Easterly Government Properties, Inc. 2026 Q2 Earnings Call

Before the call begins, please note that certain statements made during this conference call may include statements that are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes that its expectations as reflected in any forward-looking statements are reasonable, it can give no assurance that these expectations will be attained or achieved. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond the company's control, including, without limitation, those contained in the company's most recent Form 10-K filed with the SEC and in other SEC filings. The company assumes no obligation to update publicly any forward-looking statements.

Additionally, on this conference call, the company may refer to certain non-GAAP financial measures such as funds from operations, core funds from operations, and cash available for distribution. You can find a tabular reconciliation of these non-GAAP financial measures to the most comparable current GAAP numbers in the company's earnings release and separate supplemental information package on the investor relations page of the company's website at ir.easterlyreit.com. I would now like to turn the conference call over to Darrell Crate, President and CEO of Easterly Government Properties.

Thanks, Cole. Good morning, everyone. This quarter, we delivered year-over-year Core FFO per share growth of 5.4%. As many of you know, this is above our 2%-3% stated long-term growth target, and we are pleased and achieved these results by executing our strategy of growing earnings steadily, allocating capital thoughtfully, and improving the quality of the portfolio over time. While the current interest rate environment hasn't improved, driven in part by the volatility of geopolitical conditions that we're currently facing, our business moves forward steadily in periods like this, as evidenced by our improved earnings guidance. We own facilities that support essential government missions, leased to critical federal agencies, high credit state and municipal tenants, and defense related companies. These leases are long duration and backed primarily by the full faith and credit of the U.S. government.

We continue to communicate to investors that we are clearly differentiated from traditional office real estate. Many of our facilities include secure, purpose-built environments where sensitive government work is conducted. They are mission-specific, difficult to replicate, and essential to the agencies they serve. For example, we recently visited our U.S. District Courthouse in Charleston, South Carolina. The building sits at the city's historic four corners of law, physically connected to the adjoining Federal Judicial Center, deeply embedded into both the operations of the federal judiciary and the fabric of downtown Charleston. It's a clear example of the tenant stickiness that runs throughout our portfolio. Facilities that are integral to the missions they serve and the communities they anchor. Turning to the quarter, the portfolio continues to perform well. Occupancy stood at 98%, and our weighted average lease term stands at 9.2 years.

Both of these key metrics compare quite favorably to our office REIT peers, each reflects the quality of our assets, the mission-critical work happening inside them, and the durability of the portfolio's cash flows. During the quarter, we closed a new five-year term loan facility. Allison will cover the details, I'd note that in a selective lending environment, we executed efficiently and on attractive terms. We view that as a reflection of how lenders see the business. High-quality cash flows derived from government-backed income, supporting a disciplined, strong balance sheet. As part of our growth plan, we also continue to have ongoing conversations with the rating agencies, we look forward to updating you on our progress as we work toward an additional investment-grade rating in 2027.

Turning to our cost of capital, our shares have performed well year-to-date, the improvement supports our ability to grow. As our equity continues to rerate, reflecting the quality and consistent growth of our FFO relative to peers, we will be able to harvest more opportunities across our $1.5 billion pipeline. Even at current levels, we're beginning to see opportunities to fund external growth on an accretive basis. As the stock price improves, more of that pipeline meets our return thresholds. We've spent the last several years building this pipeline, we will hopefully look to begin converting it in the coming quarters. Based on our continued operational performance and successful capital markets execution, we are raising our full-year Core FFO per share guidance range. The increase reflects the strength of our business and our confidence in delivering another year of steady growth against our stated objectives.

We continue to remain focused on disciplined execution, prudent capital allocation, and creating long-term value for our shareholders. As we look ahead, we couldn't be more excited about the opportunities in front of us. Over the past several years, we've remained focused on executing our strategy, strengthening the portfolio, and positioning the company for consistent long-term growth. We're encouraged to see that that execution increasingly reflected in our market valuation, we believe we remain in the early innings of unlocking the value embedded within our platform. We appreciate the dedication of our team and the continued support of our tenants and shareholders, we look forward to building on this momentum through the rest of the year. With that, I'll turn the call over to Allison.

Thanks, Darrell, and happy Monday, everyone. I'm pleased to report the financial results for the second quarter of 2026. The underlying growth of the business continues to come through clearly in the numbers. Total revenue for the quarter was $92.4 million, up from $84.2 million in the second quarter of 2025. That's an increase of 10% year-over-year, and it was driven by several factors. The acquisitions and development we've completed over the past 12 months, lease renewals, and TI and BSAC income coming online. EBITDA grew alongside revenue, coming in at $58.4 million for the quarter versus $54.3 million in the second quarter of 2025, approximately 8% growth. Importantly, that growth is reaching the bottom line on a per share basis. For the quarter, net income was $0.07 per share on a fully diluted basis.

FFO per share was $0.78, up from $0.74 in the prior year. Core FFO per share as well came in at $0.78, up from $0.74 in the prior year. That is approximately 5% growth year-over-year for both metrics. Finally, cash available for distribution for the quarter was approximately $25.8 million. In terms of our active development projects, all three continue to progress nicely. Our FDLE lab facility in Fort Myers, Florida, the U.S. Courthouse in Flagstaff, Arizona, and the U.S. Courthouse in Medford, Oregon, are all advancing, and we're confident these will be high quality, mission critical additions to the portfolio once delivered. We initially broke ground on our FDLE lab facility in August of 2025, and our team and development partners have done an excellent job executing against the construction timeline and keeping the project on track with delivery later this year.

Our net debt to annualized quarterly EBITDA currently stands at 7.3 times, down from the first quarter as we continue to make steady progress towards our deleveraging targets. As our development projects advance, agreed upon lump sum reimbursements will provide a natural source of deleveraging, followed by incremental EBITDA growth as projects are delivered and lease revenues commence. These factors are an important step towards our medium term leverage objectives and our pursuit of additional investment grade ratings, which we believe will enhance access to attractively priced debt capital and support future pipeline funding. The term loan was an excellent outcome for the company. We secured a new $200 million unsecured facility with a five-year maturity and a $50 million accordion feature at pricing that was better than we initially had anticipated for a comparable long-term capital solution.

With an initial spread of 130 basis points over SOFR, we believe the financing reflects both the continued strengthening of the business and the quality of the relationships we've built with our lending group. We used the proceeds to pay down our revolving credit facility, which increased our available liquidity and provides additional capacity to fund future growth opportunities. With the successful closing of the term loan during the quarter, we are raising our full year Core FFO per share guidance range by $0.01 at the midpoint from $3.09-$3.10, resulting in a revised full year range of $3.07-$3.13. Despite a challenging interest rate environment, our portfolio continues to perform better than expected, supporting confidence in our earnings outlook for the balance of the year.

At the midpoint, our guidance assumes that we will have $50 million-$100 million of gross development related investment during the year and $50 million in wholly owned acquisitions. We continue to maintain a $1.5 billion acquisition and development pipeline, and with the recent improvement in our share price, we believe we are approaching an inflection point where we can begin to unlock opportunities from that pipeline in a meaningful way over the coming quarters. We remain focused on disciplined capital allocation, maintaining the strength of our tenant relationships, and advancing opportunities across our development and acquisition pipeline. Consistent execution in these areas continues to support the resilience of our cash flows and positions us to create long-term value for shareholders. Thank you for your time this morning. We appreciate your partnership and look forward to updating you on our progress.

With that, I will now turn the call back to Shannon.