Greetings, welcome to the Easterly Government Properties Fourth Quarter of 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Lindsay Winterhalter, Vice President Investor Relations. Ms. Winterhalter.

Good afternoon. 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 in 1995 and its making and is making the statement for the purpose of complying with those Safe Harbor provisions.

Thank you, Lindsay. Good afternoon, everyone, and thank you for joining us for this fourth quarter conference call. Today in addition to Lindsay, I'm also joined by Bill Trimble, the Company's CEO; and Megan Baivier, the Company's CFO and COO. We're pleased with our results for 2019. We delivered our first completed development project, one or third and a further position in the Company to continue to win accretive technical projects like these FDA laboratories. The acquisition execution was disciplined, good material additions to our bullseye properties. We continue to build upon our definable edge in the United States Federal Government lease market, and most importantly, we are able to deliver an attractive return to our shareholders. Just last month, we marked our fifth year as a public company with 71 properties comprising 6.6 million square feet with 36 agencies. During our time as a public company, we've achieved scale in our operations, meaningfully diversified and maintain the average length of our leases. I'm proud of our team and the expertise they bring to our market each day. I'd also like to thank our Board for the guidance and wisdom you brought to our efforts.

Thanks, Darrell, and good afternoon. Thank you for joining us for our fourth quarter earnings call. The acquisitions team closed out a successful 2019 with another two great additions to the Company's growing portfolio in the fourth quarter of 2019. The first was the U.S. Citizenship and Immigration Services facility in Tustin, California. This 67,000 square foot LEED-certified facility is 100% leased to the GSA for the beneficial use of the USCIS. The facility recently underwent a sizable renovation to suit for USCIS whereby the tenant provided a substantial capital investment into this facility. The government recently signed a 15-year lease for the building which expires in 2034. Our second acquisition of a fourth quarter was a new VA outpatient facility located in the Northeast U.S. This 56,000 square foot facility is an expansion and relocation of an existing VA presence in the region. The facility is located in close proximity to the existing VA hospital campus and carries a new non-cancelable lease term of 15 years. This facility has been designed to achieve Green Globes Certification for new construction and will serve as the new home from multitude of services and programs, including primary care, mental health care, team vocational services, and various national VA programs including the National Center for PTSD, Clinical Neurosciences Administration Division, and the Pain, Research Informatics, Medical Comorbidities and Education Center. Upon reflection, 2019 was an incredible year for the acquisitions team and I congratulate each member of the team for growing the Company's portfolio so materially. In 2019, we closed on $381 million in acquisitions, $228.8 million of which was predicated on our 2019 acquisition guidance of $200 million.

Thank you, Bill. Good afternoon everyone. Easterly's unique portfolio and business strategy allowed us in the fourth quarter and for the year 2019 to once again post strong earnings results. As you saw in our earnings release for the fourth quarter, net income per share on a fully diluted basis was $0.02. FFO per share on a fully diluted basis was $0.30. FFO was adjusted per share on a fully diluted basis was $0.31 and our cash available for distribution was $22.4 million. For the year end of December 31, 2019, net income per share on a fully diluted basis was $0.10. FFO per share on a fully diluted basis was 1.20. FFO as adjusted per share on a fully diligent basis was $18 and our cash available for distribution was $81.3 million. To summarize, for the year 2019, we grew FFO per share on a fully diluted basis by 2.5% FFO as adjusted per share on a fully diluted basis by 15% and CAD by 49%. These are impressive numbers and as we enter an election year, we believe stable growth from DEA is now more than ever appreciated by our shareholders. As of December 31, we own 70 operating properties comprising approximately 6.5 million square feet of commercial real estate with two additional projects totaling 222,000 square feet under development or in design. The weighted average age of our portfolio was 12.8 years. As Bill mentioned, it is through the acquisition of young, mission-critical bullseye properties and the delivery of our latest state-of-the-art FDA laboratory project in Alameda, California that we were able to maintain the relatively young age of our portfolio.

At this time, we will be conducting a question-and-answer session. Our first question is from Manny Coachmen, Citi. Please proceed with your question.

Megan or maybe Bill, if we think about your acquisition pipeline going out from here, how many large or larger portfolios are you looking at rather than one-off assets?

Hi, Manny. We've got about $2 billion of the portfolios. We're looking in various sizes from quite large to sort of attractive sizes in the 50 to 150 million. So, yes, absolutely, we're taking a hard look at them and especially with the confidence we've seen with the market of late.

And just what do you put sort of the success rate on? Is it seller willingness? Is it pricing? Is it quality though if you're underwriting it, the quality's probably already taken care of?

I think the quality of the underwriting I've got to stay with our team is unmatched. I think it's always the quirky. I don't mean they're quirky with the nature of our sellers who we've cultivated relationships for almost a decade now. But I think many of them understand that this will be the best exit for them long term, whether it's for many generations to follow in their family through tax protection, or maybe it's through saying that maybe this might be a high point in the market for them, or it might be in fact that they're having to enter into renewal conversations with the federal government. And I think they'd rather have us do it than try to do that themselves. So a number of different catalysts, I think it's, it's usually in eye of seller that we have to work on.

And Bill just remind me just because I don't remember off the top of my head, but how often have you bought properties that had sort of a shorter lease term remaining where the seller didn't want to or wasn't willing to enter the renegotiations and you guys saw the value creation for doing that?

I'd say a handful, Manny, but of the one that sticks out most to me is DEA, Albany, the field office in New York, that's one that has two years left; and through our team, we're confident of their renewal and saw 34% increase. And actually, no TIs and no brokerage fees when we turned it over. So, we are happy to entertain short term laces, if we are confident of their renewal. We do find though that when they get within about 18 months or a year off from the owners, we'll just choose at that point to do it themselves.

Next question is from Michael Carroll, RBC Capital Markets. Please proceed with your question.

I just wanted to touch on, I guess, Darrell's comments in the beginning of the prepared remarks saying that the Company's position to particularly drive accretive growth. Can you put some more color around that? Is that driven by the improved cost of capital? Or are you willing to pursue some of those portfolio transactions that you're talking about with Manny?

Yes. No, I would say it is of course improved cost of capital, both we have as you know, cultivated portfolios and individuals for quite some time. And the stock price and the attractive interest rate environment basically say, it's time to be buying buildings.

Okay. So when those portfolio transactions, I guess, do come up, is it with an improved cost of capital that you have? Is it more likely to trade those because you can be a little bit more aggressive on the price? Or is it just still opportunistic waiting for those sellers to reach the conclusion that it's time to sell their portfolio?

Yes, I mean, you more than anyone knows, how disciplined we are in our underwriting and how we think about a cost to capital IRR, and how we can think about growth. But in our market, I mean, again, just finding another 5 basis points to 7 basis points in a cap rate can make all the difference.

Okay. Great. And then just finally for me. Can you talk a little bit about some of the GSA build-to-suit opportunities? I know you announced a few with the FDA labs over the past few years. I guess what's the timing of the Atlanta project? And is there any more on tap that we could underwrite coming in sometime this year?

Yes, I mean, I think that you're going to see Atlanta, which is by the way really exciting project and we're thrilled to be part of it. That's going to be delivering closer to the 2023 timeframe, where there's also, as I remind folks for our 13 FDA laboratories and there are a number of them in play. So, I would expect that they'd be announcing a new project probably every year in that area. We are aware of some FBI opportunities out there, and Mike Ibe has been right on all of those as well. And so, I think from a standpoint of what do we feel like, we've seen -- we were seeing more opportunities than we have in the last five years for development.

Our next question is from Jon Petersen at Jefferies. Please proceed with your question.

I also wanted to kind of dive in on Darrell's comments on, driving accretive growth, more acquisition opportunities. I'm curious how you think about balancing your strong cost of capital, especially you strong stock price between driving accretive growth and then also shoring up the balance sheet. So you kind of have a lower leverage profile maybe when the stock price isn't favorable. And I can't imagine you guys are going to issue equity to pay down debt. Maybe another way to think about it is, when you think about acquisitions going forward, how should we think about the breakdown in funding between, how much equity you'll raise to the ATM and how much debt you'll issue?

Yes. I mean, there's again, the market will present the assets that the market presents and of course we will be vigilant about finding those assets that are in the bullseye. They can be most creative. There's no doubt they've created a little dry powder on the liability side of the balance sheet is helpful because we can't control the timing of when the best buildings become available. But we can certainly prepare ourselves to be ready.

Okay. And then, curious in any progress on working towards an investment grade credit rating?

No. Every day we really guide ourselves in the balance sheet with keeping an investment grade profile, and so when the time is right and the scale is appropriate, we've got great receptivity in the private placement market, but we think that would be an easy transition.

Okay. And then -- sorry, one more balance sheet question. Just curious on the duration of your debt outstanding right now, I'm kind of looking at the 30 year treasury trading at an all time low. I think it's at 1.79% right now. Curious if you think about pushing out the duration at all on some of your debt or just how you think about how to manage that?

Yes. So, we have historically tried to keep it well matched between assets and liabilities. It's something we do think about a lot and then talk about, but it does get harder to believe that we're given a lot of credit for extending past kind of the 7 to 8 years of where we are today. So we think that's appropriate for the profile of the portfolio. We may be opportunistic here and there, but we like the position today.

We have reached the end of the question-answer-session. I will now turn the call back over to Darrell Crate for closing remarks.

Thank you everybody for joining the Easterly Government Properties fourth quarter, 2019 conference call. We appreciate your time and we look forward to keeping you posted on all of our work as we strive to build a portfolio of pristine assets backed for the full faith and credit of the U.S. Government.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.