Easterly Government (DEA) Earnings Transcript

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DATE

Monday, February 23, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Darrell William Crate
• Chief Financial Officer — Allison E. Marino

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TAKEAWAYS

• Core FFO Per Share Growth -- Increased by nearly 6% to $0.77 for the quarter and by nearly 3% to $2.99 for the year, demonstrating consistent execution on the company's targeted growth strategy.
• Portfolio Occupancy -- Maintained at approximately 97%, close to historical high levels, with weighted average lease terms of roughly 10 years, supporting stable operating performance.
• Cash Available for Distribution -- $29,100,000 in the quarter and $118,000,000 for the year, reflecting steady operational outcomes.
• 2026 Core FFO Guidance -- Maintained at $3.05 to $3.12 per share, implying approximately 3% growth at the midpoint, which is above the high end of the long-term 2%-3% annual growth target.
• Development Pipeline -- 200,000 rentable square feet across three ongoing courthouse and law laboratory projects, with delivery scheduled from 2026 through 2027.
• FDA Atlanta Facility Completion -- Project finished and delivered mid-December; $138,100,000 received in lump sum reimbursements by year-end, plus $12,600,000 received subsequently and $3,000,000 more expected soon.
• Cash Leverage -- Net debt to annualized quarterly EBITDA ("cash leverage") at 7.5x, expected to trend lower with remaining FDA reimbursements and ongoing discipline toward a medium-term objective of approximately six times.
• Virginia Portfolio Acquisition -- Three-asset acquisition for $44,500,000, totaling about 298,000 square feet, at an 11% initial cash cap rate with 2.5% annual rent escalations and a weighted average lease term of 7.5 years.
• Lease Renewals -- 38 leases renewed since IPO (majority without pending TI work), representing 2,600,000 square feet; on qualifying renewals, average rent spreads achieved were 14% with $37.14 per square foot in tenant improvements utilized by the government and a weighted-average renewal term of 15.7 years.
• Investment Pipeline -- Management highlighted a $1,000,000,000 acquisition and development pipeline, and confirmed $50,000,000 to $100,000,000 expected in gross development investments and $50,000,000 in wholly owned acquisitions for the coming year.

SUMMARY

Management reaffirmed the company's strategic priorities of core FFO growth, same-store performance, and execution of value-creating development opportunities, emphasizing a disciplined approach that leverages long-term government leases for sustained earnings visibility. Speakers cited the stability of mission-critical government tenancy and highlighted a shift toward state-level partnerships, attributing high credit quality and built-in rent growth to these newer assets. Discussion confirmed that current portfolio occupancy goals remain in the mid-90% range, with most 2026 lease renewals already executed. Guidance projections factored in further development completions, strong leasing activity, and the Virginia acquisition to support targeted cash flow growth. Management responded to questions about federal budget cuts by stating that budgetary reductions are being managed through efficiency gains rather than diminished mission, and that the trend toward government-private partnerships provides a structural tailwind for their long-term model.

• President Crate said, "The midpoint of our current 2026 guidance reflects our third year in a row of at least 2% to 3% core FFO per share growth."
• Chief Financial Officer Marino reported, "Our current net debt to annualized quarterly EBITDA, which we refer to as cash leverage, stands at 7.5x."
• Management specified that, in the Virginia acquisition, the "2027 expiration that you see is just, like, 2,000 feet, so it is very immaterial," clarifying risk profile for recent acquisitions.
• President Crate commented, "the durability quality of our portfolio and underwriting to mission-critical assets is an enduring strategy."

INDUSTRY GLOSSARY

• Core FFO: Core Funds From Operations; a REIT performance metric that excludes certain nonrecurring items and is used to assess the consistency of a company's operating cash flow.
• TI (Tenant Improvements): Capital expenditures made to upgrade or customize leased space for the needs of a specific tenant, often carried out when leases are renewed or signed.
• Cash Cap Rate: The first-year net operating income of a property divided by its acquisition price, expressed as a percentage; used to measure the unlevered initial yield on real estate investments.

Full Conference Call Transcript

Cole Barterwell: conference call may include statements that are not historical facts and are considered forward-looking 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 its 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 William Crate, President and CEO of Easterly Government Properties, Inc. Thank you, Cole, and good morning, everyone.

Darrell William Crate: on our stated strategy. This year represents another year of delivering 2% to 3% core FFO per share growth, reinforcing that our strategy is not only durable but repeatable. Over the past two years, we have remained focused on steady earnings growth, driven by our government-related cash flows, disciplined capital allocation, and additional diversification, while facing difficult external conditions. Importantly, this momentum extends beyond 2025. The midpoint of our current 2026 guidance reflects our third year in a row of at least 2% to 3% core FFO per share growth, demonstrating both the embedded growth in our portfolio and the visibility created by our long-term leases and high credit quality.

As we enter 2026, our strategic priorities remain unchanged and continue to guide our approach to disciplined growth and portfolio enhancement. One, core FFO growth per share of 2% to 3% annually, Number two, increasing same-store performance through thoughtful in the state, local, and high credit government-adjacent tenancy. And three, executing value-creating development opportunities into high credit stabilized assets. This strategy is designed to balance growth and durability and build a portfolio that performs consistently regardless of the economic or policy backdrop. Easterly Government Properties, Inc.'s portfolio is comprised of mission-critical government facilities, including courthouses, public health laboratories, law enforcement offices, and secure administrative buildings.

These assets are purpose-built, long-term leased, and integral to the ongoing operations of federal, state, and municipal agencies. The durability of our tenant's mission, independent of political or economic cycles, supports stable, predictable cash flows and underpins our ability to generate consistent long-term earnings growth. As demand for secure, modern government facilities continues to increase across all levels of government, we believe our portfolio and our platform are well positioned to meet the demand. We recently visited our Veterans Affairs and Federal Law Enforcement facilities in Florida. And it was powerful to see firsthand how busy these buildings are as they truly support mission-critical work.

From Homeland Security investigation teams to the doctors and staff caring for our nation's veterans, the level of activity underscores the essential role our properties play. It reinforces our commitment to providing high-quality environments that support these dedicated public servants and the important missions they carry on. Turning to specifics of the quarter. We continue to demonstrate the durability of our platform, anchored by high portfolio occupancy and strong long-standing relationships across a broad range of government agencies. Demand for our mission-critical facilities remains resilient, supporting stable cash flows and predictable operating performance. We remain highly disciplined in our capital allocation, maintaining a strong balance sheet and a significant financial flexibility while prioritizing investments that enhance long-term value.

Our portfolio continues to perform at a very high level, with occupancy near historical highs at 97% and weighted average lease terms of roughly a decade. This performance reflects the durability of our tenant base and reinforces the strength of our mission-critical strategy. On the acquisition front, I am pleased to share that subsequent to quarter end, we completed the acquisition of a three-asset portfolio by the Commonwealth of Virginia. The long-term nature of the leases and built-in rent growth add another layer of durable cash flow to the portfolio, and Allison will walk through the details in her remarks.

We like partnering with state agencies because the credit quality is comparable to federal tenants, given the essential nature of the services they provide and the stability of their funding. State leases often include contractual rent escalations, which provides built-in growth and enhances long-term cash flow visibility. Our development pipeline remains active, with key projects progressing well. We continue to see accretive opportunities that meet our standards for credit quality, mission alignment, and durable returns. Looking ahead to 2026, recent federal developments, specifically Doge, are in the rearview mirror and did not change how our portfolio performs or how we operate the business. At the midpoint, we are guiding to approximately 3% core FFO per share growth in 2026.

Ongoing federal real estate discussions continue to highlight a long-standing reality. Many government agencies are best served by focusing their time, their resources, and their expertise on mission execution rather than real estate ownership. Managing and modernizing specialized facilities can be complex and requires consistent attention. We excel at both of these capabilities. Easterly Government Properties, Inc. was built to support agencies in addressing this need. As a private sector partner, we deploy capital to provide modern mission-critical infrastructure that supports agency operations, allowing our tenants to remain focused on their core missions.

Importantly, this dynamic continues to drive a strong and expanding growth pipeline for Easterly Government Properties, Inc., as agencies increasingly look to us to be their long-term partner to recapitalize and modernize essential facilities at scale. Against this backdrop, our acquisitions team has built a high-quality, robust pipeline that supports consistent capital deployment at returns in excess of 100 basis points over our weighted average cost of capital. This disciplined approach to underwriting and execution underpins durable long-term growth. We continue to focus on improving our cost of capital, with leverage an important part of that effort. Cash leverage trending lower again this quarter, as we move to a more conventional profile with a medium-term objective of approximately six times.

We believe this will structurally support lower funding costs while preserving our ability to pursue accretive growth in excess of our target range. To wrap up, we are delivering on the strategy we laid out. Delivering long-term core FFO growth of 2% to 3%, advancing a robust acquisition and development pipeline, while deepening our relationships across federal, state, and local agencies that we serve and strengthening the balance sheet as we move forward toward our medium-term leverage objective without sacrificing growth. All while staying true to our mission of providing modern, mission-critical facilities for the agencies we serve.

I want to thank the entire Easterly team for their continued focus, discipline, and commitment to execution, which underpins everything we deliver to our tenants and our shareholders. We also appreciate the trust and partnership of our tenants and investors as we move forward with confidence, with clear visibility into our goals. At our core, we are built to support the mission, ensuring the essential work of our tenants can continue seamlessly today and for years to come. Now I would also like to take a moment to applaud the appointment of Ed Forst as Administrator of the GSA.

Ed was recently confirmed by the Senate, and Ed brings decades of private sector experience and first-class business acumen to the position, having held meaningful senior leadership roles at both Cushman & Wakefield and Goldman Sachs. We look forward to working with the new Administrator, who we believe is the right person to take on the important responsibilities of GSA. We are looking forward to collaborating with Mr. Forst and his team, as we seek to maximize value for both our shareholders and the American people. And with that, I will turn the call over to Allison E. Marino, our Chief Financial Officer.

Allison E. Marino: Thanks, Darrell, and good morning, everyone. I'm pleased to report the financial results for the fourth quarter and full year 2025. For the quarter, both on a fully diluted basis, net income per share was $0.10 and core FFO per share grew by nearly 6% year-over-year to $0.77. Our cash available for distribution was $29,100,000, reflecting steady operational performance. For the year, both on a fully diluted basis, net income per share was $0.29, and core FFO per share grew by nearly 3% year-over-year to $2.99. Our full-year cash available for distribution was $118,000,000.

As Darrell highlighted, these results demonstrate continued execution on our stated strategy, including delivering 2% to 3% core FFO per share growth, advancing our leverage and capital structure objectives. During the quarter, we successfully extended the lease at FBI and subsequent to quarter end, we executed a long-term renewal on FBI San Antonio. With the majority of our 2026 renewals already completed, we have begun to shift our focus towards 2027. As of 12/31/2025, we have renewed 38 leases since our IPO. Of that 38, 27 are renewals for which there was no associated renewal TI work, or renewal TI work has been completed and accepted by the government. The other 11 are renewals with pending TI projects.

This combined 2,600,000 square feet across 38 renewals includes PTO Arlington, IRS Fresno, and various smaller leases in Buffalo. When we exclude these assets, the average rent spread achieved on the remaining renewals is to be 14%, including an estimated amount of $37.14 a square foot of TI utilized by the government. The weighted average total renewal term for these leases was 15.7 years. While we have shared specific details, we believe this is a good proxy for how we think about renewals going forward. Our development portfolio also continues to progress in line with expectations.

We broke ground in the third quarter on the State Crime Lab in Fort Myers, Florida, and construction is advancing as planned with delivery targeted for 2026. Our U.S. Courthouse project in Flagstaff, Arizona is currently under construction and progressing well, with delivery expected in 2027. In addition, we commenced construction in the fourth quarter on the previously announced U.S. Courthouse in Medford, Oregon, which is scheduled for delivery in 2027. All three represent 200,000 rentable square feet that will deliver high credit cash flows. Our largest project to date, the FDA Atlanta facility, was completed and formally delivered to the government on December 15. As of 12/31/2025, we had received $138,100,000 in lump sum reimbursements relating to the project.

Since then, we have received an additional $12,600,000 earlier this week and expect approximately another $3,000,000 in the next few months. Our current net debt to annualized quarterly EBITDA, which we refer to as cash leverage, stands at 7.5x. We expect remaining reimbursements to drive additional improvement, bringing cash leverage below this level. As Darrell noted, this represents an important step in our continued progress towards our medium-term leverage objectives and reflects disciplined execution across both development and balance sheet management. We think this is an important step as we continue to work toward additional investment grade ratings, which we believe will position us to attractively access well-priced debt capital and unlock pipeline value over the medium term.

On the acquisition front, we completed the acquisition of a three-asset portfolio in Virginia for $44,500,000, totaling approximately 298,000 square feet. The Commonwealth of Virginia occupies the majority of the portfolio, under long-dated leases with 2.5% annual rent escalations and a weighted average lease term of seven and a half years. Full stats supports stable and growing cash flows. This acquisition was completed at a going-in cash cap rate of approximately 11%, which is in of our cost of capital and immediately accretive. The high cap rate is largely attributable to a motivated seller seeking to redeploy capital, creating an opportunity to acquire the assets at an attractive yield, despite the strong tenancy.

Our all-cash bid and ability to execute also really swung in our favor. Given where our cost of capital is, our acquisitions team is tasked with sorting through many deals to find high-quality assets that meet our underwriting criteria and return objectives. They have proudly risen to the challenge with this asset. As Darrell mentioned, we continue to favor partnerships with state governments, given their strong credit profiles, often comparable to the federal government, and lease structures that typically include built-in rent growth, providing long-term visibility into cash flows. Overall, this transaction reflects our disciplined approach to capital allocation, deploying capital where we see attractive risk-adjusted returns, and supports our ability to drive consistent long-term growth. Turning to guidance.

We are maintaining our full-year core FFO share guidance range for 2026 of $3.05 to $3.12. This comes out to approximately 3% core FFO per share growth at the midpoint, which is just above the higher end of our stated 2% to 3% core FFO per share growth target. Our growth rate in 2026 is supported by the delivery of FDA Atlanta, successes on our 2025 and 2026 renewal execution, sustained operational efficiencies, and our Cox Road acquisition. At the midpoint, the guidance assumes we will have $50,000,000 to $100,000,000 of gross development-related investment during the year, and $50,000,000 in wholly owned acquisitions.

While our acquisition guidance remains unchanged, given our $1,000,000,000 pipeline, we are monitoring the market for attractive opportunities where we can acquire it or spread to our cost of capital. We remain focused on disciplined capital management, tenant retention, and execution across our development pipeline. And we continue to deliver across the strategic objectives we have outlined. Together, these fundamentals underpin Easterly Government Properties, Inc.'s ability to generate stable, growing cash flows, which we believe will translate to increasing shareholder value. 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 Cole.

Operator: Thank you. As a reminder to the analyst, to ask a question, you will need to press Our first question is from Seth Bergey of Citi. Please proceed with your question.

Seth Eugene Bergey: I guess just to start off on the acquisitions guidance, it would remain kind of unchanged doing the bridging after doing the bridging acquisition. Can you just kind of touch on the $1,500,000,000 pipeline that you see and kind of touch on if anything kind of in that pipeline is more near term or where you are in various stages and evaluating those opportunities?

Darrell William Crate: Yeah. Thanks for the question. As we look to '26, we have a level of optimism, but early in the year. And, you know, as Allison said, you know, our team, again, is sorting through, you know, a significant number of transactions in our pipeline. I think the market is in a place where, you know, buyers with our reliability and quality have an edge. And so we are going to be searching for assets that, again, you know, give us a strong, a strong spread to our cost of capital. And, we do not want to be speculating as we get to the beginning of the year.

But, again, I feel from the company's perspective that we have our balance sheet in great shape, that our acquisitions and development teams are moving at full speed, and we are really excited to see how this year comes forward. Particularly as we focus all of our energy on 2027, you know, in an opportunity to continue to deliver the growth that we are that we are bringing forward.

Seth Eugene Bergey: Thanks. And then maybe just a follow-up. You know, I know one of your strategic objectives is to kind of continue to grow same-store NOI growth. With the confirmation of the new GSA, any conversations around, you know, I think some of their stated objectives are around just increasing, you know, government efficiency with owning versus leasing. Have you had any conversations about the way they think about leases in terms of changing kind of any of the lease structures that would make it, you know, potentially, you know, more attractive relative to kind of the state and local agency kind of partnerships that you are looking at as you think about acquisitions?

Darrell William Crate: Yeah. I think that is an insightful observation. Again, the new Administrator just joined. We did get an opportunity to spend a little time with him. And I believe that the government, as they look forward, thinks about efficiency and also understanding cost in the capital markets and understanding public-private partnership. So I am excited to see how that evolves as we move through this year and next.

Seth Eugene Bergey: Great. Thank you.

Operator: Thank you. Our next question is from Michael Lewis of Truist Securities. Please proceed with your question.

Michael Lewis: Thanks. My first question is about the Virginia acquisition, right? So obviously, a high cap rate. I saw there is at least one lease expiration in 2027. I do not know if maybe that increased the risk profile. Could you talk about the expiration schedule a little bit? Kind of a little bit more about the assets.

Allison E. Marino: Sure. So the Commonwealth of Virginia is the largest tenant across two different buildings. Combined, it is over 50% of the asset in total, and those have an expiration of 2034 and 2036. So those are very long-dated in terms of the overall asset profile. The 2027 expiration that you see is just, like, 2,000 feet, so it is very immaterial. It is on there for our disclosure purposes, but we are not worried about that at all.

Michael Lewis: Okay. Gotcha. And then you talked a lot about the leasing successes you have had. At the end of 3Q 2025, the portfolio was 97% leased. I was wondering if that is still the case. And we expect that will still be the case at the '26, or do you have any known move-outs or move-ins?

Allison E. Marino: I would say we are with what we have always shared, which we expect mid, like, mid-90s occupancy rates. That is our goal. In terms of the 2027 expirations, particularly, they have just kicked off procurement. As you can imagine, they started about 18 to 24 months in advance. But those are progressing nicely, and we have no concerns.

Michael Lewis: Okay. And then just lastly for me, this is more of a big picture maybe for Darrell. You know, you mentioned about putting Doge in the rearview mirror. You know, now I think we could talk about the budgets and the funding. So I will blame Copilot or Google. I just went quickly through a bunch of your tenants to look for funding changes. Right? So the VA is your largest tenant. Obviously going to have a big increase, which is great. As I went through more, right, the FBI, a $1,000,000,000 cut, the DEA, $200,000,000 cut. ICE we could put aside. Maybe talk about separately. The FDA, a small cut.

The IRS, $1,000,000,000, the EPA, $4,000,000,000, the Forest Service, $2,000,000,000, Department of Agriculture, $6,000,000,000. Right? So, you know, maybe it is not Doge or maybe it is a remnant from Doge, but it, you know, some of these surprised me, and it sounded like a lot of cuts across agencies. I just wondered if there was a, you know, a bigger picture thing to talk about here with what is going on. I know you are shifting your tenant profile a little bit to where the opportunities are, but anything to say about the, you know, the budget and what, you know, maybe what the government's priorities are?

Darrell William Crate: Yeah. No. No. I think it is a really great question. And, you know, I would sort of echo back some of our comments when Doge began. Which is the more efficient government is, the more government from top to bottom sees that real estate ownership is a public-private partnership. And that absolutely favors us. You know, as a as an you know, I was not trying to gloss anything in the prior quarters. I mean, Doge is a tailwind for the company in the medium to long term. In the short term, we have had these headline risks. You know, the oh, what is Doge going to mean? Or, you know, government shutdown.

Are you going to get your rent? You know, these are these are headlines, but the durability quality of our portfolio and underwriting to mission-critical assets is an enduring strategy. And each of those cuts that I think that you see are where there is waste, and, in some cases, fraud. And when we look at the priorities around real estate, what we are supporting is mission-critical work. The government in every building that we have been visiting for the last bunch of months is seeing employees return to work. They are there is attrition. They are letting folks leave. They are finding and using technology to create greater efficiency.

And you see every agency that we are close with looking around and, again, trying not cutting mission, but very focused on delivering mission more efficiently for the American people. They want to cut the deficit, and believe me, there is plenty of fat in government for them to find. And I think they are doing a pretty darn good job, you know, at moving that forward. So for us, it is an exciting time. And with each of our agencies, they look at our buildings, how they are maintained, and how they support the mission, and we have incredibly happy tenants on the ground, and they, of course, share that with Washington.

I think also with the size of our balance sheet relative to, you know, some of the mom-and-pop owners of these buildings, we are able to act with clarity and confidence, fight obsolescence, and if the government continues to want to build partnerships and create efficiency, we are incredibly well positioned to do exactly that. So that is that is really the backdrop for the observation.

Michael Lewis: K. Thank you. Appreciate it.

Operator: Thank you. I would now like to turn the back to Darrell William Crate, President and CEO of Easterly Government Properties, Inc. for closing remarks.

Darrell William Crate: Great. Well, thanks everyone for joining the Easterly Government Properties, Inc. call here for the fourth quarter. We are very excited about 2026. We appreciate your confidence, your trust of focusing on the company, and we are very excited the developments in the quarters to come.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

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