Greetings and welcome to Easterly Government Properties Third Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Lindsay Winterhalter, Vice President, Investor Relations. Thank you. Please go ahead.

Good morning. Before the call begins, please note the use of forward-looking statements by the Company on this conference call. Statements made on this call may include statements which are not historical facts and are considered forward-looking. The Company intends these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Act Reform of 1995, and is making the statement for the purpose of complying with those Safe Harbor provisions. Although the Company believes that its plans, intentions, expectations, strategies and prospects as reflected in or suggested by those forward-looking statements are reasonable, it can give no assurance that these plans, intentions, expectations or strategies 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 Item 1A, Risk Factors, of its Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 1, 2018 and in its other SEC filings. The Company assumes no obligations to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Additionally, on this conference call, the Company may refer to certain non-GAAP financial measures, such as 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, Chairman of Easterly Government Properties.

Thank you, Lindsay. Good morning, everyone, and thank you for joining us for this third quarter conference call. Today, in addition to Lindsay, I'm also joined by Bill Trimble, the Company's CEO; and Meghan Baivier, the Company's CFO and COO. Through the third quarter of 2018, Easterly remained focused on its strategic goals, to first achieve long-term distributable cash flow growth, back the full faith and credit of the U.S. and its government along with value creation to the releasing acquisition and development of mission-critical facilities leased to the United States Government. And second, to scale the business through the acquisition and development of high quality accretive assets, which enables us to reduce risk through diversification and also achieving a lowest cost-to-capital for our investors. The third quarter of 2018 has been the single largest quarter of acquisition activity for the company since IPO. In September we closed on eight of the 14 properties in the previously announced Savannah portfolio and subsequent to quarter-end, we closed on another three of these properties. This brings our 2018 closed acquisition volume to $362 million, and we expect to complete the year at a total of $540 million in accretive deals. The acquisition team has demonstrated its definable edge and the ability to source and execute on accretive mission critical facilities that match our strict investment criteria. We're firmly focused on accretive growth and scaling the Easterly platform and look to achieve both without diluting the pristine nature of our portfolio. The acquisition of the Savannah portfolio this year introduces the Company to several new important mission-critical agencies within the United States Federal Government. To-date in 2018, primarily through the Savannah acquisition, we have materially scaled the Company, growing the Company's enterprise value by nearly 20%, and increase in the Company's float by nearly one-third. We're remaining true to our stated bulls-eye acquisition strategy. During the time of rising interest rates, we believe our fixed rate debt structure and our seven years of debt maturity which exceeds 6.8 years of the portfolio’s average remaining lease term helps inflate us from future earnings volatility and preserve equity value. This protection coupled with 99% of our annualized lease income backed by the full faith and credit of the U.S. Government, we believe makes Easterly a safe haven for investors in a time of potential uncertainty. As we look ahead, we're going to continue to trade our portfolio by placing incremental and potentially recycle capital into the agencies where we have the most insight and where we can become an even stronger private partners in United States government. In closing, I'd like to thank our team for their hard work and thank our shareholders for their partnership as we work to complete 2018 and start generating value in 2019. With that, I will turn the call over to Bill to provide color on the initiative the Easterly are driving shareholders returns.

Thanks Darrell, and good morning. Thank you for joining us for our third quarter earnings call. As Darrell mentioned the third quarter of 2018 was a quarter of significant growth for Easterly. In this quarter we successfully closed on eight of the 14 properties previously announced as part of the Savannah bond portfolio acquisition. As a reminder, this portfolio has a combined acquisition value of 430 million as comprised of high quality assets that closely mirror the profile of our existing portfolio. This acquisition equates to approximately 1.5 million square feet of rental space, 99% of which is leased with the weighted average lease expiration year of 2022. Additionally 79% of the assets were built to suit construction meeting the design and functionality of the building was constructed to meet the specific needs of the underlying tenants. Further, these assets significantly scale the portfolio in an accretive manner and increased Easterly's already strong relationship with the U.S. federal government. With this portfolio, Easterly will now meet the least real estate needs of 31 different U.S. government tenants. As mentioned, we have closed 11 of the 14 properties to-date and we still expect to complete the acquisition of the remaining three assets prior to the end of 2018. You may recall the portfolio of acquisition is one we have been watching and anticipating since prior to IPO. We feel we were the natural buyers for this portfolio giving our distinct ability to underwrite these assets, and monitor the mission being fulfilled in each asset. We have been pleased with our ability to seamlessly integrate these new assets into our portfolio and materially scale the company over many efficient and our staffing needs. We believe that years from now when we look back at 2018, we will see this as the year…

Thank you, Bill. Today I’ll review our current portfolio, discuss our third quarter results, provide an update on our balance sheet, discuss our 2018 guidance and introduce our 2019 guidance. Additional details regarding our third quarter results can be found in the company's third quarter earnings release and supplemental information package. As of September 30, we owned 56 operating properties comprising approximately 4.8 million square feet of commercial real estate with an additional 340,000 square feet under development. The weighted average remaining lease term for our portfolio was 6.8 years the average age of our portfolio was 15.8 years and our portfolio occupancy remained at 100%. In addition 99% of our annualized lease income was backed by the full faith and credit of the United States government. Pro forma for the recently and substantially completed FEMA-Tracy development project for he announced future acquisition of DEA-Upper Marlboro and for the closing of the remaining three Savannah portfolio properties, Easterly will own 64 operating properties comprising approximately 5.5 million square feet. The pro forma weighted average remaining lease term for our portfolio would be 7.1 years and the average age of our portfolio would be 13.3 year. For the third quarter net income per share on a fully diluted basis was $0.04. FFO per share on a fully diluted basis was $0.27 and FFO with adjusted per share on a fully diluted basis was $0.24 and our cash available for distribution was 13.7 million. GAAP measures and reconciliations of these non-GAAP measures to GAAP measures have been provided in our supplemental information package. Turning to the balance sheet, at quarter end the company had total indebtedness of $670 million, which was comprised of $33 million outstanding on our unsecured revolving credit facility, $250 million outstanding on 2018 and 2016 senior unsecured term…

[Operator Instructions] Our first question comes from the line of Michael Lewis with SunTrust.

Meghan, you guys gave the 2019 FFO guide and you did a good job there I think of explaining some of those differences between the FFO and the cash. So we could do some math ourselves but is there anything you could say to be more specific about what you expect the cash flow growth to be in 2019?

So I think - that was my intention sharing that 3.5% pro forma FFO growth. Obviously some of those factors flow through to FFOs adjusted and CAD but I think that's a great place to be in terms of 2019 as a starting point.

The acquisition you announced this morning, I was wondering if you could be more specific on some of the details around cost, cap rate, financing, and then also what you think that mark-to-market in 2022 - what that spread be might today?

I think first of all we're very familiar with these DEA labs. We develop them, we own them and especially this model which net large number we built in the 2002 time frame. I would say that we acquired right in our bull's-eye from a cap rate. So just we think we would at 6.465 to a range - and I think from the standpoint of renewal rents on these, we've been I think very pleased with how the Government's been using this building and I think you're going to see that in high teens to low 20s on renewal. So we're very pleased with these shorter-term lease obviously running a whole pile of their sister labs throughout the country we have a very good idea to fit in with the mission of the DEA and we look forward to renewing it in 2022.

And then just one more from me on - you had these Fresno and Northern Virginia renewals, you call them kind of more plain vanilla than your bull’s-eye properties. How much of the portfolio would you say is kind of just plain vanilla versus bull's-eye? And then deals like this where you sign the lease, do you think about putting those properties on the market or do you think you'll always have a portion of the portfolio that’s more of this fleet called plain vanilla?

Well, first of all when we issued properties certainly one of them was PTO, Arlington we were in a very different world when we purchased that building a number of years ago, in fact we purchased it way under local market rent. But I think the good news is we do have a wonderful asset in a good location and as the Northern Virginia market comes back if we’re altogether 15 years from now, I think we’ll see a lot of growth and value there. But I will also say that the super majority of our properties are bull's-eye and these two properties are the super majority have been plain vanilla assets going forward. So this is very much the exception to the rule on what we own and we certainly understand that the problems when you market at least you don't always know what the local market is doing a plain vanilla asset and that’s why you see it’s not particularly buying them. And they really don't have a very large portion of our portfolio and Meghan what’s the percentage do you think probably its 13…

No, it includes a closer to 10.

So we pretty much taken all of the plain vanilla lease renewal risk out of our portfolio with these two renewals.

[Operator Instructions] Our next question is from the line of Manny Korchman with Citi.

I believe this is the first time you spent any amount of time talking about recycling and selling assets. Just so curious what's the potential spread that you think you could see between a sale and recycling of those assets into something more or something different?

Yes, so Manny very possessive there. We are always looking at that and specially towards the 2019 we’ll continue to look at that. I think there are couple of factors that could go into that spread but obviously in terms of from your early lease term towards the U.S. government assets, I think we could certainly look to breakeven if not pick up 25 basis points what and then it will also be excited and if you’re always on that kind of list it potential versus every type on the capital.

I guess the question and if it is one of those private assets you're selling given Darrell’s comments on they are pricing at local market rates versus replacement costs you were cycling that capital into U.S. government lease. Does that mean that would be sort of about dilutive use of capital but an improvement in your portfolio quality is that the right way for us to think about it?

Yes, I think we’re going to be opportunistic. We’re not going to look to do anything those assets are good assets and so we’re not going to look to do anything that would be dilutive from that nature but you're correct, if it was mutual to accretive it would also enhance our portfolio quality.

And then Meghan as we think about our 2019 guidance, the 200 million of acquisitions. How much of that is just a placeholder that’s sort of the number you put in when you give guidance versus you're looking at 1 billion and you think you'll close 20% of it?

Yes, it’s obviously informed from our knowledge of the market volumes and our competitiveness but also we have certainly circled in our pipeline. So it’s a combination of both of those but it’s not surely from the first source.

And then are you looking at any larger deals similar to Savannah and you're just not including guidance because the likelihood of them happening is just lower?

We’re looking at a number of large portfolios and they would not be in that number and I think that we've heard it loud and clear that people like to see the plain vanilla - excuse not plain vanilla and actually the bull's-eye properties the ones and two offs. And we have a large $700 million pipeline of those opportunities going forward and that’s what we look forward for next year. But at the same time we’re doing a lot of work to identify the existing portfolios obviously talk at folks at home and at some point we’ll be looking forward to getting them in as well. But that’s based just on those - the plain regular business that we do.

And our next question is coming from the line of Michael Bilerman with Citi.

Question just on guidance, as you think about - and Meghan you went over some of the FFO versus AFFO numbers and - do you want to give going-forward a little bit more specific AFFO guidance and reporting to be able to highlight the differences, I mean what you're running now is probably close to your cash dividend. We went over this a lot last quarter, street estimates have come down I think $0.06 or $0.07 already for 2019 since then. So do you want to start giving if you're going to focus on cash flow start reporting guidance and giving some of the guidance metrics and details on that basis?

At this stage rather than introduce multiple additional non-GAAP measures as I know you yourself are not in support of, we are going to ensure that investors have a clear understanding of the major drivers that maybe influencing FFO or if they come below FFO as our bridge to distributable cash flow. So that's what you could expect from us, very, very transparent on the drivers by sticking with one guidance metrics.

Well, is your focus is going to be on AFFO and given there are number of adjustments that are impacting reported earnings given that you have the burn FAS 141/142, you do have the CapEx numbers, why not just report and gives AFFO guidance rather than FFO guidance?

Yes, we hear from investors, analysts, that we are being very clear about the drivers in the business and so just repeat what I said before, we're going to stick with the one number for now and make sure that people have the tools they need for their models.

So then as we think about 2019, can you break out straight line in totality 2019 versus 2018 FAS 141 2018 versus 2019, aggregate numbers so we understand the difference between 2018 and 2019 for those two non-cash items, please?

So with regard to the in-place portfolio, those obviously impacts from our purchase price accounting that we have visibility into. The acquisition portfolio is the place where I could not able to opine on that as you can understand Michael, but in terms of those two numbers, you're looking at - excess of $4 million of incremental cash flow generation.

So straight line and FAS should come down in totality by $4 million off of the current rate on an annualized basis?

So that's on a year-over-year basis.

And then in terms of the acquisition what's the spread between GAAP versus cash from an FFO and AFFO basis for the deals that you did, because I would assume that it's got a much higher GAAP as you mark-to-market a lot of those leases that you bought?

I'll take the Savannah portfolio as a representative example. And there's typically there's an exception as you know with the Loma Linda where the rent profile is particularly different but mostly if the leases are flat or with minimal contractual ramp up, so there was nothing material in that portfolio from a straight line adjustment and then the above and below market rate adjustments is going to depend on an asset-by-asset basis with regards to primarily lease terms. So I'm trying to be helpful with my explicit $4 million number but the above and below is very, very active by asset dependent.

And then G&A for next year is estimated of what in your guidance relative to 2018?

So, we obviously don't give specific guidance on G&A but we are fully ramped now for the Savannah acquisition integration. And in support of that we will be growing our G&A in 2019, we added two asset managers and then property account.

Do you have any plans of any financings or refinancings for next year that would be impacting 2019?

With the current plans in terms of deployment of $200 million of acquisition capital and the development range that I mentioned that maybe putting at some point for us to look to term out our revolver as obviously nothing specific that I can outline at this point today.

And then just lastly in terms of CapEx and spend anything in 2019 that would look different from your run rate that you've been handling in 2018?

No, we’ve outlined that we anticipate maintenance capital and contractual capital on the assets between $1 and $1.50 per square foot, but as anticipated in 2019 as well.

Thank you. We reached the end of our question-and-answer session. I’d like to turn the floor back to Darrell Crate for closing comments.

Thank you everybody for joining Easterly Government Properties third quarter 2018 conference call. We hope you found this call to be informative and meaningful as you viewed today’s attractive pricing as a platform for potential to achieve future strong, risk adjusted returns. The company is growing on a foundation of premier assets backed by the full faith and credit of the U.S. Government. We appreciate your continued partnership and look forward to speaking with you again soon.

This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.