Easterly Government Properties, Inc.

Greetings and welcome to Easterly Government Properties Third Quarter 2020 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Lindsay Winterhalter, Vice President, Investor Relations. Thank you. 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 this 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 would 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 31st, 2019, filed with the SEC on February 25th, 2020, and in its other SEC filings, and risks and uncertainties related to the adverse impact of COVID-19 on the U.S. regional and global economies and the potential adverse impact on the financial condition and results of operation of the company. The company assumes no obligation 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 operation, funds from operation as adjusted, 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 a company's earnings release and separate supplemental information package on the investor relations page of the company's website at ir.easterlyrete.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 in this third quarter conference call. Today, in addition to Lindsay, I'm joined by Bill Trimble, the company's CEO, and Megan Bevere, the company's CFO and COO. During this period, we've had a significant number of calls and meetings with new investors, particularly those from the international community. So I thought I'd share a frequent question that we receive. Are we in office or are we a net lease REIT? For those of you who are new to the call, I'll share the answer. the principles that underpin our business are clearly net lease REIT. We can develop and purchase several hundred million dollars of mission-critical buildings each year to grow earnings. However, there are two factors that make us superior to net lease, the quality of our cash flows and the value of our young buildings to track the growth and replacement cost. First and foremost, our cash flows are based upon the full faith and credit of the U.S. government. You will not find a single US REIT with a better tenant quality than Easterly. Our leases supporting our portfolio are, on average, 10 to 20 years in length, which provides far superior visibility to future cash flows than any traditional REIT. We have extremely high renewal rates at lease expiration due to the build-to-suit, mission-critical nature of our portfolio. Today, our existing leases, each with one role, would equal $4.3 billion of future cash flow that's backed by the full faith and credit of the United States government. Like any net lease, we build shareholder value through a robust acquisition program coupled with a non-speculative development activity. Given our attractive cost of capital, these activities translate into 2% to 3% FFO growth per year coupled with a roughly 5% dividend yield. This delivers a 500 to 700 basis point premium to the 10-year treasury. I would observe that the premium we deliver relative to treasuries is near an all-time high. When you take a closer look at what we have built, you will see Easterly is real estate without the drama. A pandemic does not diminish our value, and we are not beholden to one political party. to local rent markets or one geographic area of focus. Added to net lease attributes without volatility, our facilities are purpose-built, highly sophisticated government leased facilities designed with SCIF space, secure networks, perimeter fencing, visitor screening, bollards, and a host of other improvements. These features add specific value to our tenants and provide an opportunity for value creation upon release. we've created a portfolio that delivers stability with no single asset representing more than 2.7% of annualized lease income set to expire in the near term. Given that our method of value creation is differentiated from the REIT market, we've done what we can to limit our exposure to index fund price movements by limiting their ownership. I would observe, to those of you who are managing two benchmarks, We've consistently performed in line or better with the Russell 1000, with cash flows far less volatile based on the full faith and credit of the United States government. 2020 has been a dramatic year in every sense as the world navigates a pandemic, and here in the United States, we face economic, political, and social unrest. It's often difficult to spot directional changes in history, but it certainly feels like one of those times. Uncertainty extends to the real estate sector in general and the REIT sector in particular, as investors must make portfolio decisions based on macro and micro factors that have never been more opaque. Ten years ago, we purchased our first FBI building for our new private equity fund that became the first building block of what is today easterly government properties. We have launched into our first tranche of government space because we saw a clear opportunity to harness the world's best credit while also taking advantage of long duration leases and incredibly high renewal rates. Ten years later, that first FBI still provides a mission-critical home for the San Antonio field office and remains young in its life. The world has gone through many gyrations since 2010, but our story, the government's mission, and our strong and sustainable growth remain the same. We're looking forward to 2021, and we're pleased with the stability and predictability of our platform to create value for shareholders in, of course, the coming year and the decade ahead. Thanks, everyone. And with that, I'll turn the call over to Bill. Thanks, Daryl, and good morning.