Easterly Government Properties, Inc.

Welcome to the Easterly Government Properties first quarter 2024 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 11 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, Lindsay 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 with the SEC and in its other SEC 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 the separate supplemental information package on the investor relations page of the company's website at ir.easterlyread.com. I'd now like to turn the conference call over to Darrell Crate, CEO of Easterly Government Properties.

Thanks, Lindsay, and thank you to everyone for joining us. We are pleased with our progress this quarter as we work through opportunities. I'll keep it brief so we can get to Q&A, but I've got three important messages I'd like you all to take away from this call. First, we believe there's a path towards material earnings growth for shareholders, and we're on it. Megan and Allison will talk to you about the numerous drivers shortly. Second, we know the payout ratio of our dividend is high, but we also believe there is a growth path we can pursue that helps materially close that gap. We are also actively reassessing and managing our expenses. Further, we currently sit with just under $3 billion in rent coming from the U.S. government with the leases that we own today, and if that portfolio were to renew up 10% for 10 years, For modest assumptions, we'd be collecting nearly $6 billion full-facing credit rent from the U.S. government. We believe we can offer as many dollars as we can to our shareholders, and given the creditworthiness and duration of the cash flows backing our dividends, we remain very comfortable with the periods of higher payout ratio. Third, we occupy a unique place in the broader real estate industry. owning and designing essential infrastructure for the U.S. government's mission-critical agencies. For example, our DEA drug labs enable Homeland Security to trace and stop Sinaloa cartel activities amid an ongoing increase in drug trafficking crimes. In 2022, fentanyl was responsible for 200 deaths every single day, and over a quarter million of Americans have died from fentanyl overdose since 2018. Let that sink in for a minute. Our facilities bolster the special agents actively combating those figures. We're not an office read, and this year we're going to continue ensuring that the market understands the breadth of what Easterly offers. This may be boring, but these are the stats that I know you're going to ask. We beat the street and reported 29 cents in core FFO per share. and we sit comfortably at the midpoint of our target leverage of six and a half to seven and a half times. We continue to acquire and develop new facilities in our portfolio. These facilities are not offices for transient commercial use. By focusing on properties leased to government agencies and their . We've maintained the stability of our cash flows at favorable renewal spreads and seen a robust pipeline of growth opportunities. Earlier this month, we announced the acquisition of an immigration and customs enforcement information technology facility near Dallas, Texas, which enables ICE's Office of Human Capital to modernize its IT systems and bolster its technological capabilities. The rationale behind this deal is clear. The facility is 95% leased, has a 16.2-year weighted average initial lease term for all three tenancies, It maintains an additional 6,154 square feet available for future leasing as a value-add opportunity. All three factors enhance our cash flows, maintain significant occupancy upside, and strengthen our definable edge as specialists in mission-critical real estate. This acquisition is in line with the existing properties in our portfolio, such as Federal Emergency Management Agency's Tracy California Warehouse, FEMA Tracy is one of eight distribution centers within the United States for emergency response preparedness. Amid the ongoing threats of wildfire and other natural disasters in California, the property helps provide on-the-ground support and crucial supplies capable of mobilizing between three to four million meals and liters of water that is stored at the facility within 30 minutes. Our Drug Enforcement Administration Laboratory in Pleasanton, California serves a similar mission-critical purpose, providing scientific and forensic support to the DEA special agents and other law enforcement personnel who prevent the distribution of deadly drugs like fentanyl into our society, and we store over 35,000 pieces of illegal and oftentimes deadly evidence in that facility each year. Meanwhile, the DEA's approved funding increased over 6% between 2022 and 2023, and its total headcount rose over 4% during the same period to combat the increased manufacture and distribution of controlled substances. As the government strengthens its agencies maintaining the safety of our country, we continue to fortify their abilities through mission-critical real estate. These purpose-built facilities serve as Easterly's definable edge in commercial real estate and continue to be the bedrock of the shareholder value which we deliver. We will continue to pursue accretive deals, and we have no plans to sell buildings in the near future as we work to continue to expand the portfolio with high credit-worthy state and local government agencies and U.S. government-adjacent partners. Frankly, we believe Easterly is well positioned to continue to provide value to our stockholders by developing and buying more great mission-critical buildings, continuing our strong partnership with the government, and protecting our balance sheet. We are in constant dialogue with the Board and in forward planning mode. In addition to delivering external growth, we are laser-focused on cutting operating costs this year, both of which we believe will aid in our ability to meet or exceed our 2% to 3% core FFO growth trajectory. We're excited to continue delivering shareholder value and enhancing our portfolio with a foundation of cash flows backed by the full faith and credit of the U.S. government. The future remains bright for Easterly in 2024, and now I'll turn the call over to Megan Bevere, the company's president and COO.