Easterly Government Properties, Inc. — 2021 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021. Easterly is an internally managed REIT focused on acquiring, developing and managing commercial properties leased primarily to U.S. Government agencies. At year-end, it owned 85 operating properties and held interests in four more through an unconsolidated joint venture (JV); the portfolio comprised approximately 8.6 million leased square feet and was 99% leased. The company also had one property under development.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $274.9 million | $245.1 million |
| Net income | $34.0 million | $13.5 million |
| Net income attributable to Easterly; diluted EPS | $30.1 million; $0.35 | $12.0 million; $0.15 |
| FFO | $124.2 million | $111.3 million |
| FFO, as Adjusted | $118.0 million | $106.1 million |
| Cash provided by operating activities | $118.3 million | $145.2 million |
| Cash used in investing activities | $363.0 million | $290.2 million |
| Cash provided by financing activities | $250.2 million | $144.1 million |
Rental income was $267.4 million, up $29.3 million. The filing does not report a headline profit-margin measure. FFO and FFO, as Adjusted are supplemental non-GAAP measures, not substitutes for GAAP results or cash flow.
Debt and liquidity. Total debt principal was approximately $1.216 billion at year-end, versus $978.3 million a year earlier. Weighted-average debt maturity was 6.7 years and weighted-average interest rate was 3.5%; 97.5% of debt was fixed-rate, including swapped term loans. Net debt to total enterprise value was 34.1%. Cash and cash equivalents were $11.1 million, with $435.5 million available on the revolving facility and up to $50.0 million of delayed-draw term-loan capacity. The company reported compliance with debt covenants. Contractual debt maturities include $165.6 million in 2024 and $160.1 million in 2026.
Annualized lease income was $288.1 million for the full portfolio ($282.0 million at Easterly’s share), or $33.61 per leased square foot ($33.77 at share). Dividends declared were $1.05 per common share for 2021, compared with $1.04 in 2020.
Material changes versus the prior comparable period
- Revenue rose 12.2%, principally reflecting acquired properties, a full year of operations from properties acquired or placed in service during 2020, and favorable lease renewals.
- Net income increased by $20.4 million. In addition to higher revenue, the year-over-year comparison benefited from a $1.3 million gain on 2021 property sales versus a $4.0 million loss in 2020.
- Operating cash flow fell $26.9 million. The filing attributes the comparison partly to working-capital and deferred-revenue movements: these contributed $2.0 million in 2021 versus $40.2 million in 2020, despite higher net cash from rental activities net of expenses in 2021.
- Debt increased following issuance of $250.0 million of senior unsecured notes and assumption of $51.5 million of mortgage debt with the USCIS–Kansas City acquisition. Equity issuance generated approximately $175.9 million in gross proceeds.
- Easterly formed a 53%-owned JV in October 2021 to acquire a ten-property VA portfolio for a contractual purchase price of $635.6 million. Four properties had closed by year-end; remaining closings were expected in 2022 and 2023.
Outlook, management commentary, risks and unusual items
- Management said expected cash sources should cover anticipated uses over the next 12 months, including debt service, property investment, distributions and the company’s share of remaining JV acquisitions. This is not a numerical earnings or FFO forecast; the filing provides no formal financial guidance.
- Management reported that COVID-19 had not significantly affected the company’s business or financial condition to date, while noting that future impacts remained uncertain.
- U.S. Government agencies represented 97.5% of annualized lease income. The VA, FBI and DEA together represented 45.3% of annualized lease income, creating significant tenant and government-spending concentration.
- Leases representing approximately 18.1% of annualized lease income expire by the end of 2024. Tenants on leases representing 4.9% of annualized lease income had exercisable early-termination rights at year-end.
- California represented approximately 21.2% of annualized lease income; the company cites regional economic and natural-disaster exposure. Other principal risks include lease renewals, development execution, financing and refinancing, interest rates, insurance, cybersecurity, and REIT qualification and distribution requirements.
- During 2021 the company sold two properties, recognizing a combined $1.3 million gain. It reported no material litigation and no impairment of long-lived assets or its JV investment for the year.
- PricewaterhouseCoopers issued an unqualified audit opinion and identified purchase-price accounting for acquired properties as a critical audit matter, citing management estimates such as discount and capitalization rates, market rents, and leasing costs.
Most important facts for investors to verify
- Lease-expiration and soft-term exposure, particularly the 18.1% of annualized lease income tied to leases expiring by 2024 and the 4.9% with exercisable early-termination rights.
- Tenant and geographic concentration, including the VA, FBI and DEA’s combined 45.3% income share and California’s 21.2% share.
- Debt maturities and refinancing needs, covenant headroom, floating-rate exposure, and the transition from LIBOR to a replacement benchmark.
- Completion, financing and expected returns of the remaining VA portfolio acquisitions through the JV, alongside the company’s $131.2 million JV capital commitment at year-end.
- How dividend coverage compares with operating cash flow and investment needs; 2021 operating cash flow was $118.3 million and dividends and distributions paid were approximately $100.0 million.
- Key assumptions in acquisition purchase-price allocations, which the auditor highlighted as a critical audit matter.