Easterly Government Properties (DEA) investor relations material

Business strategy and portfolio evolution

• Transitioning from 100% federal government leases to a target of 70%, increasing exposure to state, local, and government-adjacent tenants for higher growth potential over the next 2–3 years.

• Focus on mission-critical assets such as law enforcement, courthouses, and healthcare facilities, with a strong emphasis on tenant credit quality and lease stickiness.

• Portfolio management improvements include executive team expansion, dividend reduction, and a growth-oriented strategy with a wider acquisition funnel.

• State and local leases are structured like commercial net leases, targeting high-credit states with population growth and critical government functions.

• Government-adjacent tenants, such as defense contractors, are pursued for their strong credit and alignment with essential government missions.

Acquisition and development pipeline

• Maintains a $1.5 billion acquisition and development pipeline, with roughly equal focus on federal, state/local, and government-adjacent assets.

• Acquisition guidance is conservative, based on executed LOIs, while growth is driven by same-store performance, operational efficiencies, and executed projects.

• Typical acquisition spreads are 50–100 basis points over cost of capital; development projects target 100–150 basis points, with higher spreads for specialized assets.

• Recent developments include law enforcement labs and courthouses, with cost protection mechanisms such as guaranteed maximum price contracts.

• Mezzanine investments introduced as a new programmatic strategy, aiming for $30–$40 million in active investments, providing both yield and future acquisition rights.

Financial performance and outlook

• Consistent 2%–3% FFO growth annually, with plans to maintain or improve this rate through portfolio diversification and operational improvements.

• Investment grade balance sheet with a target leverage ratio of 6.5%–7.5%, aiming to deleverage further over the next 18–24 months as new developments deliver.

• Dividend was reduced to achieve a sustainable payout ratio of 60%–70% AFFO, supporting future growth; current dividend yield remains attractive.

• Cost of capital is around 9%, with favorable debt market conditions helping to offset higher interest rates.

• Pursuing investment grade ratings from two agencies, which could boost growth to 3%–4% and potentially re-rate the stock closer to net lease peers.