Easterly (DEA) Q3 2026 Earnings Call Transcript

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DATE

Oct. 26, 2026

CALL PARTICIPANTS

• Director of Investor Relations - Cole Bardawill
• President and Chief Executive Officer - Darrell William Crate
• Management - Allison E. Marino

TAKEAWAYS

• Core FFO per Share -- $0.78 for the quarter, representing 2.6% growth year over year and aligning with the company's long-term growth target of 2% to 3%.
• Total Revenue -- $93.6 million, an 8.7% increase driven by recent acquisitions, development project completions, and lease renewals.
• EBITDA -- $59 million for the quarter, reflecting approximately 8.9% growth from $54.2 million in the prior year.
• Net Income -- $0.12 per share on a fully diluted basis, compared to $0.03 per share in the third quarter of 2025.
• 2026 Core FFO Guidance -- $3.08 to $3.13 per share, representing an increase at the low end of the previous range of $3.07 to $3.13 per share.
• 2027 Core FFO Guidance -- $3.09 to $3.17 per share, with the midpoint implying approximately 1% growth over the 2026 midpoint.
• Portfolio Occupancy -- 98%, with a weighted average remaining lease term of 9.2 years across 106 operating properties.
• Cash Available for Distribution -- $32.8 million for the quarter, supporting a dividend payout ratio of approximately 67%.
• Net Debt to Annualized EBITDA -- 7.1x at quarter end, an improvement from the second quarter as the company progresses toward its target leverage range.
• Acquisition Pipeline -- $1.5 billion, which management reported has seen a 30% to 35% churn as seller price expectations align with current market conditions.
• Bedford Construction Loan -- $35.6 million, received as a full repayment in September 2026 prior to its August 2027 maturity date.
• Interest Rate Swaps -- Four new swaps with an aggregate notional value of $200 million were entered into in October 2026 at a 4.2% SOFR base.
• USCIS Lincoln Renewal -- A new 15-year lease featuring 10 years of firm term, successfully closing out the company's 2026 lease rollovers.
• Soft-Term Lease Exposure -- 2.3% of annualized lease income, reduced from 5.2% at the end of 2024 as management actively works to eliminate early termination rights.
• FDLE Laboratory Facility -- Completed in October 2026 in Fort Myers, Florida, following a 15-month construction period.
• 2027 Acquisition and Development Guidance -- Management expects approximately $50 million of wholly owned acquisitions and $25 million to $50 million of gross development-related investment.
• Total Indebtedness -- $1.7 billion as of Sept. 30, 2026, with a weighted average interest rate of 4.6% and a weighted average maturity of 3.8 years.
• Net Effective Rent Spreads -- Management reported expectations for upcoming 2027 and 2028 renewals to be in the 15% to 19% range.
• FAA Chicago Extension -- A nine-month extension was executed, including six months of firm term, which provides incremental earnings in both 2026 and 2027.
• Flagstaff U.S. Courthouse -- Construction remains on track for completion in the first quarter of 2027.
• Medford U.S. Port of Entry -- Completion is now expected in the first half of 2028 due to extended government design processes.
• Quarterly Dividend -- $0.45 per common share, approved by the Board of Directors on Oct. 22, 2026.

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RISKS

• Marino stated, "Two headwinds that are incorporated into our 2027 outlook are the FAA Chicago move out, and the refinancing related pressure largely driven by the maturity of our Loma Linda loan," noting specific factors impacting future earnings growth.

SUMMARY

Easterly Government Properties, Inc. (NYSE:DEA) reported third quarter core FFO per share growth of 2.6%, consistent with its long-term growth objectives. Management raised the lower end of its 2026 core FFO guidance while introducing initial 2027 guidance that incorporates headwinds from a planned tenant move-out and debt refinancing pressures. The company reported a 98% portfolio occupancy rate and highlighted its success in closing out 2026 lease renewals. Strategic efforts remain focused on deleveraging the balance sheet to 6.5x or lower and pursuing an additional investment-grade credit rating to optimize the cost of capital for future acquisitions.

• Management introduced a refreshed brand and logo to reflect the company's evolution into a diversified owner and operator for government and government-adjacent tenants.
• Crate noted that the current interest rate environment is encouraging sellers to reassess price expectations, stating, "As we see our cost of capital improve over time, that work positions us to meaningfully accelerate our growth."
• The company reduced its soft-term lease exposure to 2.3% of annualized income, continuing a multiyear effort to convert early termination rights into firm lease terms.
• Management is targeting an inaugural investment-grade debt issuance to address the upcoming Loma Linda loan maturity, though current guidance assumes the use of a revolving credit facility.
• Crate highlighted the 37% growth in cash available for distribution over the last three years, which has reduced the dividend payout ratio from 117% to approximately 67%.
• The asset management team has shifted focus to 2027 lease expirations after successfully renewing the USCIS facility in Lincoln, Nebraska, for a 15-year term.
• Marino indicated that upcoming renewals are expected to achieve net effective rent spreads in the "mid- to high teens" while requiring an average of only $35 in tenant improvement capital.

INDUSTRY GLOSSARY

• CAD: Cash Available for Distribution; a non-GAAP measure used to evaluate a REIT's ability to fund its dividends.
• Core FFO: Core Funds from Operations; a performance metric that adjusts FFO for non-recurring items like credit loss adjustments or debt modification costs.
• FFO: Funds from Operations; a standard REIT operating metric that excludes real estate depreciation and gains or losses from property sales.
• GSA: General Services Administration; the federal agency that manages real estate for the U.S. Government.
• Net Effective Rent Spread: The percentage difference between the starting rent on a new lease and the ending rent of the previous lease, adjusted for concessions and costs.
• Soft Term: A portion of a lease term during which the tenant has the right to terminate the lease prior to the expiration date.
• SOFR: Secured Overnight Financing Rate; a benchmark interest rate used for dollar-denominated loans and derivatives.
• TIBSAC: Tenant Improvement Bond Service and Administration Charge; income associated with the financing of specialized improvements for government tenants.

Full Conference Call Transcript

Operator: Greetings. Welcome to the Easterly Government Properties Third Quarter 26 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session between the company's research analysts, and Easterly's management team. They will then hear an automated message advising their hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Cole Bardawill, Director of Investor Relations. Please go ahead.

Cole Barterwell: Good morning. 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 2000. 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-Ks 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 measures to the most comparable 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.

Darrell William Crate: Thanks, Cole. Good morning, everyone. This quarter, we delivered year over year core FFO per share growth of 2.6%, in line with our 2% to 3% stated long term growth target. We continue to execute our strategy by growing earnings steadily, allocating capital thoughtfully, and improving the quality of our portfolio over time. We have been operating in a dynamic geopolitical and interest rate environment for several quarters now. Throughout that period, the durability of our portfolio, and the consistency of our cash flows have continued to demonstrate the resilience of our business model, and position us to perform well relative to the broader REIT market. Easterly remains focused on delivering consistent annual growth in core FFO per share.

In 2026, we are on track to exceed our long term 2% to 3% growth objective, with the midpoint of guidance implying approximately 4% growth. As we look ahead to 2027, we remain committed to generating sustainable earnings growth while continuing to delever the balance sheet. A combination we believe will drive long term shareholder value. You may have noticed that we have refreshed our brand and introduced a new logo, Over the past several years, Easterly has expanded its capabilities, broadened its investment opportunities, and strengthened its platform.

Today, we are a diversified owner, developer, and operator of mission critical properties serving federal, state, and local government, as well as the government-adjacent tenants, Our new identity reflects the company we have become and the opportunities we see ahead. Turning to the quarter. Our portfolio continues to perform well. Ending the period 98% leased with a weighted average lease term of 9.2 years. These metrics underscore the durability of our portfolio and the essential mission supported across our building. Our asset management team did an excellent job closing out our 2026 lease rollovers with the renewal of USCIS Lincoln With our 2026 renewals behind us, the team has already turned their attention to our 2027 expirations.

And is actively engaged in those discussions. That includes continuing to reduce the share of our portfolio with a soft term. And Allison will update you on that in a moment. In addition, we are able to extend the lease at our FAA Chicago facility for an additional 9 months including 6 months of firm term. As we have discussed previously, the government occasionally requires additional time to transition out of a facility and this extension is expected to provide incremental earnings in both 2026 and 2027. We still expect the tenant to vacate the property and the asset remains under contract for sale upon move out.

Lastly, our acquisitions team remains active, as we evaluate opportunities across our approximately $1.5 billion pipeline. With the recent sharp move in the 10-year Treasury, we are recalibrating our cost of capital and we remain disciplined and selective focused on opportunities where we can create value and generate attractive risk adjusted returns for shareholders. I want to take a moment and thank Michael Ibe, Chris Wang, and the entire acquisitions team continuing to keep that pipeline actionable. As we see our cost of capital improve over time, that work positions us to meaningfully accelerate our growth. On the joint venture front, we continue to talk with partners, We believe we have a definable edge in this government real estate space.

As 1 of the largest landlords in the sector, we bring many benefits as a partner to those looking for this kind of exposure. I will leave it to Allison to discuss our 2026 and 2027 guidance. But we are pleased with this year's performance to date and the momentum we have built across the business. As we look ahead to 2027, we are focused on continuing to execute against our strategy and delivering growth. Within our long term target ranges. While the geopolitical and macroeconomic backdrop remains uncertain, we believe the durability of our portfolio and the mission critical nature of our assets we own positions us well to navigate a wide range of operating environments.

I also want to thank Allison who is been working with our team and the rating agencies to socialize our differentiated credit profile That work matters as we pursue our investment grade goal. We want to thank our team for the great execution so far this year. We would also like to thank our tenants and our shareholders as we partner with them to hit our goals for 2026 and 2027 as well. Now with that, I will turn the call over to Allison.

Allison E. Marino: Thanks, Darrell, and good morning, everyone. I am pleased to begin with reporting the financial results for the third quarter of 2026. The underlying growth of the business continues to come through clearly in the numbers. Total revenue for the quarter was $93.6 million up from $86.2 million in the third quarter of 2025. that is an increase of 8.7% year over year and it was driven by several factors. The acquisitions and development we have completed over the last 12 months, lease renewals, and TIBSAC income coming online. EBITDA grew alongside revenue, coming in at $59 million for the quarter versus $54.2 million in the third quarter of 2025. Approximately 8.9% growth.

And importantly, that growth continues to reach bottom line on a per share basis. For the quarter, net income was $0.12 per share on a fully diluted basis. FFO per share was $0.79 up from $0.74 in the prior year. And that is approximately 6.8% year over year growth. FFO exceeds core FFO this quarter because of the downward adjustment to our credit loss allowance from the Bedford loan repayment. And Core FFO per share, as well, came in at $0.78 up from $0.76 in the prior year. That is approximately 2.6% growth year over year. And finally, cash available for distribution for the quarter was $32.8 million.

As Darrell noted, our asset management team did an excellent job closing out our 2026 lease rollovers with the renewal of USCIS Lincoln. A 15-year lease with 10 years of firm term. On soft term, we have continued to reduce the percentage of our portfolio with early termination rights which stood at 2.3% of annualized lease income at quarter end. Down from 5.2% of annualized lease income at year-end 2024. Turning to development. We are pleased to announce that all significant construction activities were completed at our FDLE laboratory facility in Fort Myers, Florida this month.

Having broken ground on the project in August 2025, we are extremely proud of the execution by both our internal team and development partners in delivering the facility in 15 months. Looking ahead, our development pipeline continues to progress as expected, Construction of the US Courthouse in Flagstaff, Arizona remains on track for completion in the first quarter of 2027. While our U.S. Port of Entry Health project in Medford, Oregon is now expected to be completed during the first half of 2028. The timing reflects the government's design process with various agencies, which is taking a bit longer than planned. On leverage, as of quarter end, our net debt to annualized quarterly EBITDA stood at 7.1x.

This metric improved from second quarter and reflects our continued progress towards our target cash leverage range. We believe this progress positions the company well as we look forward to 2027 and our goal of achieving an additional investment grade credit rating. We are growing FFO per share and delevering at the same time. That is a hard combination to deliver, and I am proud of what our team has accomplished so far. Turning to guidance. We are raising the low end of our 2026 core FFO per share guidance. Our new range is $3.08 to $3.13 per share compared with $3.07 to $3.13 previously.

The increase is primarily driven by the execution of a 9 month lease extension at FAA Chicago, which includes 6 months of firm term and provides additional earnings contribution. in both 2026 and 2027. This benefit is partially offset by the early repayment in September of our $35.6 million Bedford construction loan ahead of this August 2027 maturity date. That loan contributed approximately $0.02 per share to our 2027 expectation. And we used the proceeds from the repayment to reduce outstanding borrowings on our revolving credit facility. For 2027, we are introducing initial full year core FFO per share guidance of $3.09 to $3.17 per share.

At the midpoint, that implies roughly 1% growth over our 2026 midpoint, and the high end implies roughly 2%. The low end of our long term target. 2 headwinds that are incorporated into our 2027 outlook are the FAA Chicago move out, and the refinancing related pressure largely driven by the maturity of our Loma Linda loan. Our guidance assumes that FAA Chicago remains occupied through the current firm term, which extends through April 20, 2027. At the midpoint, our guidance contemplates between $25 million and $50 million of growth development related investment during the year, And in addition, our guidance assumes approximately $50 million of wholly owned acquisitions. During 2027.

As the year progresses, we would imagine there to be additional upside from acquisitions. And we will continue to pursue opportunities where we can deploy capital accretively while maintaining our disciplined underwriting standards. Through consistent execution over the course of the year, we believe we can build on this guidance. We remain focused on executing against our long term growth strategy. Achieving our targeted leverage levels, maintaining strong tenant relationships, and allocating capital in a disciplined manner. Continued execution in these areas supports the resilience of our cash flows and enhances our ability 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 Shana.

Operator: Thank you. As a reminder to analysts, to ask a question, you will need to press star 1. Our first question comes from John Kim of BMO Capital Markets. Please proceed with your question.

John Kim: I just wanted to follow up on guidance for next year. I know you have walked through some of the headwinds, which include the Bedford loan repayments. The Loma Linda refinancing, and FAA Chicago move out. But on the first couple of items, the loan repayment, how quickly do you think you can reinvest some of those proceeds back into mezzanine debt? I think before you talked about having a pretty steady med program. And on the Loma Linda loan maturity, how do you plan to refinance that debt?

Allison E. Marino: Sure. So maybe we will start with Loma Linda because that is, I think, a very simple answer. At this moment, we intend should we be successful in the investment grade, ratings process to use an investment grade inaugural issuance to address that maturity. If not, we will put it on revolver and term it out using 4(a)(2) money like we have in the past, but our primary goal as we have shared most recently, is investment grade. But our guidance is to put it on the revolver today. So the degree to which we get an investment grade rating, and we are able to do those issuances, that would be worth some earnings accretion. And that is our goal.

That is not in our guidance. And then, for Bedford, I think we continue to see within the mezz financing space. As we have shared before, the VA outpatient clinic pipeline that is coming off the conveyor belt from the Veterans Administration is quite large at this time. And we are seeing opportunities across the country for projects like that where we can continue to deploy mezzanine capital.

John Kim: I was wondering also if you could discuss your expectations for renewal leasing spreads? I think last call, you mentioned mid- to high teens. That effective rent growth. And I wanted to see if that is what you believe you can accomplish.

Allison E. Marino: Yeah. I think that is still an continues to be our expectation with respect to upcoming 2027 and 2028 renewals. You know, I think we are pushing for as much firm term as we can get. 10 to 15 tends to be about what a renewal is achievable under these days. For a few years, we are also working on renewals there. And then mid- to high teens to your point, net effective rent spread. Typically, which is significantly outpaces market from peers, we are only at $35 of TI capital. Deployed across renewals. On average.

John Kim: It was breaking up a little bit, but did you mention the 2026 UC. USCIS Lincoln renewal as well?

Allison E. Marino: We will share the class of renewals for 2026 as a group in the year end earnings call as we historically have, but that is 10 years of firm term, 15 years total.

John Kim: Okay. Great. Thank you.

Operator: Thank you. Our next question comes from Alex Murphy with Truist Securities. Please proceed with your question.

Analyst: What are the terms of the new interest rate swaps you entered into last week?

Allison E. Marino: Hi, Alex. Yep. So we placed 4. They are at 4.2 on a SOFR base, and they are intended to get us through of next year.

Analyst: Great. Thank you. Mhmm.

Operator: Thank you. As a reminder, to ask a question at this time, please press Our next question comes from the line of Seth Bergey with Citi. Please proceed with your question.

Seth Bergey: Hi, good morning. Thanks for taking my question. I just wanted to follow-up on kind of you mentioned in the opening comments the uncertain macro environment and interest rates. And I wondered if that is changing the way conversations are evolving around future capital deployment just in terms of is it unlocking more opportunities for you and just kind of any comments you can add there would be helpful.

Darrell William Crate: Yeah. I will say a couple things, and maybe Allison will add on. 1, broadly, you know, what you are seeing in real estate and among sellers, is there is been this imagination that the Treasuries are going to go back to 2% to 3% And we have seen a lot of people hold on, wait, wait for that to happen. And over the last quarter and particularly last 2, you are beginning to see folks come to some sensibility that we might be in a 4% to 5% 10-year Treasury environment for a while. Accordingly, people do have maturities that are that are coming up. It encourages them to also just reassess their price expectations.

And we are very hopeful that we will be able to find transactions that will be more accretive. And, hopefully, as we get rewarded on cost of capital, that can just lead to accelerated growth. And so you know, we are very mindful of cash. We are very mindful of you know, of accretion in a transaction. I mean, stepping back, if you if you look at the company and you think about you know, Allison and I have been in these roles for just about 3 years. And in 2023, you know, in that in that third quarter, you know, we had cash available for distribution. It was just under $24 million or $23.9 million.

And we had a payout ratio of 117% principally driven by a set of dispositions, you know, that had taken hold. As you look at 2024, 2025, 2026, we have been steadily growing, you know, that cash available for distribution and then today, as Allison mentioned, that is at $32.8 million. With a payout ratio that is below 70%, I think, right around 67%. So almost half of the payout ratio that we were at before And we have grown that cash available for distribution from this portfolio by 37% over those 3 years. So that is that is what we are looking at.

That only happens if you are investing accretively you know, managing you know, the portfolio, you know, for cash return, which is a. Which is which is what we are up to. So as we move into this next. this environment, I do not think anybody would say it is been easy for these last 3 years. We have had delays. We have had headlines, you know, sort of coming the wrong way. We have had interest rate uncertainty, you know, and then you have got just global uncertainty and times of uncertainty.

And so we functioned in a time that I think has been you know, very accretive for shareholders, focusing on cash, being able to you know, maintain, you know, the weighted average maturity of leases, keep our liabilities in a in a nice place, get these lease renewals, in a more organized and partner-like way, and we have been closer with the GSA helping them you know, achieve many of their objectives. And I think if you put that constellation of things together, And as I, you know, I gave a shout out to our acquisitions team, and we have had a pipeline of about a $1.5 billion. And, you know. And it is great questions.

You know, during this time, that $1.5 billion has remained pretty steady. But I would say it is probably churned 30% to 35% as you have seen new folks bubble up as their sellers' expectations get more in line with what is good for our shareholders. And other opportunities, you know, that are presenting themselves. So they remain very poised if we are? And what we have been doing for these last 3 years is very focused on you know, gaining the trust of our investors, laying out this long term objective with a growth rate, that we have been achieving and exceeding, that would.

If we continue would compare very favorably you know, to the office group So, accordingly, if we do gain that trust and gain better cost of capital, we actually have an actionable pipeline, you know, where we could materially grow and get that flywheel going as, you know, folks say in the industry. So I would take your question and say, this sort of uncertainty, the volatility, you know, it pushes people for action. And I think we are very well positioned and have demonstrated that during challenging periods, we can be in a place that really adds value to the company. So thanks for listening to all of that.

Seth Bergey: Thanks. And maybe just a follow-up. I know that FAA Chicago was anticipated to kind of move out at the end of this year. They have obviously signed the extension into April of next year. Is there kind of a possibility that they extend further beyond that, or is that when they end up they move out Well, there is always a possibility.

Darrell William Crate: But I think we have been imagining that they are going to leave for the last 2 years. So to roll it out would be, impossible. But our guidance only includes them staying through their firm term And, you know, just as we think about positioning, you know, earnings growth and how we start keeping, you know, investor expectations in mind. And we are not gonna have any expectation. You know, that they are there beyond April.

Seth Bergey: And maybe just a quick 1, are the terms of the extension. The same economics of what is in place just given the short term nature of it.

Allison E. Marino: Yep. that is correct. It will just hold the current terms.

Seth Bergey: Great. Thank you.

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

Darrell William Crate: I would like to thank everybody for joining our third quarter conference call. We are really excited to just continue to execute our strategy and we look forward to our next conference call. We will where we will be announcing full year results. And the progress that we continue to make to achieve growth in 2027.

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

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