35.35
FBI - Birmingham             Birmingham, AL           O              2042             96,278        3,433,823              1.1 %          35.67
ICE - Charleston             North Charleston, SC     O              2027             65,124        3,301,630              1.1 %          50.70
VA - Chico                   Chico, CA                OC             2034             51,647        3,258,331              1.1 %          63.09
FBI - Richmond               Richmond, VA             O              2041             96,607        3,252,338              1.1 %          33.67
USFS II - Albuquerque        Albuquerque, NM          O              2026             98,720        3,141,254              1.0 %          31.82
USFS I - Albuquerque         Albuquerque, NM          O              2026             92,455        3,100,080              1.0 %          33.53
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        3,042,740              1.0 %          45.54
OSHA - Sandy                 Sandy, UT                L              2024             75,000        3,039,951              1.0 %          40.53
VA - Orange                  Orange, CT               OC             2034             56,330        2,918,411              0.9 %          51.81
VA - Indianapolis            Brownsburg, IN           OC             2041             80,000        2,913,914              0.9 %          36.42


                                       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
Wholly Owned U.S. Government Leased Properties (Cont.)
JUD - Del Rio                 Del Rio, TX              C/O            2024             89,880       2,791,775              0.9 %          31.06
ICE - Albuquerque             Albuquerque, NM          O              2027             71,100       2,789,429              0.9 %          39.23
DEA - Pleasanton              Pleasanton, CA           L              2035             42,480       2,716,215              0.9 %          63.94
JUD - El Centro               El Centro, CA            C/O            2034             43,345       2,701,670              0.9 %          62.33
FBI - Mobile                  Mobile, AL               O              2029             76,112       2,681,962              0.9 %          35.24
SSA - Charleston              Charleston, WV           O              2024            110,000       2,648,898              0.9 %          24.08
FBI - Albany                  Albany, NY               O              2036             69,476       2,611,361              0.8 %          37.59
DEA - Sterling                Sterling, VA             L              2037             49,692       2,605,686              0.8 %          52.44
DEA - Upper Marlboro          Upper Marlboro, MD       L              2037             50,978       2,508,422              0.8 %          49.21
USAO - Louisville             Louisville, KY           O              2031             60,000       2,506,169              0.8 %          41.77
TREAS - Birmingham            Birmingham, AL           O              2029             83,676       2,487,887              0.8 %          29.73
DHA - Aurora                  Aurora, CO               O              2034            101,285       2,392,674              0.8 %          23.62
DEA - Dallas Lab              Dallas, TX               L              2022             49,723       2,356,701              0.8 %          47.40
NARA - Broomfield             Broomfield, CO           O/W            2032            161,730       2,346,885              0.8 %          14.51
JUD - Charleston              Charleston, SC           C/O            2040             52,339       2,333,282              0.8 %          44.58
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       2,263,430              0.7 %          31.51
Various GSA - Cleveland (6)   Brooklyn Heights, OH     O              2031             61,384       2,229,291              0.7 %          36.32
CBP - Savannah                Savannah, GA             L              2033             35,000       2,227,652              0.7 %          63.65
MEPCOM - Jacksonville         Jacksonville, FL         O              2025             30,000       2,215,373              0.7 %          73.85
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       2,114,807              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       1,933,254              0.6 %          48.45
DEA - North Highlands         Sacramento, CA           O              2033             37,975       1,919,640              0.6 %          50.55
NPS - Omaha                   Omaha, NE                O              2024             62,772       1,802,036              0.6 %          28.71
ICE - Otay                    San Diego, CA            O              2022             47,919       1,761,864              0.6 %          36.77
VA - Golden                   Golden, CO               O/W            2026             56,753       1,735,882              0.6 %          30.59
CBP - Sunburst                Sunburst, MT             O              2028             33,000       1,641,202              0.5 %          49.73
USCG - Martinsburg            Martinsburg, WV          O              2027             59,547       1,640,946              0.5 %          27.56
JUD - Aberdeen                Aberdeen, MS             C/O            2025             46,979       1,552,942              0.5 %          33.06
VA - Charleston               North Charleston, SC     W              2040             97,718       1,539,323              0.5 %          15.75
GSA - Clarksburg              Clarksburg, WV           O              2024             63,750       1,498,199              0.5 %          23.50
DEA - Birmingham              Birmingham, AL           O              2023             35,616       1,392,673              0.5 %          39.10
DEA - Albany                  Albany, NY               O              2025             31,976       1,379,850              0.4 %          43.15
USAO - Springfield            Springfield, IL          O              2038             43,600       1,372,735              0.4 %          31.48
DEA - Riverside               Riverside, CA            O              2032             34,354       1,278,254              0.4 %          37.21
SSA - Dallas                  Dallas, TX               O              2035             27,200       1,036,871              0.3 %          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         821,612              0.3 %          27.39
ICE - Louisville              Louisville, KY           O              2036             17,420         820,941              0.3 %          47.13
ICE - Pittsburgh (7)          Pittsburgh, PA           O              2032             25,369         803,239              0.3 %          31.66


                                       26
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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
Wholly Owned U.S. Government Leased Properties (Cont.)
JUD - South Bend               South Bend, IN           C/O            2027               30,119           784,341              0.3 %          26.04
DEA - San Diego                San Diego, CA            W              2032               16,100           551,697              0.2 %          34.27
SSA - San Diego                San Diego, CA            O             2032                10,059           433,097              0.1 %          43.06
DEA - Bakersfield              Bakersfield, CA          O             2038                 9,800           401,991              0.1 %          41.02
Subtotal                                                                               8,305,490     $ 281,838,047             91.6 %   $      33.93

Wholly Owned Privately Leased Property
501 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                                       8,375,568     $ 282,248,391             91.7 %   $      33.70

Unconsolidated Real Estate Venture U.S. Government Leased Properties
VA - San Antonio (8)           San Antonio, TX          OC            2041               226,148     $   9,589,161              3.1 %   $      42.40
VA - Chattanooga (8)           Chattanooga, TN          OC            2035                94,566         4,154,710              1.3 %          43.93
VA - Lubbock (8) (9)           Lubbock, TX              OC            2040               120,916         3,961,655              1.3 %          32.76
VA - Marietta (8)              Marietta, GA             OC            2041                76,882         3,816,412              1.2 %          49.64
VA - Birmingham (8)            Irondale, AL             OC            2041                77,128         3,105,255              1.0 %          40.26
VA - Lenexa (8)                Lenexa, KS               OC            2041                31,062         1,298,203              0.4 %          41.79
Subtotal                                                                                 626,702     $  25,925,396              8.3 %   $      41.37

Total / Weighted Average                                                               9,002,270     $ 308,173,787            100.0 %   $      34.23

Total / Weighted Average at Easterly's Share                                           8,707,719     $ 295,988,850                      $      33.99


(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 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 11,402 leased square feet.


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


  (8) We own 53.0% of the property through an unconsolidated joint venture.


  (9) Asset is subject to a ground lease where we are the lessee.


                                       27
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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 17.6
years as of June 30, 2022), the mission-critical focus of the properties subject
to the leases and the current level of operations at such properties.

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 June 30, 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                                      5             194,985                  2.2 %   $   6,240,908               2.0 %   $       32.01
2023                                     12             375,974                  4.2 %      12,204,076               4.0 %           32.46
2024                                     12             790,700                  8.8 %      24,481,894               7.9 %           30.96
2025                                     15             679,124                  7.5 %      22,877,663               7.4 %           33.69
2026                                      5             294,245                  3.3 %       9,328,986               3.0 %           31.70
2027                                      7             502,963                  5.6 %      18,434,703               6.0 %           36.65
2028                                      9             794,819                  8.8 %      17,064,413               5.5 %           21.47
2029                                      5             493,794                  5.5 %      14,024,421               4.6 %           28.40
2030                                      -                   -                  0.0 %               -               0.0 %               -
2031                                      2             100,502                  1.1 %       4,022,326               1.3 %           40.02
Thereafter                               54           4,775,164                 53.0 %     179,494,397              58.3 %           37.59
Total / Weighted Average                126           9,002,270                100.0 %   $ 308,173,787             100.0 %   $       34.23


(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 June 30,

2022, 18 tenants occupying approximately 5.6% of our leased square feet and

contributing approximately 5.2% 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 June 30, 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.


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Results of Operations

Comparison of Results of Operations for the three months ended June 30, 2022 and 2021

The financial information presented below summarizes our results of operations for the three months ended June 30, 2022 and 2021 (amounts in thousands).

                                                For the three months ended June 30,
                                            2022                 2021             Change
Revenues
Rental income                          $       71,156       $       66,095     $       5,061
Tenant reimbursements                             916                1,899              (983 )
Asset management income                           317                    -               317
Other income                                      368                  620              (252 )
Total revenues                                 72,757               68,614             4,143
Expenses
Property operating                             15,551               14,296             1,255
Real estate taxes                               7,851                7,553               298
Depreciation and amortization                  24,343               22,525             1,818
Acquisition costs                                 302                  483              (181 )
Corporate general and administrative            5,966                5,768               198
Total expenses                                 54,013               50,625             3,388
Other income (expense)
Income from unconsolidated real
estate venture                                    825                    -               825
Interest expense, net                         (11,439 )             (9,265 )          (2,174 )
Gain on the sale of operating
property                                            -                  530              (530 )
Net income                             $        8,130       $        9,254     $      (1,124 )


Revenues

Total revenues increased $4.1 million to $72.8 million for the three months ended June 30, 2022 compared to $68.6 million for the three months ended June 30, 2021.


The $5.1 million increase in Rental income is primarily attributable to an
increase in revenues from the five operating properties acquired since June 30,
2021, as well as a full period of operations from the two operating properties
acquired during the three months ended June 30, 2021, offset by one property
disposed of since June 30, 2021.

The $1.0 million decrease in Tenant reimbursements is primarily attributable to a decrease in tenant project reimbursements.

The $0.3 million increase in Asset management income is attributable to the fee we earned for asset management of the JV.

Expenses

Total expenses increased $3.4 million to $54.0 million for the three months ended June 30, 2022 compared to $50.6 million for the three months ended June 30, 2021.


The $1.3 million increase in Property operating expenses is primarily
attributable to the five operating properties acquired since June 30, 2021, as
well as a full period of operations from the two operating properties acquired
during the three months ended June 30, 2021, offset by one property disposed of
since June 30, 2021.

The $0.3 million increase in Real estate taxes is also primarily attributable to
the five operating properties acquired since June 30, 2021, as well as a full
period of operations from the two operating properties acquired during the three
months ended June 30, 2021, offset by one property disposed of since June 30,
2021.

The $1.8 million increase in Depreciation and amortization is primarily related
to depreciation attributable to the five operating properties acquired since
June 30, 2021, as well as a full period of operations from the two operating
properties acquired during the three months ended June 30, 2021, offset by a
decrease in fully amortized lease intangibles.

                                       29

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Additionally, Corporate general and administrative costs increased by $0.2 million, primarily due to an increase in employee costs.

Income from unconsolidated real estate venture


On October 13, 2021, we formed the JV, in which we own a 53.0% interest, to fund
the Portfolio Acquisition. 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 and second quarter
of 2022.

Interest expense

The $2.2 million increase in Interest expense is primarily related to the issuance of our 2021 series of unsecured senior notes.

Gain on sale of operating property


Gain on the sale of operating properties decreased by $0.5 million for the three
months ended June 30, 2022. The gain on sale of operating property for the three
months ended June 30, 2021 was attributable to the sale of SSA - Mission Viejo
in the second quarter of 2021.

Comparison of Results of Operations for the six months ended June 30, 2022 and 2021

The financial information presented below summarizes our results of operations for the six months ended June 30, 2022 and 2021.

                                                   For the six months ended June 30,
                                               2022                2021             Change
Revenues
Rental income                              $     141,595       $     130,274     $     11,321
Tenant reimbursements                              2,060               2,219             (159 )
Asset management income                              565                   -              565
Other income                                         839               1,122             (283 )
Total revenues                                   145,059             133,615           11,444
Expenses
Property operating                                31,009              26,390            4,619
Real estate taxes                                 15,677              14,839              838
Depreciation and amortization                     48,502              44,850            3,652
Acquisition costs                                    664                 970             (306 )
Corporate general and administrative              11,949              11,576              373
Total expenses                                   107,801              98,625            9,176
Other income (expense)
Income from unconsolidated real estate
venture                                            1,456                   -            1,456
Interest expense, net                            (22,321 )           (18,386 )         (3,935 )
Gain on the sale of operating property                 -                 530             (530 )
Net income                                 $      16,393       $      17,134     $       (741 )


Revenues

Total revenues increased $11.4 million to $145.1 million for the six months ended June 30, 2022 compared to $133.6 million for the six months ended June 30, 2021.


The $11.3 million increase in Rental income is primarily attributable to an
increase in revenues from the five operating properties acquired since June 30,
2021, as well as a full period of operations from the five operating properties
acquired during the six months ended June 30, 2021, offset by one property
disposed of since June 30, 2021.

The $0.2 million decrease in Tenant reimbursements is primarily attributable to a decrease in tenant project reimbursements.

The $0.6 million increase in Asset management income is attributable to the fee we earned for asset management of the JV.

                                       30

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Expenses

Total expenses increased $9.2 million to $107.8 million for the six months ended June 30, 2022 compared to $98.6 million for the six months ended June 30, 2021.


The $4.6 million increase in Property operating expenses is primarily
attributable to the five operating properties acquired since June 30, 2021, as
well as a full period of operations from the five operating properties acquired
during the six months ended June 30, 2021, offset by one property disposed of
since June 30, 2021.

The $0.8 million increase in Real estate taxes is also primarily attributable to
the five operating properties acquired since June 30, 2021, as well as a full
period of operations from the five operating properties acquired during the six
months ended June 30, 2021, offset by one property disposed of since June 30,
2021.

The $3.7 million increase in Depreciation and amortization is primarily related
to depreciation attributable to the five operating properties acquired since
June 30, 2021, as well as a full period of operations from the five operating
properties acquired during the six months ended June 30, 2021, offset by a
decrease in fully amortized lease intangibles.

Additionally, Corporate general and administrative costs increased by $0.4 million, primarily due to an increase in employee costs.

Income from unconsolidated real estate venture


On October 13, 2021, we formed the JV, in which we own a 53.0% interest, to fund
the Portfolio Acquisition. 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 and second quarter
of 2022.

Interest expense

The $3.9 million increase in Interest expense is primarily related to the issuance of our 2021 series of unsecured senior notes.

Gain on sale of operating property


Gain on the sale of operating properties decreased by $0.5 million for the six
months ended June 30, 2022. The gain on sale of operating property for the six
months ended June 30, 2021, was attributable to the sale of SSA - Mission Viejo
in the second quarter of 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, 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. At June 30, 2022, we had
$8.3 million available in cash and cash equivalents and there was $307.1 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.


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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 pro rata 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.

Equity

Offering of Common Stock on a Forward Basis


On August 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. On December 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 and six months ended June 30, 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 common stock
upon one or more such physical settlements within approximately two years from
the date of the offering (which was extended by one year). 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 of December 20,
2019 (the "2019 ATM Program") and June 22, 2021 (the "2021 ATM Program" and,
together with the 2019 ATM Program, the "ATM Programs") with various financial
institutions pursuant to which we may issue and sell shares of our 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 our common stock on a forward basis.

The following table sets forth certain information with respect to issuances
under the 2019 ATM Program during the six months ended June 30, 2022 (amounts in
thousands, except share amounts):

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                                              2019 ATM Program
For the three months ended    Number of Shares Issued(1)       Net Proceeds(1)
March 31, 2022                                    434,925     $           9,409
June 30, 2022                                           -                     -
Total                                             434,925     $           9,409

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

transactions. Additionally, as of June 30, 2022, we had entered into

forward sales transactions under the 2019 ATM Program for the sale of an

additional 1,950,000 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 July 2022 to June 2023. Assuming the forward sales

transactions are physically settled in full utilizing a net weighted

average initial forward sales price of $21.82 per share, we expect to

receive net proceeds of approximately $42.6 million, after deducting

offering costs, subject to adjustments in accordance with the applicable

forward sale transaction. We accounted for the forward sale transactions

        as equity.



No sales of shares of our common stock were made under the 2021 ATM Program during the six months ended June 30, 2022.

We used the net proceeds received from such sales for general corporate purposes. As of June 30, 2022, we had approximately $300.0 million of gross sales of our common stock available under the 2021 ATM Program and $87.4 million of gross sales of our common stock available under the 2019 ATM Program.

Share Repurchase Program


On April 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. We are
not required to purchase shares under the share repurchase program, but may
choose to do so in the open market or through privately negotiated transactions
at times and amounts based on its evaluation of market conditions and other
factors.

No repurchases of shares of our common stock were made under the share repurchase program during the six months ended June 30, 2022.

Contribution of Property for Common Units


On May 10, 2022, we acquired NARA - Broomfield for which we issued, as partial
consideration, 827,791 common units. The issuance of common units was effected
in reliance upon an exemption from registration provided by Section 4(a)(2)
under the Securities Act.

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Debt

The following table sets forth certain information with respect to our outstanding indebtedness as of June 30, 2022 (amounts in thousands):

                                      Principal
                                     Outstanding              Interest              Current
Loan                                June 30, 2022             Rate (1)              Maturity
Revolving credit facility:
Revolving credit facility (2)      $        142,750         L + 125 bps          July 2025 (3)
Total revolving credit facility             142,750

Term loan facilities:
2016 term loan facility                     100,000          2.67% (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                               (1,221 )
Total term loan facilities, net             248,779

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                               (4,181 )
Total notes payable, net                    695,819

Mortgage notes payable:
DEA - Pleasanton                             15,700        L + 150bps (7)         October 2023
VA - Golden                                   8,723          5.00% (7)             April 2024
MEPCOM - Jacksonville                         6,163          4.41% (7)            October 2025
USFS II - Albuquerque                        14,306          4.46% (7)             July 2026
ICE - Charleston                             14,140          4.21% (7)            January 2027
VA - Loma Linda                             127,500          3.59% (7)             July 2027
CBP - Savannah                               10,799          3.40% (7)             July 2033
USCIS - Kansas City                          51,500          3.68% (7)            August 2024
Total mortgage notes payable                248,831
Less: Total unamortized deferred
financing fees                               (1,633 )
Less: Total unamortized
premium/discount                              2,252
Total mortgage notes payable,
net                                         249,450

Total debt                         $      1,336,798

(1) At June 30, 2022, the one-month LIBOR ("L") was 1.79%. 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

$450.0 million senior unsecured revolving credit facility (our "revolving

credit facility"), our $200.0 million senior unsecured term loan facility

(as amended, our "2018 term loan facility") and our $100.0 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.

(2) Our revolving credit facility had available capacity of $307.1 million at

June 30, 2022 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.



                                       34

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(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 $50.0 million of

which is available during a delayed draw period.

(5) 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.

(6) 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.


   (7) 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%, 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 of June 30, 2022, we were in compliance with all applicable
financial covenants.

On July 22, 2022, we entered into the first amendment to our second amended and
restated senior credit agreement (the "first amendment"). The first amendment
extended the deadline for the $50.0 million delayed draw portion of the 2018
term loan facility to July 24, 2023 (from July 22, 2022).

The chart below details our debt capital structure as of June 30, 2022 (dollar
amounts in thousands):

Debt Capital Structure            June 30, 2022
Total principal outstanding      $     1,341,581
Weighted average maturity              6.0 years
Weighted average interest rate               3.5 %
% Variable debt                             11.8 %
% Fixed debt (1)                            88.2 %
% Secured debt                              18.6 %

(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 six months ended June 30, 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 ended December 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 June 30, 2022, we have invested $182.3 million in the JV. For a more complete description of the JV, see Note 4 to the Consolidated Financial Statements.

As of June 30, 2022, we had capital commitments to the JV totaling $183.9 million and none of the properties owned by the JV were encumbered by mortgage indebtedness.


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.

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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    April 27, 2022     May 13, 2022      May 25, 2022     $    0.265
Q2 2022    July 27, 2022     August 11, 2022   August 23, 2022   $    0.265

(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.

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 six months ended June 30, 2022 and 2021 (amounts in thousands):

                                      For the six months ended June 30,
                                        2022                    2021
Net cash (used in) provided by:
Operating activities              $          64,354       $          56,717
Investing activities                       (147,028 )              (103,802 )
Financing activities                         80,575                  47,094


Operating Activities

We generated $64.4 million and $56.7 million of cash from operating activities
during the six months ended June 30, 2022 and 2021, respectively. Net cash
provided by operating activities for the six months ended June 30, 2022 includes
$62.6 million in net cash from rental activities net of expenses and $3.4
million related to distributions from investment in unconsolidated real estate
venture, offset by $1.6 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 six months ended June 30, 2021 includes $56.9
million in net cash from rental activities net of expenses, offset by $0.2
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 $147.0 million and $103.8 million in cash for investing activities
during the six months ended June 30, 2022 and 2021, respectively. Net cash used
in investing activities for the six months ended June 30, 2022 includes $78.8
million in real estate acquisitions and deposits, $52.7 million in investment in
unconsolidated real estate venture, $10.9 million in additions to operating
properties and $4.9 million in additions to development properties, offset by
$0.3 million in distributions of capital from unconsolidated real estate
venture. Net cash used in investing activities for the six months ended June 30,
2021 includes $93.0 million in real estate acquisitions, $9.6 million in
additions to operating properties and $4.5 million in additions to development
properties, offset by $3.3 million in proceeds from the sale of SSA - Mission
Viejo during the second quarter of 2021.

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Financing Activities


We generated $80.6 million and $47.1 million in cash from financing activities
during the six months ended June 30, 2022 and 2021, respectively. Net cash
generated by financing activities for the six months ended June 30, 2022
includes $157.3 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 $54.4 million in dividend payments, $29.0 million in net pay downs under our
revolving credit facility, $2.6 million in mortgage notes payable repayment and
$0.1 million in the payment of offering costs. Net cash generated by financing
activities for the six months ended June 30, 2021 includes $125.3 million in
draws under our revolving credit facility and $40.4 million in gross proceeds
from issuances of shares of our common stock, offset by $67.3 million in net pay
downs under our revolving credit facility, $48.8 million in dividend payments,
$1.9 million in mortgage notes payable repayment, $0.6 million in the payment of
offering costs and $0.1 million in payment of deferred financing fees.

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 current National 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.

                                       37

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The following table sets forth a reconciliation of our net income to FFO and FFO, as Adjusted for the three and six months ended June 30, 2022 and 2021 (amounts in thousands):

                                             For the three months ended
                                                      June 30,                   For the six months ended June 30,
                                              2022                2021               2022                   2021
Net income                                $      8,130         $     9,254     $          16,393         $    17,134
Depreciation of real estate assets              24,096              22,502                48,008              44,820
Gain on sale of operating property                   -                (530 )                   -                (530 )
Unconsolidated real estate venture
allocated share of above adjustments             1,127                   -                 2,005                   -
FFO                                             33,353              31,226                66,406              61,424
Adjustments to FFO:
Acquisition costs                                  302                 483                   664                 970

Straight-line rent and other non-cash

  adjustments                                      451              (1,324 )                (531 )            (2,737 )

Amortization of above-/below-market

  leases                                          (743 )            (1,225 )              (1,604 )            (2,511 )
Amortization of deferred revenue                (1,443 )            (1,398 )              (2,841 )            (2,819 )
Non-cash interest expense                          235                 364                   460                 727
Non-cash compensation                            1,637               1,033                 3,266               2,367
Depreciation of non-real estate assets             247                  23                   494                  30
Unconsolidated real estate venture
allocated share of above adjustments              (378 )                 -                  (677 )                 -
FFO, as Adjusted                          $     33,661         $    29,182     $          65,637         $    57,451

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 December 31, 2021 contains a discussion of our significant accounting policies, which utilize relevant critical accounting estimates.

                                       38

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