Greetings, welcome to the Easterly Government Properties First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. Please note this conference is being recorded. I will now turn the conference over to your host Lindsay Winterhalter, Vice President, Investor Relations. You may begin.

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 provision.

Thank you, Lindsay. Good morning everybody and thank you for joining us for this first 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. Easterly continues to consistently execute on its strategy of owning Class A mission critical facilities leased to the United States federal government. Our story is simple. We seek to own a pristine portfolio of buildings many built-to-suit that are occupied by some of the country’s most important tenant agencies. We aspire to be the chosen partner of our tenants to maintain and enhance their facilities to aid in the execution of their missions. We grow our FFO through acquisitions, non-speculative development and through the renewal of existing assets. Our acquisitions this quarter were consistent with all of these objectives.

Thanks, Darrell, and good morning. Thank you for joining us for our first quarter earnings call. The acquisitions team continued its elevated acquisition phase for the closing of a bullseye portfolio of Class A real estate leased to the United States federal government. The free building approximately 177,000 square foot portfolio is comprised of some of the government’s most important tenant agencies, including the Federal Bureau of Investigation, the U.S. Attorney’s Office, and the U.S. Immigration and Customs Enforcement Agency. This LEED Certified portfolio is entirely build-to-suit and operating under its first generation lease terms.

Thank you, Bill. Good morning, everyone. It gives me great pleasure to post another strong quarter of demonstrable growth at Easterly. As of prior quarters, COVID-19 had no material, negative financial impact on the organization as Easterly received a 100% of rental income due from our tenants in the first quarter. As of March 31, we owned 82 operating properties, totaling approximately 7.5 million square feet of commercial real estate with one additional development project in design comprised of approximately 162,000 square feet. Through the acquisition of newer facilities, the weighted average age of our portfolio remains young at 13.4 years. Successful long-term renewals that existing properties have also allowed us to grow our weighted average remaining lease term to an historic high of 8.6 years. This represents a year-over-year lengthening of our weighted average remaining lease term of 0.9 years. Maintaining a young portfolio age and along weighted average remaining lease term is reflective of our strategy of owning relatively new build-to-suit assets within during missions. This strategy provides us with distinctive future cash flow visibility, which in turn allows us to prudently manage the company’s balance sheet and support our highly accretive acquisition and development project pipeline. Turning to our quarterly results. For the first quarter net income per share on a fully diluted basis was $0.09. FFO per share on a fully diluted basis was $0.33 up nearly 8.5% year-over-year a rate we are particularly proud of given the backdrop of a global pandemic. FFO as adjusted per share on a fully diluted basis was $0.31, and our cash available for distribution was $24.4 million. Turning to the balance sheet. At quarter end, the company had total embeddedness of approximately $1 billion with $341 million available on our line of credit for future acquisitions and development related expenses. As of March 31, Easterly’s net debt to total enterprise value was 34% and its adjusted net debt to annual quarterly pro forma EBITDA ratio was 6.2 times. As previously mentioned with this low leverage level, numerous sources of available debt capital, access to equity sold on a forward basis and an attractive cost of equity we are well-poised to lean into future growth opportunities. In the first quarter of 2021, the company issued approximately 1.56 million shares of its common stock through the company’s ATM program, raising net proceeds to the company of approximately $40 million at a net weighted average price of $25.69 per share this highly attractive cost of capital delivers meaningful accretion to shareholders. Today, the company has approximately $2.9 million shares, which are subject to unsettled forward sales transaction under the company’s ATM program. Assuming these shares are physically settled in full at a net weighted average initial forward sales price of $24.43 per share the company expects to receive net proceeds of approximately $72.1 million.

Thank you. Our first question is from Michael Carroll with RBC Capital Markets. Please proceed with your question.

Yes, thanks. Bill or Meghan, can you talk a little bit about the renewals that you completed in the first quarter? I guess what’s the cash lease spread and can you provide color on the base rent and how the TI build outs kind of real roll the numbers and the rent streams over the next few quarters?

Good morning, Michael. So as Bill mentioned, there were four renewals in the quarter. The buildings were referred to as Treasury Parkersburg, DEA, Bakersfield, ICE Pittsburgh and DEA Sterling. An interesting cross section of the portfolio those four leases we are expecting like two of them do have tenant improvement allowances included in the renewal. But we are again expecting, because they’re not completed TIs an average of approximately 8.5% and the rent spread with an average $30 to $35 of TI. Treasury Parkersburg and ICE Pittsburg had no TI budgeted and so, that brought down the average for the quarter. There you go.

Great. And then can you talk us to us about the TI budgeted and maybe explain how that rolls into the rent stream? I guess you, once you build out those spaces, that’s going to add rents to the base rent over the next few quarters and how long will that take to complete those TIs?

Sure. So as I said, Treasury Parkersburg and ICE Pittsburgh don’t have Treasury Parkersburg and ICE Pittsburgh you do not have any TI allowances. So those spreads would kick in on day one. And we don’t have a perfectly clear crystal ball, but it’s our expectation that in Bakersfield and Sterling, that we would also be able to have the tenant improvement completed prior to the commencement of new leases, Sterling asset will commence in the third quarter of 2022 and Bakersfield in January of 2022. It should provide a sufficient time this year.

Okay, great. And then I guess Bill, can you talk a little bit about your FBI field offices? I think you highlighted that there’s 12 that Easterly owns today. I mean, does that provide you incremental synergies with that? The ability to maybe to complete more deals or sign leases within, because what type of advantages does that have, having full field offices?

Yes. Good morning Michael. I think it does. I think that at the point, we’re now at 12 the FBI certainly knows who we are. I think we’re very pleased with how we run their buildings. And what I think we’re beginning to see, as I mentioned before, is there’s a number of projects that we’ll do at one building at the government expense that we will then do with another one of our facilities. I think it’s also smooth as out our renewals, because I think they understand that we have a very good handle on what these buildings are worth, what they would cost to develop. And so I think that’s going to only and newer to our benefit going forward. So, I’m very pleased to get to this scale as you know, that’s the best group of buildings I think we can possibly own within the federal government. And I think we have a terrific relationship with the agency, so I’m looking forward to owning more look forward to the next 12.

Okay, great. And then I guess last question on, can you talk a little bit about the deals that Mike Ibe’s pursuing with the GSA build-to-suit? I think that you highlighted in your prepared remarks that he’s pursuing. I don’t know if you’ve put a qualifier on that. So is a multiple or several but is there an expectation on how many GSA build-to-suits you put potentially announced this year or how many are even out there?

What I’d say Michael, is it really hasn’t changed because you can imagine the federal government does move at a glacial pace when it comes to a lot of these opportunities, but I would continue to say that this FDA laboratory program which was slow during COVID, luckily we got everything we needed to get done before the sort of shut down. I think we’ll white off here. Whether it starts in the fall or in the next winter, I think there’s going to be some terrific opportunities there. Those are very expensive buildings and we have a real expertise, especially Mike and Mark on delivering to the FDA. I think we’re going to see some more FEMA projects. I think that’s a very popular agency with the current administration. I think you’re going to see more opportunities there. And then from a purchasing standpoint, as we’ve been really terrific buying some of these brand new VA facilities, again, not overnight stays, but the new face of the VA. And I think you’re seeing a lot of other developers executing on those plans. So, I think we’re going to see a lot of upside certainly from them as well. So all in all, I think yes, we will see some new opportunities look forward to announcing them. But I think we’re still waiting to get out of the bond a little bit with the COVID world. But it isn’t going to slow down our team. They’re traveling around, they’re looking at opportunities and fingers crossed, but I think that will continue to be a strong driver of FFO growth for us into the future.

Okay, great. Thanks for your time.

Our next question is from Merrill Ross with Compass Point. Please proceed with your question.

Hi, good morning. I’m wondering if you can – I mean, you described that you’ve already underwritten the assets that you’re interested in a GSA inventory. So the pace of acquisition or the fulsomeness actionability of your pipeline kind of depends on the sellers being willing to sell. Do you see anything sort of globally that makes people more willing to sell in 2021 or 2022 then you had seen in the previous six years?

Good Morning Merrill. And that’s a great question and I think absolutely is the answer. I think you’ve got a number of factors. I think first as you know, most of our buildings are owned by individuals, and I think it’s no secret out there that we’re going to see some sort of change in the capital gains rate. There might be some 10-31 exchange change there might be a lot of things happening within the tax code that will make a lot of these owners, make that decision sooner rather than later. So, I think that’s an important factor. Obviously we are the only group out there that really can also offer unions for tax efficiency to these owners. So there’s a big advantage over anybody else in our space. I think that another thing is happening is a lot of these newer facilities were built sort of 2006, 2007. They’re rolling. They’ve just been renewed and a lot of these owners or in their 60s and 70s. And I think they’re going to be taking advantage from state planning or whatever it might be, or maybe just take advantage of the world restarting to need that equity to put out some fires and their hotels or, and that’s literally, or I’m going to come up with the new opportunities. So I think everything out there is putting a tailwind to us in this market. I think the – and Meghan will go into it, but I think, our attractive cost of capital allows us to make accretive acquisitions. Everybody knows who we are, and I think we execute very quickly. I think our relationships with the brokers are very strong and so I am very gratified to see what we see out there going forward for this year. And I’m very excited to exceed that $200 million is since possible.

Thank you.

Our next question is from Frank Lee with BMO. Please proceed with your question.

Hi, morning everyone. If we annualize the $0.33 you reported in the first quarter and considering that you could exceed your $200 million acquisitions target, are you talking about the pace of activity so far that could get you to the top end that, that guidance range or even above it. I just wondering if there’s anything else we should consider that could be a drag on earnings this year, aside from maybe some more ATM issuances or what prevented you from raising guidance this quarter? Thanks.

Good morning, Frank. Obviously very proud of the strong quarter we put out. I think as we look at the remainder of the year, we continue to work on the pipeline and we’ve never thought from COVID-19 a pandemic before. And so it’s just the approach that I took in terms of approaching our board and getting approvals for the guidance that we project. It’s our preference at this time to stay with the current range. We look forward to the opportunity to exceed that and hopefully look to higher levels as the year progresses.

Okay, great. And then just want to touch on the leases that were expired in 2020, there were three of them. From last quarter it looks like two, three were renewed on a shorter term basis. Just curious what happened with the last lease and your expectations to renew the other two on a longer-term basis?

Yes. So last quarter, those three, one was DEA Vista. One was DEA Birmingham. You’ll note that the GSA, if you’re sort of nearing the end of a renewal process they can oftentimes get into what’s called a holdover position where they’ll just stay in a month-to-month situation while they’re waiting to get paperwork signed or through their queues. And so the both of those are you know, we believe in that stage, we don’t want to pre-announce any renewals before they happen, but that’s, that’s the status of those two. And the third was a very small Delis in our Buffalo asset as much of 1,100 square feet yet you, unfortunately, you won’t be able to get one in the future.

Okay. And then just one last one for me on your Atlanta FDA development project, it looks like the completion date got pushed back by a quarter end costs were slightly up. Yes. Maybe it’s just a minor detail, but is there any additional color on what drove this?

They’re in the design phase. They’re working out the final set of requirements and drawings. And so it pushed a little, it doesn’t change a 15 year project.

We’re always happy to let the government figure out how they can spend more money with us to build a better building. So, we always were patient.

Okay. And then still, no additional clarity on timing on the lump sum, right?

That’s correct. That’s correct. It’s still our strong desire and we do believe we’ll be successful as we were in the past in FDA Lenexa on receiving progress payments from the government, but no finalities there yet.

Okay. Great. Thank you.

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

Great. Thank you everyone for joining the Easterly Government Properties first quarter 2021 conference call. We appreciate your time this morning, and we look forward to keeping you posted on our developments as we strive to build and enhance our portfolio of pristine assets backed by the full faith and credit of the U.S. government.

And this concludes today’s conference. And you may disconnect your lines at this time. Thank you for your participation.