Easterly Government Properties, Inc.

Greetings. Welcome to Easterly Government Properties First Quarter 2022 Earnings Conference Call. At this time, all participants are in 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. Please note this conference is being recorded. I will now turn the conference over to 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 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 31st, 2021, which was filed with the FCC on February 28th, 2022 in its quarterly report on Form 10-Q for the quarter ended March 31st, 2022 to be filed with the FCC on May 3rd, 2022 and in its other FCC 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 call, the company may refer to certain non-GAAP financial measures such as funds from operations, funds from operations 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 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 Daryl Crate, Chairman of Easterly Government Properties.

Thank you, Lindsay. Good morning, and thank you for joining the call. As I look at the call attendance list, I see the recent decline in stock prices attracted some equity generalists in addition to our regular REIT cohort. Welcome. Given the audience, let me step back for a moment and speak to how we are viewing this period of rate reorientation in the bond market. Obviously, the market is very concerned and uncertain about how the yield curve will change shape over the coming months and how assets will reprice. What we see today and for the last year is a separation in how our assets are valued by the public market versus the private market. As debt capital becomes more expensive, we believe this disparity will diminish. Our competitors for acquisitions will have less access to cheap leverage, and development competitors who anticipate cap rate compression will no longer participate in the market. We can imagine that this reduction in purchasing power will push up cap rates and that's a very healthy dynamic we have not seen in years. We're very pleased with our existing portfolio. While some investors are focused on the flat nature of our leases, which is not an optimal headline in a rising rate environment, I observe the quality of our buildings is strong and enduring. The value of these assets is supported by their replacement costs, as the alternative for the government upon re-leasing is to build or redevelop an alternative site. As we've all observed, construction costs are accelerating, which translates into elevated NAV for our buildings. The cash flow from that value growth will be realized upon release. In addition, there's a second dynamic that can improve our releasing results. Replacement costs will further increase as developers who have been pricing new constructions aggressively based upon the assumption that cap rate compression will continue and using cheap debt, those folks will be leaving the market. Both of these dynamics improve the environment for same-store NOI growth over time for our portfolio. Turning to the balance sheet, while we have been envious of companies with substantial floating rate debt for the last decade, we're pleased that we have locked in our debt costs and the duration of our liabilities is in line with the duration of our leases. These debt obligations provide value for our shareholders. While the transition to a new steady state in the debt markets will be bumpy, we are optimistic that the environment will present a more fertile environment for a defined edge in the government lease space to create value for our shareholders with substantial cash flow backed by the full faith and credit of the United States government. Further, given our audience today, I'll share a brief summary of the progress we've made during the last seven years as a public company. We've scaled our platform, either wholly owned or through joint venture, from 29 to 89 properties, maintained the trajectory of external growth through accretive acquisitions and non-speculative development, strengthened our portfolio through a strict adherence to the bullseye acquisition strategy while adding significant scale to that platform, fortified our investment-grade balance sheet with a highly fixed-rate structure with long-dated debt maturities, a recipe viewed favorably by the rating agencies. We've captured enhanced NOI through our CPI-matched lease structure while in an inflationary environment. We've diversified our tenant base from 12 to 40 U.S. government agencies, each with enduring missions. We've increased our stable recurring cash flows in aggregate contractual rent due from the U.S. government from $360 million to $2.7 billion. All of this has been achieved through the consistent and dependable execution of our core investment pieces. We are real estate without the drama that thrives in many macro conditions. When faced with inflation, the in-place portfolio is even more attractive at the time of renewal when the alternative is a new build-to-suit construction. When faced with recession, there's no better tenant to have than the United States federal government. When faced with rising rate environments, We're pleased that 96% of our fixed-rate structure with long-dated maturities exists. And finally, when faced with a global pandemic, as we saw, we're confident in the mission, criticality of our building, and the need for our federal workforce to work from our facilities versus at home. In closing, the fundamentals of our business are strong. Our prospects for value creation are excellent. The credit quality of our underlying tenant with leases backed by the full faith and credit of the U.S. government remains the best of any public REIT with a current dividend yield of roughly 5.5%. We thank you for your continued partnership and engagement as you work to grow this premier portfolio of real estate assets leased to the United States federal government. And with that, I'll turn the call over to Bill to give you insights into the first quarter results.