Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Easterly Government Properties Inc (DEA, Financial) has a significant development pipeline, working with both US government agencies and high-credit government-adjacent companies.
- The company has successfully acquired two additional assets in Orlando, Florida, critical to national safety and security.
- Easterly Government Properties Inc (DEA) has secured $200 million in fixed-rate senior unsecured notes and a $400 million revolving credit facility, enhancing its liquidity and capital deployment capabilities.
- The company maintains a stable core FFO per share guidance for 2024, indicating strong earnings growth potential.
- Easterly Government Properties Inc (DEA) continues to invest in its assets, bolstering partnerships with tenants and ensuring stable cash flows for shareholders.
Negative Points
- The lease expiration schedule has not changed significantly, indicating potential delays in signing new leases.
- The FBI Omaha renewal is expected to be flat, which may not contribute to revenue growth.
- Maintenance CapEx was higher this quarter, which could impact AFFO if it continues to rise.
- The company faces a competitive acquisition market, which could impact pricing and acquisition opportunities.
- There is a small loan provision for credit losses, which may need to be adjusted through its maturity date, potentially affecting financial results.
Q & A Highlights
Q: Can you expand on the acquisition opportunities you're seeing and the current investment spreads relative to your cost of capital?
A: (Darrell Crate, CEO) The bid-ask spread has been shrinking, especially for buildings with maturing debt. Our current cost of capital is about 7.25%. With our stock appreciating, we see more accretion and better cost of capital. We have a robust pipeline, including US government agencies and high-credit government-adjacent tenants, and are excited about future growth prospects.
Q: How might the upcoming election and potential change in administration impact your business?
A: (Darrell Crate, CEO) Our core strategy focuses on agencies like the VA, FBI, and DEA, which are not swayed by political changes. These agencies serve critical missions agreed upon by both parties, so we don't expect significant impact from the election.
Q: Can you provide an update on your leasing activity and the outlook for 2025 expirations?
A: (Meghan Baivier, President & COO) For 2024, we have significant leases like FBI Omaha and Portland. We feel positive about these and other smaller tenancies. For 2025, we have several FBI leases and a courthouse in Aberdeen, and we expect positive outcomes for these as well.
Q: What are the expected cash lease spreads for upcoming expirations?
A: (Meghan Baivier, President & COO) FBI Omaha is likely to have a flat renewal due to a prospectus. For the 2025 expirations, including FBI leases and a courthouse, we expect cash lease spreads in the high-teens range.
Q: What's the timing for completing the JV acquisition, specifically the Jacksonville VA?
A: (Meghan Baivier, President & COO) We expect the Jacksonville VA acquisition to close within the quarter, marking the final transaction for that JV deal.
Q: Can you explain the loan provision for credit losses added back to FFO and if we should expect more provisions?
A: (Allison Marino, CFO) We have a small pre-leased award loan to a developer. While there's no actual loss or default, accounting rules require us to estimate a credit loss probability. This will be adjusted through the loan's maturity date.
Q: Can you discuss the expected run rate for maintenance CapEx and any items to look out for from an AFFO perspective?
A: (Allison Marino, CFO) There's always timing variability as projects start and complete throughout the year. However, there are no changes to our run rate expectations for maintenance CapEx.
Q: As rates come down, do you expect more competition for the assets you're targeting, and how will that impact pricing?
A: (Meghan Baivier, President & COO) We are excited about the normalization of our cost of capital, which presents increased acquisition opportunities. Our competitive advantage lies in our blended cost of capital, which remains leading in the industry. The focus is more on meeting sellers' expectations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
