Easterly Government Properties, Inc.

Greetings. Welcome to the Easterly Government Properties Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session between the company's research analysts and Easterly's management team. To ask a question during the session, analysts will need to press star 1-1 on their telephone. They will then hear an automated message advising their hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lindsey Winterhalter, Head of Investor Relations. Please go ahead.

Good morning. Before the call begins, please note that certain statements made during this conference call may include statements that are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes that its expectations as reflected in any forward-looking statements are reasonable, it can give no assurance that these expectations 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 the company's most recent Form 10-K filed at the FCC and in its other FCC filings. The company assumes no obligation to update publicly any forward-looking statements. Additionally, on this conference call, the company may refer to certain non-GAAP financial measures, such as funds from operations, core 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.easterlyrate.com. I would now like to turn the conference call over to Daryl Crate, CEO of Easterly Government Properties.

Good morning, everyone, and thank you for joining us for the fourth quarter conference call. Today, in addition to Lindsay, I'm also joined by Megan Bevere, the company's president and COO, and Allison Marina, the company's CFO and CAO. We're pleased with the earnings results for 2023, and we look forward to continuing to deliver predictable earnings to our shareholders, supported by our foundation of leases backed by the full faith and credit of the United States government. As you saw in our guidance, we are executing on a path for strong core FFO growth in 2024. Alison will speak to that in more detail. Needless to say, we're excited to share our outlook with you. For over a decade, we have been honing a definable edge in the mission-critical facilities that serve our government. Our goal is to use that edge to provide our shareholders with a stable, predictable cash flow stream. By specializing in these mission-critical properties, Easterly can play an important role in supporting essential functions for the United States government and its adjacent partners. While office REITs contend with remote work threatening their occupancy outlook, and portfolio growth, easterly facilities remain critical to the safety and security of our government agency partners. Accordingly, this provides that stability we seek for our investors. While we are discussing predictability, let me address our dividend. We fully acknowledge our higher than average payout ratio, and we are confident in our ability to maintain and grow our dividend. Our disciplined approach to prudently managing our balance sheet, our unique long-term visibility of cash flows, and the creditworthiness of our U.S. government tenancies continue to serve as sources of stability and growth. The CapEx in our buildings is predictable, and the demands for capital expenditures by our tenants are not excessive. Our view is to return as much cash flow to investors as is reasonable as a strong steward of their capital. The leases we have today provide $2.9 billion of rental income, backed by the full-facing credit of the US government. With only one renewal of all of our assets to only a 10-year term at a 10% spread, these aggregate cash flows will be just under $6 billion in rent. And as Megan will share when she discusses our renewals to date, you will see those assumptions are quite modest. Given the strength of this cash flow, we are confident in our ability to provide healthy dividends to our investors for the years to come. What also sets us apart from typical office REITs is our commitment to customization. Our buildings are equipped and fortified with infrastructure and security protocols to ensure uninterrupted operations for key government agencies, such as the Drug Enforcement Administration and the Federal Bureau of Investigation. To reiterate, these assets have one important trait in common. They all help fulfill important government missions that cannot be accomplished from home. For example, drug enforcement agents require secure labs to analyze and store confiscated contraband. FBI agents must investigate crimes in person and at facilities designated for their use. Our facilities continue to support the work that ensures the safety of the country And as a result, 97% of our properties remain leased. It's clear to us that as we explore how to best collaborate with other state and local agencies, we find additional facilities with similar longevity with the added benefit of lease escalations. We see potential to grow our holdings of government and government adjacent assets with lease escalations to approximately 15% of our portfolio. We can further apply our definable edge in development properties for both government tenants and government adjacent tenants that have similar facility needs to our most tenant improvement intensive buildings. We're keenly aware of investors seeking the opportune moment as assets in liabilities reprice. With accelerated interest rates and liquidity drying up in the bank market, this development segment is taking the lead on repricing. A pipeline of opportunities lies ahead, where we believe we can engage in these products accretively at our current cost of capital. All of this leads to our commitment to grow Easterly Core FFO on a trajectory of more than 2% for the foreseeable future. We believe we are positioned to deliver a consistently growing Core FFO cash flow stream, which in turn would allow us to increase our dividend and continue to deliver strong results for our shareholders. This is an exciting time for Easterly. We're seeing a pipeline of mission-critical opportunities in 2024 and beyond, while also building a portfolio with a foundation of cash flows backed by the full faith and credit of the U.S. government. Thanks for your time this morning. Now I'll turn the call over to Megan to discuss opportunities for growth in 2024 and beyond.