# Easterly Government Properties, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Easterly Government Properties, Inc.](/companies/dea.md) (CIK 1622194)
- Form: 10-Q
- Filed: 2022-11-01
- Accepted by EDGAR: Nov 1, 2022, 16:01 ET
- Period: 2022-09-30
- Accession: 0000950170-22-020827
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1622194/000095017022020827/dea-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1622194/000095017022020827/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $75.0m | us-gaap:Revenues |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $220.1m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $17.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $48.8m | us-gaap:CostOfGoodsAndServicesSold |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | $642.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | $15.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.01 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $0.16 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.01 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $0.16 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 91,119,372 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 90,886,108 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $103.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2022-01-01 to 2022-09-30 | $81.8m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2022-09-30 | $11.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2022-09-30 | $2.96bn | us-gaap:Assets |
| Total liabilities | at 2022-09-30 | $1.54bn | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $1.37bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2022-09-30 | $1.25bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 63,612 characters.

#### Forward-Looking Statements

*This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We caution investors that forward-looking statements are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “potential”, “project”, “result”, “seek”, “should”, “target”, “will”, and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, investors should use caution in relying on forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.*

*Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:*

- *the factors included under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and the factors included under the heading “Risk Factors” in our other public filings;*
- *risks associated with our dependence on the U.S. Government and its agencies for substantially all of our revenues, including credit risk and risk that the U.S. Government reduces its spending on real estate or that it changes its preference away from leased properties;*
- *risks associated with ownership and development of real estate;*
- *the risk of decreased rental rates or increased vacancy rates;*
- *loss of key personnel;*
- *the continuing adverse impact of the novel coronavirus (“COVID-19”) pandemic on the U.S., regional and global economies and our financial condition and results of operations;*
- *general volatility of the capital and credit markets and the market price of our common stock;*
- *the risk we may lose one or more major tenants;*
- *difficulties in completing and successfully integrating acquisitions;*
- *failure of acquisitions or development projects to occur at anticipated levels or yield anticipated results;*
- *risks associated with actual or threatened terrorist attacks;*
- *risks associated with our joint venture activities;*
- *intense competition in the real estate market that may limit our ability to attract or retain tenants or re-lease space;*
- *insufficient amounts of insurance or exposure to events that are either uninsured or underinsured;*
- *uncertainties and risks related to adverse weather conditions, natural disasters and climate change;*
- *exposure to liability relating to environmental and health and safety matters;*
- *limited ability to dispose of assets because of the relative illiquidity of real estate investments and the nature of our assets;*
- *exposure to litigation or other claims;*
- *risks associated with breaches of our data security;*
- *risks associated with our indebtedness, including failure to refinance current or future indebtedness on favorable terms, or at all; failure to meet the restrictive covenants and requirements in our existing and new debt agreements; fluctuations in interest rates and increased costs to refinance or issue new debt;*
- *risks associated with capital allocation strategies, including any share repurchases;*
- *risks associated with derivatives or hedging activity; and*
- *risks associated with mortgage debt or unsecured financing or the unavailability thereof, which could make it difficult to finance or refinance properties and could subject us to foreclosure.*

*For a further discussion of these and other factors, see the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as may be supplemented or amended from time to time.*

### Overview

References to “we,” “our,” “us” and “the Company” refer to Easterly Government Properties, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Easterly Government Properties LP, a Delaware limited partnership, which we refer to herein as the “operating partnership.” We present certain financial information and metrics “at Easterly Share,” which is calculated on an entity-by-entity basis. “At Easterly Share” information, which we also refer to as being “at share,” “pro rata,” “our pro rata share” or “our share” is not, and is not intended to be, a presentation in accordance with GAAP.

We are an internally managed real estate investment trust, or REIT, focused primarily on the acquisition, development and management of Class A commercial properties that are leased to U.S. Government agencies that serve essential functions. We generate substantially all of our revenue by leasing our properties to such agencies, either directly or through the U.S. General Services Administration (“GSA”). Our objective is to generate attractive risk-adjusted returns for our stockholders over the long term through dividends and capital appreciation.

We focus on acquiring, developing and managing U.S. Government-leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the U.S. Government, working closely with the tenant agency to meet its needs and objectives. As of September 30, 2022, we wholly owned 88 operating properties and seven operating properties through an unconsolidated joint venture (the “JV”) in the United States encompassing approximately 9.1 million leased square feet (8.8 million pro rata), including 94 operating properties that were leased primarily to U.S. Government tenant agencies and one operating property that was entirely leased to a private tenant. As of September 30, 2022, our operating properties were 99% leased. For purposes of calculating percentage leased, we exclude from the denominator total square feet that was unleased and to which we attributed no value at the time of acquisition. In addition, we wholly owned one property under development that we expect will encompass approximately 0.2 million leased square feet upon completion.

The operating partnership holds substantially all of our assets and conducts substantially all of our business. We are the sole general partner of the operating partnership and owned approximately 88.3% of the aggregate limited partnership interests in the operating partnership, which we refer to herein as common units, as of September 30, 2022. We have elected to be taxed as a REIT and we believe that we have operated and have been organized in conformity with the requirements for qualification and taxation as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2015.

### 2022 Activity

### Acquisitions

On May 10, 2022, we acquired a 161,730 leased square foot National Archives and Record Administration (“NARA”) federal records center in Broomfield, Colorado. The building is a build-to-suit warehouse completed in 2012. The facility is leased to the GSA for beneficial use of the NARA with a lease expiration of May 2032.

On May 18, 2022, we acquired a 138,000 leased square foot Federal Bureau of Investigation (“FBI”) field office in Tampa, Florida. The building is a build-to suit property completed in 2005. The facility is leased to the GSA for beneficial use of the FBI with a lease expiration of November 2040.

On August 23, 2022, we acquired a 28,900 leased square foot U.S. District ("JUD") courthouse in Council Bluffs, Iowa. The building is a build-to-suit facility completed in 2021. The facility is leased to the GSA for beneficial use of the JUD with a lease expiration of December 2041.

### Dispositions

On October 12, 2022, we entered into a second amended purchase and sale agreement with a third party to dispose of a portfolio of ten properties totaling approximately 668,000 leased square feet (the “Disposition Portfolio Properties”) for an aggregate purchase price of approximately $205.3 million. Concurrently on October 12, 2022, we received a $3.5 million non-refundable deposit from the third party buyer. As of September 30, 2022, the carrying value of the Disposition Portfolio Properties was $187.1 million and did not meet the criteria for held-for-sale classification. We completed the sale of nine of the Disposition Portfolio Properties on October 27, 2022, including: DHA – Aurora, HRSA – Baton Rouge, VA – Baton Rouge, FDA – College Park, MEPCOM – Jacksonville, DOE – Lakewood, ICE – Pittsburgh, OSHA – Sandy, and CBP – Sunburst. We expect to close on the remaining property, DOI – Billings, prior to December 31, 2022, subject to the satisfaction of customary closing conditions.

### Investment in unconsolidated real estate venture

On October 13, 2021, we formed the JV with a global investor to fund the acquisition of a portfolio of ten properties anticipated to encompass 1,214,165 leased square feet (the “Portfolio Acquisition”). We own a 53.0% interest in the JV, subject to preferred allocations as provided in the JV agreement. During 2021, the JV closed on four of the ten properties included in the Portfolio Acquisition.

On April 1, 2022, the JV acquired a 77,128 square foot Veterans Affairs (“VA”) outpatient facility located in Birmingham, Alabama. The building is a build-to-suit property that was completed during 2021. The outpatient facility is leased to the VA and has a lease expiration of October 2041.

On May 20, 2022, the JV acquired a 76,882 square foot VA outpatient facility located in Marietta, Georgia. The building is a build-to-suit property that was completed during 2021. The outpatient facility is leased to the VA and has a lease expiration of December 2041.

On July 14, 2022, the JV acquired a 67,793 square foot VA outpatient facility located in Columbus, Georgia. The building is a build-to-suit property that was completed during 2021. The outpatient facility is leased to the VA and has a lease expiration of January 2042.

We expect the JV to close on the three remaining properties in the Portfolio Acquisition during 2022 and 2023.

### Impact of the COVID-19 Pandemic

The COVID-19 pandemic has caused, and continues to cause significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets.

We continue to carefully monitor the COVID-19 pandemic, including the emergence of new variants, and its potential impact on our business. We are following guidelines established by the Centers for Disease Control and the World Health Organization and orders issued by the state and local governments where we operate. In addition, we have taken a number of precautionary steps to safeguard our business and our employees from the COVID-19 pandemic, including, but not limited to, implementing non-essential travel restrictions when necessary and facilitating telecommuting arrangements for our employees. We have taken these precautionary steps while maintaining business continuity so that we can continue to deliver service to and meet the demands of our tenants, including our U.S. Government tenant agencies.

To date, the impact of the COVID-19 pandemic on our business and financial condition has not been significant. The future impact of the COVID-19 pandemic on our operations and financial condition will, however, depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. See the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of the potential adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition.

### Operating Properties

As of September 30, 2022, our operating properties were 99% leased with a weighted average annualized lease income per leased square foot of $34.56 ($34.30 pro rata) and a weighted average age of approximately 14.0 years based on the date the property was built or renovated-to-suit, where applicable. We calculate annualized lease income as annualized contractual base rent for the last month in a specified period, plus the annualized straight line rent adjustments for the last month in such period and the annualized net expense reimbursements earned by us for the last month in such period.

The table set forth below shows information relating to the properties we owned, or in which we had an ownership interest, at September 30, 2022, and it includes properties held by the JV:

| Property Name Wholly Owned U.S. Government Leased Properties | Location | Property Type (1) | Tenant Lease Expiration Year (2) | Leased Square Feet | Annualized Lease Income | Percentage of Total Annualized Lease Income | Annualized Lease Income per Leased Square Foot |
| --- | --- | --- | --- | ---: | ---: | ---: | ---: |
| VA - Loma Linda | Loma Linda, CA | OC | 2036 | 327,614 | $16,444,222 | 5.2% | $50.19 |
| USCIS - Kansas City (3) | Lee's Summit, MO | O/W | 2023 - 2042 | 491,226 | 12,026,995 | 3.8% | 24.48 |
| JSC - Suffolk | Suffolk, VA | O | 2028 | 403,737 | 8,381,901 | 2.7% | 20.76 |
| IRS - Fresno | Fresno, CA | O | 2033 | 180,481 | 6,972,995 | 2.2% | 38.64 |
| Various GSA - Portland (4) | Portland, OR | O | 2022 - 2039 | 218,798 | 6,953,863 | 2.2% | 31.78 |
| Various GSA - Chicago | Des Plaines, IL | O | 2023 | 202,185 | 6,812,395 | 2.2% | 33.69 |
| FBI - Salt Lake | Salt Lake City, UT | O | 2032 | 169,542 | 6,802,806 | 2.2% | 40.12 |
| Various GSA - Buffalo (5) | Buffalo, NY | O | 2025 - 2039 | 273,678 | 6,691,883 | 2.1% | 24.45 |
| VA - San Jose | San Jose, CA | OC | 2038 | 90,085 | 5,725,957 | 1.8% | 63.56 |
| EPA - Lenexa | Lenexa, KS | O | 2027 | 169,585 | 5,603,247 | 1.8% | 33.04 |
| FBI - San Antonio | San Antonio, TX | O | 2025 | 148,584 | 5,241,403 | 1.7% | 35.28 |
| PTO - Arlington | Arlington, VA | O | 2035 | 190,546 | 5,154,770 | 1.6% | 27.05 |
| FBI - Tampa | Tampa, FL | O | 2040 | 138,000 | 5,057,412 | 1.6% | 36.65 |
| FDA - Alameda | Alameda, CA | L | 2039 | 69,624 | 4,834,488 | 1.5% | 69.44 |
| FBI / DEA - El Paso | El Paso, TX | O/W | 2028 | 203,683 | 4,682,935 | 1.5% | 22.99 |
| FEMA - Tracy | Tracy, CA | W | 2038 | 210,373 | 4,646,467 | 1.5% | 22.09 |
| FBI - Omaha | Omaha, NE | O | 2024 | 112,196 | 4,548,028 | 1.4% | 40.54 |
| TREAS - Parkersburg | Parkersburg, WV | O | 2041 | 182,500 | 4,302,091 | 1.4% | 23.57 |
| EPA - Kansas City | Kansas City, KS | L | 2042 | 71,979 | 4,291,659 | 1.4% | 59.62 |
| VA - South Bend | Mishakawa, IN | OC | 2032 | 86,363 | 4,155,805 | 1.3% | 48.12 |
| FDA - Lenexa | Lenexa, KS | L | 2040 | 59,690 | 3,990,453 | 1.3% | 66.85 |
| FBI - Pittsburgh | Pittsburgh, PA | O | 2027 | 100,054 | 3,981,726 | 1.3% | 39.80 |
| VA - Mobile | Mobile, AL | OC | 2033 | 79,212 | 3,908,885 | 1.2% | 49.35 |
| USCIS - Lincoln | Lincoln, NE | O | 2025 | 137,671 | 3,887,343 | 1.2% | 28.24 |
| DOI - Billings (6) | Billings, MT | O/W | 2033 | 149,110 | 3,871,654 | 1.2% | 25.97 |
| FBI - New Orleans | New Orleans, LA | O | 2029 | 137,679 | 3,802,565 | 1.2% | 27.62 |
| DOT - Lakewood | Lakewood, CO | O | 2024 | 122,225 | 3,668,047 | 1.2% | 30.01 |
| FBI - Knoxville | Knoxville, TN | O | 2025 | 99,130 | 3,579,291 | 1.1% | 36.11 |
| FBI - Birmingham | Birmingham, AL | O | 2042 | 96,278 | 3,433,823 | 1.1% | 35.67 |
| ICE - Charleston | North Charleston, SC | O | 2027 | 65,124 | 3,301,629 | 1.0% | 50.70 |
| VA - Chico | Chico, CA | OC | 2034 | 51,647 | 3,282,987 | 1.0% | 63.57 |
| FBI - Richmond | Richmond, VA | O | 2041 | 96,607 | 3,252,338 | 1.0% | 33.67 |
| USFS II - Albuquerque | Albuquerque, NM | O | 2026 | 98,720 | 3,249,952 | 1.0% | 32.92 |
| FBI - Little Rock | Little Rock, AR | O | 2041 | 102,377 | 3,189,062 | 1.0% | 31.15 |

26

*Wholly Owned U.S. Government Leased Properties (Cont.)*

| Property Name | Location | Property Type (1) | Tenant Lease Expiration Year (2) | Leased Square Feet | Annualized Lease Income | Percentage of Total Annualized Lease Income | Annualized Lease Income per Leased Square Foot |
| --- | --- | --- | --- | ---: | ---: | ---: | ---: |
| FDA - College Park (6) | College Park, MD | L | 2029 | 80,677 | 3,107,988 | 1.0% | 38.52 |
| USCIS - Tustin | Tustin, CA | O | 2034 | 66,818 | 3,102,375 | 1.0% | 46.43 |
| USFS I - Albuquerque | Albuquerque, NM | O | 2026 | 92,455 | 3,100,080 | 1.0% | 33.53 |
| OSHA - Sandy (6) | Sandy, UT | L | 2024 | 75,000 | 3,077,661 | 1.0% | 41.04 |
| DEA - Vista | Vista, CA | L | 2035 | 52,293 | 3,067,840 | 1.0% | 58.67 |
| VA - Indianapolis | Brownsburg, IN | OC | 2041 | 80,000 | 2,958,386 | 0.9% | 36.98 |
| VA - Orange | Orange, CT | OC | 2034 | 56,330 | 2,937,172 | 0.9% | 52.14 |
| JUD - Del Rio | Del Rio, TX | C/O | 2024 | 89,880 | 2,792,219 | 0.9% | 31.07 |
| ICE - Albuquerque | Albuquerque, NM | O | 2027 | 71,100 | 2,789,429 | 0.9% | 39.23 |
| DEA - Dallas Lab | Dallas, TX | L | 2038 | 49,723 | 2,716,354 | 0.9% | 54.63 |
| DEA - Pleasanton | Pleasanton, CA | L | 2035 | 42,480 | 2,716,215 | 0.9% | 63.94 |
| JUD - El Centro | El Centro, CA | C/O | 2034 | 43,345 | 2,702,496 | 0.9% | 62.35 |
| FBI - Mobile | Mobile, AL | O | 2029 | 76,112 | 2,682,150 | 0.9% | 35.24 |
| FBI - Albany | Albany, NY | O | 2036 | 69,476 | 2,677,247 | 0.9% | 38.53 |
| SSA - Charleston | Charleston, WV | O | 2024 | 110,000 | 2,660,225 | 0.8% | 24.18 |
| DEA - Sterling | Sterling, VA | L | 2037 | 49,692 | 2,607,909 | 0.8% | 52.48 |
| DEA - Upper Marlboro | Upper Marlboro, MD | L | 2037 | 50,978 | 2,522,977 | 0.8% | 49.49 |
| USAO - Louisville | Louisville, KY | O | 2031 | 60,000 | 2,506,169 | 0.8% | 41.77 |
| TREAS - Birmingham | Birmingham, AL | O | 2029 | 83,676 | 2,487,887 | 0.8% | 29.73 |
| DHA - Aurora (6) | Aurora, CO | O | 2034 | 101,285 | 2,392,674 | 0.8% | 23.62 |
| NARA - Broomfield | Broomfield, CO | O/W | 2032 | 161,730 | 2,346,885 | 0.7% | 14.51 |
| JUD - Charleston | Charleston, SC | C/O | 2040 | 52,339 | 2,333,282 | 0.7% | 44.58 |
| Various GSA - Cleveland (7) | Brooklyn Heights, OH | O | 2028 - 2040 | 61,384 | 2,253,745 | 0.7% | 36.72 |
| CBP - Savannah | Savannah, GA | L | 2033 | 35,000 | 2,234,261 | 0.7% | 63.84 |
| DEA - Dallas | Dallas, TX | O | 2041 | 71,827 | 2,215,883 | 0.7% | 30.85 |
| MEPCOM - Jacksonville (6) | Jacksonville, FL | O | 2025 | 30,000 | 2,215,374 | 0.7% | 73.85 |
| DOE - Lakewood (6) | Lakewood, CO | O | 2029 | 115,650 | 2,126,332 | 0.7% | 18.39 |
| NWS - Kansas City | Kansas City, MO | O | 2033 | 94,378 | 2,114,807 | 0.7% | 22.41 |
| JUD - Jackson | Jackson, TN | C/O | 2023 | 73,397 | 2,105,260 | 0.7% | 28.68 |
| DEA - Santa Ana | Santa Ana, CA | O | 2024 | 39,905 | 1,943,792 | 0.6% | 48.71 |
| DEA - North Highlands | Sacramento, CA | O | 2033 | 37,975 | 1,896,685 | 0.6% | 49.95 |
| NPS - Omaha | Omaha, NE | O | 2024 | 62,772 | 1,829,413 | 0.6% | 29.14 |
| ICE - Otay | San Diego, CA | O | 2022 / 2027 | 47,919 | 1,761,413 | 0.6% | 36.76 |
| VA - Golden | Golden, CO | O/W | 2026 | 56,753 | 1,741,257 | 0.6% | 30.68 |
| USCG - Martinsburg | Martinsburg, WV | O | 2027 | 59,547 | 1,651,037 | 0.5% | 27.73 |
| CBP - Sunburst (6) | Sunburst, MT | O | 2028 | 33,000 | 1,646,988 | 0.5% | 49.91 |
| JUD - Aberdeen | Aberdeen, MS | C/O | 2025 | 46,979 | 1,552,938 | 0.5% | 33.06 |
| VA - Charleston | North Charleston, SC | W | 2040 | 97,718 | 1,539,323 | 0.5% | 15.75 |
| GSA - Clarksburg | Clarksburg, WV | O | 2024 | 63,750 | 1,499,446 | 0.5% | 23.52 |
| DEA - Birmingham | Birmingham, AL | O | 2023 | 35,616 | 1,423,869 | 0.5% | 39.98 |
| DEA - Albany | Albany, NY | O | 2025 | 31,976 | 1,380,195 | 0.4% | 43.16 |
| USAO - Springfield | Springfield, IL | O | 2038 | 43,600 | 1,372,735 | 0.4% | 31.48 |

27

*Wholly Owned U.S. Government Leased Properties (Cont.)*

| Property Name Location Property Type (1) Tenant Lease Expiration Year (2) | Leased Square Feet | Annualized Lease Income | Percentage of Total Annualized Lease Income | Annualized Lease Income per Leased Square Foot |
| --- | ---: | ---: | ---: | ---: |
| DEA - Riverside Riverside, CA O 2032 | 34,354 | 1,280,417 | 0.4% | 37.27 |
| JUD - Council Bluffs Council Bluffs, IA C/O 2041 | 28,900 | 1,272,798 | 0.4% | 44.04 |
| SSA - Dallas Dallas, TX O 2035 | 27,200 | 1,058,859 | 0.3% | 38.93 |
| HRSA - Baton Rouge (6) Baton Rouge, LA O 2040 | 27,569 | 965,676 | 0.3% | 35.03 |
| VA - Baton Rouge (6) Baton Rouge, LA OC 2024 | 30,000 | 823,488 | 0.3% | 27.45 |
| ICE - Pittsburgh (6)(8) Pittsburgh, PA O 2028 / 2032 | 25,369 | 803,239 | 0.3% | 31.66 |
| JUD - South Bend South Bend, IN C/O 2027 | 30,119 | 782,994 | 0.2% | 26.00 |
| ICE - Louisville Louisville, KY O 2036 | 17,420 | 647,615 | 0.2% | 37.18 |
| DEA - San Diego San Diego, CA W 2032 | 16,100 | 552,336 | 0.2% | 34.31 |
| SSA - San Diego San Diego, CA O 2032 | 10,059 | 433,434 | 0.1% | 43.09 |
| DEA - Bakersfield Bakersfield, CA O 2038 | 9,800 | 402,401 | 0.1% | 41.06 |
| Subtotal | 8,347,728 | $285,544,707 | 90.7% | $34.21 |
| **Wholly Owned Privately Leased Property** |  |  |  |  |
| 501 East Hunter Street - Lummus Corporation Lubbock, TX W/D 2028 | 70,078 | 410,344 | 0.1% | 5.86 |
| Subtotal | 70,078 | $410,344 | 0.1% | $5.86 |
| **Wholly Owned Properties Total / Weighted Average** | 8,417,806 | $285,955,051 | 90.8% | $33.97 |
|  |  | $— |  |  |
| **Unconsolidated Real Estate Venture U.S. Government Leased Properties** |  |  |  |  |
| VA - San Antonio (9) San Antonio, TX OC 2041 | 226,148 | $9,802,802 | 3.1% | $43.35 |
| VA - Chattanooga (9) Chattanooga, TN OC 2035 | 94,566 | 4,154,710 | 1.3% | 43.93 |
| VA - Lubbock (9) (10) Lubbock, TX OC 2040 | 120,916 | 3,961,655 | 1.3% | 32.76 |
| VA - Marietta (9) Marietta, GA OC 2041 | 76,882 | 3,795,065 | 1.2% | 49.36 |
| VA - Birmingham (9) Irondale, AL OC 2041 | 77,128 | 3,105,255 | 1.0% | 40.26 |
| VA - Columbus (9) Columbus, GA OC 2042 | 67,793 | 2,863,407 | 0.9% | 42.24 |
| VA - Lenexa (9) Lenexa, KS OC 2041 | 31,062 | 1,298,203 | 0.4% | 41.79 |
| Subtotal | 694,495 | $28,981,097 | 9.2% | $41.73 |
| **Total / Weighted Average** | 9,112,301 | $314,936,148 | 100.0% | $34.56 |
| **Total / Weighted Average at Easterly's Share** | 8,785,887 | $301,315,032 |  | $34.30 |

(1) OC=Outpatient Clinic; O=Office; C=Courthouse; L=Laboratory; W=Warehouse; D=Distribution.

(2) The year of lease expiration does not include renewal options.

(3) Private tenants occupy 174,908 leased square feet.

(4) Private tenants occupy 43,453 leased square feet.

(5) Private tenants occupy 14,274 leased square feet.

(6) Disposition Portfolio Property, see 2022 Activity – Dispositions above for additional information.

(7) A private tenant occupies 11,402 leased square feet.

(8) A private tenant occupies 3,854 leased square feet.

(9) We own 53.0% of the property through an unconsolidated joint venture.

(10) Asset is subject to a ground lease where we are the lessee.

Certain of our leases are currently in the “soft-term” period of the lease, meaning that the U.S. Government tenant agency has the right to terminate the lease prior to its stated lease end date. We believe that, from the U.S. Government’s perspective, leases with such provisions are helpful for budgetary purposes. While some of our leases are contractually subject to early termination, we do not believe that our tenant agencies are likely to terminate these leases early given the build-to-suit features at the properties subject to the leases, the weighted average age of these properties based on the date the property was built or renovated-to-suit, where applicable (approximately 18.0 years as of September 30, 2022), the mission-critical focus of the properties subject to the leases and the current level of operations at such properties.

The following table sets forth a schedule of lease expirations for leases in place (including for wholly owned properties and properties held by the JV) as of September 30, 2022:

| Year of Lease Expiration (1) | Number of Leases Expiring | Leased Square Footage Expiring | Percentage of Portfolio Leased Square Footage Expiring | Annualized Lease Income Expiring | Percentage of Total Annualized Lease Income Expiring | Annualized Lease Income per Leased Square Foot Expiring |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| 2022 | 2 | 41,683 | 0.5% | $1,543,184 | 0.5% | $37.02 |
| 2023 | 11 | 437,753 | 4.8% | 13,523,681 | 4.3% | 30.89 |
| 2024 | 11 | 740,595 | 8.1% | 23,731,586 | 7.5% | 32.04 |
| 2025 | 15 | 660,128 | 7.2% | 22,652,412 | 7.2% | 34.32 |
| 2026 | 5 | 294,245 | 3.2% | 9,477,011 | 3.0% | 32.21 |
| 2027 | 9 | 506,510 | 5.6% | 18,494,025 | 5.9% | 36.51 |
| 2028 | 11 | 805,055 | 8.8% | 18,191,041 | 5.8% | 22.60 |
| 2029 | 5 | 493,794 | 5.4% | 14,206,922 | 4.5% | 28.77 |
| 2030 | — | — | 0.0% | — | 0.0% | — |
| 2031 | 2 | 100,502 | 1.1% | 4,042,792 | 1.3% | 40.23 |
| Thereafter | 59 | 5,032,036 | 55.3% | 189,073,494 | 60.0% | 37.57 |
| Total / Weighted Average | 130 | 9,112,301 | 100.0% | $314,936,148 | 100.0% | $34.56 |

(1) The year of lease expirations is pursuant to current contract terms. Some tenants have the right to vacate their space during a specified period, or “soft term,” before the stated terms of their leases expire. As of September 30, 2022, 19 tenants occupying approximately 6.6% of our leased square feet and contributing approximately 6.8% of our annualized lease income have exercisable rights to terminate their lease before the stated term of their respective lease expires.

Information about our development property as of September 30, 2022 is set forth in the table below:

| Property Name | Location | Tenant | Property Type (1) | Lease Term | Estimated Leased Square Feet |
| --- | --- | --- | --- | --- | ---: |
| FDA - Atlanta | Atlanta, GA | Food and Drug Administration | L | 20-year | 162,000 |

(1) L=Laboratory.

### Results of Operations

### Comparison of Results of Operations for the three months ended September 30, 2022 and 2021

The financial information presented below summarizes our results of operations for the three months ended September 30, 2022 and 2021 (amounts in thousands).

| Revenues | For the three months ended September 30, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: |
| Rental income | $72,643 | $67,439 | $5,204 |
| Tenant reimbursements | 1,616 | 1,527 | 89 |
| Asset management income | 377 | — | 377 |
| Other income | 405 | 642 | (237) |
| Total revenues | 75,041 | 69,608 | 5,433 |
| Expenses |  |  |  |
| Property operating | 17,802 | 15,188 | 2,614 |
| Real estate taxes | 8,177 | 7,626 | 551 |
| Depreciation and amortization | 25,050 | 22,765 | 2,285 |
| Acquisition costs | 275 | 518 | (243) |
| Corporate general and administrative | 5,870 | 5,893 | (23) |
| Total expenses | 57,174 | 51,990 | 5,184 |
| Other income (expense) |  |  |  |
| Income from unconsolidated real estate venture | 830 | — | 830 |
| Interest expense, net | (12,408) | (9,353) | (3,055) |
| Gain on the sale of operating property | — | 777 | (777) |
| Impairment loss | (5,540) | — | (5,540) |
| Net income | $749 | $9,042 | $(8,293) |

### Revenues

Total revenues increased $5.4 million to $75.0 million for the three months ended September 30, 2022 compared to $69.6 million for the three months ended September 30, 2021.

The $5.2 million increase in Rental income is primarily attributable to an increase in revenues from the five operating properties acquired since September 30, 2021, as well as a full period of operations from the one operating property acquired during the three months ended September 30, 2021, offset by one property disposed of during the three months ended September 30, 2021.

The $0.1 million increase in Tenant reimbursements is primarily attributable to an increase in tenant project reimbursements.

The $0.4 million increase in Asset management income is attributable to the fee we earned for asset management of the JV.

The $0.2 million decrease in Other income is primarily attributable to a decrease in COVID-19 cleaning reimbursements.

### Expenses

Total expenses increased $5.2 million to $57.2 million for the three months ended September 30, 2022 compared to $52.0 million for the three months ended September 30, 2021.

The $2.6 million increase in Property operating expenses is primarily attributable to the five operating properties acquired since September 30, 2021, as well as a full period of operations from the one operating property acquired during the three months ended September 30, 2021, offset by one property disposed of during the three months ended September 30, 2021.

The $0.6 million increase in Real estate taxes is also primarily attributable to the five operating properties acquired since September 30, 2021, as well as a full period of operations from the one operating property acquired during the three months ended September 30, 2021, offset by one property disposed of during the three months ended September 30, 2021.

The $2.3 million increase in Depreciation and amortization is primarily related to depreciation attributable to the five operating properties acquired since September 30, 2021, as well as a full period of operations from the one operating property acquired during the three months ended September 30, 2021, offset by a decrease in fully amortized lease intangibles.

### Income from unconsolidated real estate venture

On October 13, 2021, we formed the JV, in which we own a 53.0% interest, to fund the Portfolio Acquisition. The increase in Income from unconsolidated real estate venture is attributable to our pro rata share of operations from properties acquired by the JV since the fourth quarter of 2021.

### Interest expense

The $3.1 million increase in Interest expense is primarily related to the issuance of our 2021 series of unsecured senior notes.

### Gain on the sale of operating property

Gain on the sale of operating property decreased by $0.8 million for the three months ended September 30, 2022. The gain on the sale of operating property for the three months ended September 30, 2021 was attributable to the sale of United Technologies – Midland in the third quarter of 2021.

### Impairment loss

During the quarter ended September 30, 2022, we recognized an impairment loss totaling approximately $5.5 million for our ICE – Otay property in order to reduce its carrying value to its estimated fair value, which declined due to changes in expected cash flows related to the existing tenant’s lease expiration in 2022. ICE – Otay is a 47,919 rentable square foot office building located in San Diego, California.

### Comparison of Results of Operations for the nine months ended September 30, 2022 and 2021

The financial information presented below summarizes our results of operations for the nine months ended September 30, 2022 and 2021.

| Revenues | For the nine months ended September 30, 2022 | 2021 | Change |
| --- | ---: | ---: | ---: |
| Rental income | $214,238 | $197,713 | $16,525 |
| Tenant reimbursements | 3,676 | 3,746 | (70) |
| Asset management income | 942 | — | 942 |
| Other income | 1,244 | 1,764 | (520) |
| Total revenues | 220,100 | 203,223 | 16,877 |
| Expenses |  |  |  |
| Property operating | 48,811 | 41,578 | 7,233 |
| Real estate taxes | 23,854 | 22,465 | 1,389 |
| Depreciation and amortization | 73,552 | 67,615 | 5,937 |
| Acquisition costs | 939 | 1,488 | (549) |
| Corporate general and administrative | 17,819 | 17,469 | 350 |
| Total expenses | 164,975 | 150,615 | 14,360 |
| Other income (expense) |  |  |  |
| Income from unconsolidated real estate venture | 2,286 | — | 2,286 |
| Interest expense, net | (34,729) | (27,739) | (6,990) |
| Gain on the sale of operating property | — | 1,307 | (1,307) |
| Impairment loss | (5,540) | — | (5,540) |
| Net income | $17,142 | $26,176 | $(9,034) |

### Revenues

Total revenues increased $16.9 million to $220.1 million for the nine months ended September 30, 2022 compared to $203.2 million for the nine months ended September 30, 2021.

The $16.5 million increase in Rental income is primarily attributable to an increase in revenues from the five operating properties acquired since September 30, 2021, as well as a full period of operations from the six operating properties acquired during the nine months ended September 30, 2021, offset by two properties disposed of during the nine months ended September 30, 2021.

The $0.1 million decrease in Tenant reimbursements is primarily attributable to a decrease in tenant project reimbursements.

The $0.9 million increase in Asset management income is attributable to the fee we earned for asset management of the JV.

The $0.5 million decrease in Other income is primarily attributable to a decrease in COVID-19 cleaning reimbursements.

### Expenses

Total expenses increased $14.4 million to $165.0 million for the nine months ended September 30, 2022 compared to $150.6 million for the nine months ended September 30, 2021.

The $7.2 million increase in Property operating expenses is primarily attributable to the five operating properties acquired since September 30, 2021, as well as a full period of operations from the six operating properties acquired during the nine months ended September 30, 2021, offset by two properties disposed of during the nine months ended September 30, 2021.

The $1.4 million increase in Real estate taxes is also primarily attributable to the five operating properties acquired since September 30, 2021, as well as a full period of operations from the six operating properties acquired during the nine months ended September 30, 2021, offset by two properties disposed of during the nine months ended September 30, 2021.

The $5.9 million increase in Depreciation and amortization is primarily related to depreciation attributable to the five operating properties acquired since September 30, 2021, as well as a full period of operations from the six operating properties acquired during the nine months ended September 30, 2021, offset by a decrease in fully amortized lease intangibles.

Additionally, Corporate general and administrative costs increased by $0.4 million, primarily due to an increase in employee costs.

### Income from unconsolidated real estate venture

On October 13, 2021, we formed the JV, in which we own a 53.0% interest, to fund the Portfolio Acquisition. The increase in Income from unconsolidated real estate venture is attributable to our pro rata share of operations from properties acquired by the JV since the fourth quarter of 2021.

### Interest expense

The $7.0 million increase in Interest expense is primarily related to the issuance of our 2021 series of unsecured senior notes.

### Gain on the sale of operating property

Gain on the sale of operating property decreased by $1.3 million for the nine months ended September 30, 2022. The gain on the sale of operating property for the nine months ended September 30, 2021, was attributable to the sale of SSA – Mission Viejo in the second quarter of 2021 and United Technologies – Midland in the third quarter of 2021.

### Impairment loss

During the quarter ended September 30, 2022, we recognized an impairment loss totaling approximately $5.5 million for our ICE – Otay property in order to reduce its carrying value to its estimated fair value, which declined due to changes in expected cash flows related to the existing tenant’s lease expiration in 2022. ICE – Otay is a 47,919 rentable square foot office building located in San Diego, California.

### Liquidity and Capital Resources

We anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses, including all scheduled principal and interest payments on our outstanding indebtedness, current and anticipated tenant improvements, planned and possible acquisitions of properties, including the remaining Portfolio Acquisition properties through the JV, stockholder distributions to maintain our qualification as a REIT, repurchases of common stock under our share repurchase program and other capital obligations associated with conducting our business. At September 30, 2022, we had $21.5 million available in cash and cash equivalents and there was $272.1 million available under our revolving credit facility.

#### Our primary expected sources of capital are as follows:

- cash and cash equivalents;
- operating cash flow;
- distribution of cash flows from the JV;
- available borrowings under our revolving credit facility;
- issuance of long-term debt;
- issuance of equity, including under our ATM Programs (as described below); and
- asset sales, including proceeds from the sale of the Disposition Portfolio Properties.

#### Our short-term liquidity requirements consist primarily of funds to pay for the following:

- development and redevelopment activities, including major redevelopment, renovation or expansion programs at individual properties;
- property acquisitions under contract, including our pro rata share of the remaining Portfolio Acquisition properties;
- tenant improvements, allowances and leasing costs;
- recurring maintenance and capital expenditures;
- debt repayment requirements;
- corporate and administrative costs;
- interest payments on our outstanding indebtedness;
- interest swap payments;
- distribution payments; and
- repurchases of common stock under our share repurchase program.

Our long-term liquidity needs, in addition to recurring short-term liquidity needs as discussed above, consist primarily of funds necessary to pay for acquisitions, non-recurring capital expenditures, and scheduled debt maturities. Although we may be able to anticipate and plan for certain of our liquidity needs, unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise, or our sources of liquidity may be fewer than, and the funds available from such sources may be less than, anticipated or required. As of the date of this filing, there were no known commitments or events that would have a material impact on our liquidity.

### Equity

#### Offering of Common Stock on a Forward Basis

On August 11, 2021, we and the operating partnership completed an underwritten public offering of 6,300,000 shares of common stock offered on a forward basis. In connection with the offering, we also entered into separate forward sale agreements with each of the forward purchasers (the “Forward Sales Agreements”), pursuant to which the forward purchasers borrowed and sold to the underwriters an aggregate of 6,300,000 shares of our common stock. On December 28, 2021, we issued 3,991,000 shares of our common stock for net proceeds of $85.0 million, which shares were issued in partial settlement of the Forward Sales Agreements entered into in connection with the underwritten public offering. No shares were issued during the three and nine months ended September 30, 2022. We expect to physically settle the remaining Forward Sales Agreements and receive proceeds, subject to certain adjustments, from the sale of those shares of common stock upon one or more such physical settlements. During the nine months ended September 30, 2022, we extended the date by which settlement of the Forward Sales Agreements will occur to August 14, 2023. Although we expect to settle the Forward Sales Agreements entirely by the physical delivery of shares of our common stock for cash proceeds, we may also elect to cash or net-share settle all or a portion of our obligations under the Forward Sales Agreements, in which case, we may receive, or may owe, cash or shares of our common stock from or to the forward purchasers. The Forward Sales Agreements provide for an initial forward price of $21.64 per share, subject to certain adjustments pursuant to the terms of each of the Forward Sales Agreements. The Forward Sales Agreements are subject to early termination or settlement under certain circumstances.

#### ATM Programs

We entered into separate equity distribution agreements on each of December 20, 2019 (the “2019 ATM Program”) and June 22, 2021 (the “2021 ATM Program” and, together with the 2019 ATM Program, the “ATM Programs”) with various financial institutions pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $300.0 million under each ATM Program from time to time in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act. Under each of the ATM Programs, we may enter into one or more forward transactions (each, a “forward sale transaction”) under separate master forward sale confirmations and related supplemental confirmations with each of the various financial institutions party to the respective ATM Program for the sale of shares of our common stock on a forward basis.

The following table sets forth certain information with respect to issuances under the 2019 ATM Program during the nine months ended September 30, 2022 (amounts in thousands, except share amounts):

| For the three months ended | 2019 ATM Program Number of Shares Issued(1) | Net Proceeds(1) |
| --- | ---: | ---: |
| March 31, 2022 | 434,925 | $9,409 |
| June 30, 2022 | — | — |
| September 30, 2022 | — | — |
| Total | 434,925 | $9,409 |

(1) Shares issued by us, which were all issued in settlement of forward sales transactions. Additionally, as of September 30, 2022, we had entered into forward sales transactions under the 2019 ATM Program for the sale of an additional 1,950,000 shares of our common stock that have not yet been settled. Subject to our right to elect net share settlement, we expect to physically settle the forward sales transactions by the maturity dates set forth in each applicable forward sale transaction placement notice, which dates range from December 2022 to August 2023. Assuming the forward sales transactions are physically settled in full utilizing a net weighted average initial forward sales price of $21.82 per share, we expect to receive net proceeds of approximately $42.6 million, after deducting offering costs, subject to adjustments in accordance with the applicable forward sale transaction. We accounted for the forward sale transactions as equity.

No sales of shares of our common stock were made under the 2021 ATM Program during the nine months ended September 30, 2022.

We used the net proceeds received from such sales for general corporate purposes. As of September 30, 2022, we had approximately $300.0 million of gross sales of our common stock available under the 2021 ATM Program and $87.4 million of gross sales of our common stock available under the 2019 ATM Program.

#### Share Repurchase Program

On April 28, 2022, our Board of Directors authorized a share repurchase program whereby we may repurchase up to 4,538,994 shares of our common stock, or approximately 5% of our outstanding shares as of the authorization date. We are not required to purchase shares under the share repurchase program, but may choose to do so in the open market or through privately negotiated transactions at times and amounts based on its evaluation of market conditions and other factors.

No repurchases of shares of our common stock were made under the share repurchase program during the nine months ended September 30, 2022.

#### Contribution of Property for Common Units

On May 10, 2022, we acquired NARA – Broomfield for which we issued, as partial consideration, 827,791 common units. The issuance of common units was effected in reliance upon an exemption from registration provided by Section 4(a)(2) under the Securities Act.

### Debt

The following table sets forth certain information with respect to our outstanding indebtedness as of September 30, 2022 (amounts in thousands):

| Loan Revolving credit facility: | Principal Outstanding September 30, 2022 | Interest Rate (1) | Current Maturity |
| --- | ---: | --- | --- |
| Revolving credit facility (2) | $177,750 | L + 135 bps | July 2025 (3) |
| **Total revolving credit facility** | **177,750** |  |  |
| **Term loan facilities:** |  |  |  |
| 2016 term loan facility | 100,000 | 2.77% (5) | March 2024 |
| 2018 term loan facility (4) | 150,000 | 4.01% (6) | July 2026 |
| Total term loan facilities | 250,000 |  |  |
| Less: Total unamortized deferred financing fees | (1,121) |  |  |
| **Total term loan facilities, net** | **248,879** |  |  |
| **Notes payable:** |  |  |  |
| 2017 series A senior notes | 95,000 | 4.05% | May 2027 |
| 2017 series B senior notes | 50,000 | 4.15% | May 2029 |
| 2017 series C senior notes | 30,000 | 4.30% | May 2032 |
| 2019 series A senior notes | 85,000 | 3.73% | September 2029 |
| 2019 series B senior notes | 100,000 | 3.83% | September 2031 |
| 2019 series C senior notes | 90,000 | 3.98% | September 2034 |
| 2021 series A senior notes | 50,000 | 2.62% | October 2028 |
| 2021 series B senior notes | 200,000 | 2.89% | October 2030 |
| Total notes payable | 700,000 |  |  |
| Less: Total unamortized deferred financing fees | (4,065) |  |  |
| **Total notes payable, net** | **695,935** |  |  |
| **Mortgage notes payable:** |  |  |  |
| DEA – Pleasanton | 15,700 | L + 150bps (7) | October 2023 |
| VA – Golden | 8,692 | 5.00% (7) | April 2024 |
| MEPCOM – Jacksonville (8) | 5,858 | 4.41% (7) | October 2025 |
| USFS II – Albuquerque | 13,879 | 4.46% (7) | July 2026 |
| ICE – Charleston | 13,792 | 4.21% (7) | January 2027 |
| VA – Loma Linda | 127,500 | 3.59% (7) | July 2027 |
| CBP – Savannah | 10,595 | 3.40% (7) | July 2033 |
| USCIS – Kansas City | 51,500 | 3.68% (7) | August 2024 |
| Total mortgage notes payable | **247,516** |  |  |
| Less: Total unamortized deferred financing fees | (1,519) |  |  |
| Less: Total unamortized premium/discount | 1,972 |  |  |
| **Total mortgage notes payable, net** | **247,969** |  |  |
| **Total debt** | **$1,370,533** |  |  |

(1) At September 30, 2022, the one-month LIBOR (“L”) was 3.14%. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums. The spread over the applicable rate for each of our $450.0 million senior unsecured revolving credit facility (our “revolving credit facility”), our $200.0 million senior unsecured term loan facility (as amended, our “2018 term loan facility”) and our $100.0 million senior unsecured term loan facility (our “2016 term loan facility”) is based on our consolidated leverage ratio, as defined in the respective loan agreements.

(2) Our revolving credit facility had available capacity of $272.1 million at September 30, 2022 with an accordion feature that permits us to request additional lender commitments for up to $250.0 million of additional capacity, subject to the satisfaction of customary terms and conditions.

(3) Our revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee.

(4) Our 2018 term loan facility has undrawn capacity up to $50.0 million of which is available during a delayed draw period.

(5) Entered into two interest rate swaps with an effective date of March 29, 2017 with an aggregate notional value of $100.0 million to effectively fix the interest rate at 2.77% annually, based on our consolidated leverage ratio, as defined in our 2016 term loan facility agreement.

(6) Entered into four interest rate swaps with an effective date of December 13, 2018 with an aggregate notional value of $150.0 million to effectively fix the interest rate at 4.01% annually, based on our consolidated leverage ratio, as defined in our 2018 term loan facility agreement.

(7) Effective interest rates are as follows: DEA – Pleasanton 1.80%, VA – Golden 5.03%, MEPCOM – Jacksonville 3.89%, USFS II Albuquerque 3.92%, ICE – Charleston 3.93%, VA – Loma Linda 3.78%, CBP – Savannah 4.12%, USCIS – Kansas City 2.05%.

(8) On October 27, 2022, we extinguished the mortgage note obligation on MEPCOM - Jacksonville in conjunction with the sale of the property.

Our revolving credit facility, term loan facilities, notes payable, and mortgage notes payable are subject to ongoing compliance with a number of financial and other covenants. As of September 30, 2022, we were in compliance with all applicable financial covenants.

On July 22, 2022, we entered into the first amendment to our second amended and restated senior credit agreement (the “first amendment”). The first amendment extended the deadline for the $50.0 million delayed draw portion of the 2018 term loan facility to July 24, 2023 (from July 22, 2022).

The chart below details our debt capital structure as of September 30, 2022 (dollar amounts in thousands):

| Debt Capital Structure | September 30, 2022 |
| --- | ---: |
| Total principal outstanding | $1,375,266 |
| Weighted average maturity | 5.6 years |
| Weighted average interest rate | 3.7% |
| % Variable debt | 14.1% |
| % Fixed debt (1) | 85.9% |
| % Secured debt | 18.1% |

(1) Our 2016 term loan facility and 2018 term loan facility are swapped to be fixed and as such are included as fixed rate debt in the table above.

### Material Cash Commitments

During the nine months ended September 30, 2022, there were no material changes to the cash commitment information presented in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2021.

### Unconsolidated Real Estate Venture

We consolidate entities in which we have a controlling interest or are the primary beneficiary in a variable interest entity. From time to time, we may have off-balance sheet unconsolidated real estate ventures and other unconsolidated arrangements with varying structures.

As of September 30, 2022, we have invested $199.3 million in the JV and committed capital totaling $202.4 million to the JV. We have a remaining capital commitment of $136.5 million to the JV. None of the properties owned by the JV are encumbered by mortgage indebtedness.

For a more complete description of the JV, see Note 4 to the Consolidated Financial Statements.

### Portfolio Disposition

On October 27, 2022, we completed the sale of nine of the ten Disposition Portfolio Properties. Concurrent with closing, proceeds from the sale were used to extinguish the mortgage debt at MEPCOM – Jacksonville. We intend to further use proceeds to pay down amounts outstanding under our revolving credit facility.

We expect to close on the final Disposition Portfolio Property prior to December 31, 2022, subject to the satisfaction of customary closing conditions.

For a more complete description of the Disposition Portfolio Properties, see the 2022 Activity – Dispositions above.

### Dividend Policy

In order to qualify as a REIT, we are required to distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We anticipate distributing all of our taxable income. We expect to make quarterly distributions to our stockholders in a manner intended to satisfy this requirement. Prior to making any distributions for U.S. federal tax purposes or otherwise, we must first satisfy our operating and debt service obligations. It is possible that it would be necessary to utilize cash reserves, liquidate assets at unfavorable prices or incur additional indebtedness in order to make required distributions. It is also possible that our board of directors could decide to make required distributions in part by using shares of our common stock.

A summary of dividends declared by the board of directors per share of common stock and per common unit at the date of record is as follows:

| Quarter | Declaration Date | Record Date | Payment Date | Dividend (1) |
| --- | --- | --- | --- | ---: |
| Q1 2022 | April 27, 2022 | May 13, 2022 | May 25, 2022 | $0.265 |
| Q2 2022 | July 27, 2022 | August 11, 2022 | August 23, 2022 | $0.265 |
| Q3 2022 | October 26, 2022 | November 11, 2022 | November 23, 2022 | $0.265 |

(1) Prior to the end of the performance period as set forth in the applicable LTIP unit award, holders of performance-based LTIP units are entitled to receive dividends per LTIP unit equal to 10% of the dividend paid per common unit. After the end of the performance period, the number of LTIP units, both vested and unvested, that LTIP award recipients have earned, if any, are entitled to receive dividends in an amount per LTIP unit equal to dividends, both regular and special, payable per common unit. Holders of LTIP units that are not subject to the attainment of performance goals are entitled to receive dividends per LTIP unit equal to 100% of the dividend paid per common unit beginning on the grant date.

### Inflation

Substantially all of our leases provide for operating expense escalations. We believe inflationary increases in expenses may be at least partially offset by the operating expenses that are passed through to our tenants and by contractual rent increases. We do not believe inflation has had a material impact on our historical financial position or results of operations.

### Cash Flows

The following table sets forth a summary of cash flows for the nine months ended September 30, 2022 and 2021 (amounts in thousands):

| Net cash (used in) provided by: | For the nine months ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Operating activities | $103,783 | $94,459 |
| Investing activities | (189,313) | (127,452) |
| Financing activities | 86,881 | 42,072 |

### Operating Activities

We generated $103.8 million and $94.5 million of cash from operating activities during the nine months ended September 30, 2022 and 2021, respectively. Net cash provided by operating activities for the nine months ended September 30, 2022 includes $94.0 million in net cash from rental activities net of expenses, $5.4 million related to distributions from investment in unconsolidated real estate venture and $4.3 million related to the change in tenant accounts receivable, prepaid expenses and other assets, deferred revenue associated with operating leases, principal payments on operating lease obligations, and accounts payable, accrued expenses and other liabilities. Net cash provided by operating activities for the nine months ended September 30, 2021 includes $85.9 million in net cash from rental activities net of expenses and $8.6 million related to the change in tenant accounts receivable, prepaid expenses and other assets, deferred revenue associated with operating leases, and accounts payable, accrued expenses and other liabilities.

### Investing Activities

We used $189.3 million and $127.5 million in cash for investing activities during the nine months ended September 30, 2022 and 2021, respectively. Net cash used in investing activities for the nine months ended September 30, 2022 includes $93.7 million in real estate acquisitions and deposits, $71.3 million in investment in unconsolidated real estate venture, $16.1 million in additions to operating properties and $8.8 million in additions to development properties, offset by $0.6 million in distributions of capital from unconsolidated real estate venture. Net cash used in investing activities for the nine months ended September 30, 2021 includes $115.4 million in real estate acquisitions, $14.1 million in additions to operating properties and $5.3 million in additions to development properties, offset by $7.3 million in proceeds from the sale of SSA – Mission Viejo and United Technologies – Midland.

### Financing Activities

We generated $86.9 million and $42.1 million in cash from financing activities during the nine months ended September 30, 2022 and 2021, respectively. Net cash generated by financing activities for the nine months ended September 30, 2022 includes $200.8 million in draws under our revolving credit facility and $9.5 million in gross proceeds from issuances of shares of our common stock, offset by $81.8 million in dividend payments, $37.5 million in pay downs under our revolving credit facility, $3.9 million in mortgage notes payable repayment and $0.1 million in the payment of offering costs. Net cash generated by financing activities for the nine months ended September 30, 2021 includes $159.5 million in draws under our revolving credit facility and $90.9 million in gross proceeds from issuances of shares of our common stock, offset by $126.3 million in pay downs under our revolving credit facility, $74.1 million in dividend payments, $3.6 million in payment of deferred financing fees, $2.9 million in mortgage notes payable repayment and $1.5 million in the payment of offering costs.

### Non-GAAP Financial Measures

We use and present Funds From Operations (“FFO”), and FFO, as Adjusted as supplemental measures of our performance. The summary below describes our use of FFO and FFO, as Adjusted, provides information regarding why we believe these measures are meaningful supplemental measures of our performance and reconciles these measures from net income, presented in accordance with GAAP.

### Funds From Operations and Funds From Operations, as Adjusted

FFO is a supplemental measure of our performance. We present FFO calculated in accordance with the current National Association of Real Estate Investment Trusts, or Nareit, definition set forth in the Nareit FFO White Paper – Restatement 2018. FFO includes the REIT’s share of FFO generated by unconsolidated affiliates. In addition, we present FFO, as Adjusted for certain other adjustments that we believe enhance the comparability of our FFO across periods and to the FFO reported by other publicly traded REITs. FFO is a supplemental performance measure that is commonly used in the real estate industry to assist investors and analysts in comparing results of REITs.

FFO is defined by Nareit as net income (calculated in accordance with GAAP), excluding:

- Depreciation and amortization related to real estate.
- Gains and losses from the sale of certain real estate assets.
- Gains and losses from change in control.
- Impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

We present FFO because we consider it an important supplemental measure of our operating performance, and we believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting results.

We adjust FFO to present FFO, as Adjusted as an alternative measure of our operating performance, which, when applicable, excludes the impact of acquisition costs, straight-line rent, amortization of above-/below-market leases, amortization of deferred revenue (which results from landlord assets funded by tenants), non-cash interest expense, non-cash compensation, depreciation of non-real estate assets and other non-cash items and the unconsolidated real estate venture’s allocated share of these adjustments. By excluding these income and expense items from FFO, as Adjusted, we believe we provide useful information as these items have no cash impact. In addition, by excluding acquisition related costs we believe FFO, as Adjusted provides useful information that is comparable across periods and more accurately reflects the operating performance of our properties.

FFO and FFO, as Adjusted are presented as supplemental financial measures and do not fully represent our operating performance. Other REITs may use different methodologies for calculating FFO and FFO, as Adjusted or use other definitions of FFO and FFO, as Adjusted and, accordingly, our presentation of these measures may not be comparable to other REITs. Neither FFO nor FFO, as Adjusted is intended to be a measure of cash flow or liquidity. Please refer to our financial statements, prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations and cash flows.

The following table sets forth a reconciliation of our net income to FFO and FFO, as Adjusted for the three and nine months ended September 30, 2022 and 2021 (amounts in thousands):

|  | For the three months ended September 30, 2022 | 2021 | For the nine months ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $749 | $9,042 | $17,142 | $26,176 |
| Depreciation of real estate assets | 24,802 | 22,741 | 72,810 | 67,561 |
| Gain on sale of operating property | — | (777) | — | (1,307) |
| Impairment loss | 5,540 | — | 5,540 | — |
| Unconsolidated real estate venture allocated share of above adjustments | 1,347 | — | 3,352 | — |
| FFO | 32,438 | 31,006 | 98,844 | 92,430 |
| Adjustments to FFO: |  |  |  |  |
| Acquisition costs | 275 | 518 | 939 | 1,488 |
| Straight-line rent and other non-cash adjustments | 1,090 | (1,580) | 559 | (4,317) |
| Amortization of above-/below-market leases | (769) | (1,058) | (2,373) | (3,569) |
| Amortization of deferred revenue | (1,472) | (1,398) | (4,313) | (4,217) |
| Non-cash interest expense | 235 | 380 | 695 | 1,107 |
| Non-cash compensation | 1,625 | 1,333 | 4,891 | 3,700 |
| Depreciation of non-real estate assets | 248 | 24 | 742 | 54 |
| Unconsolidated real estate venture allocated share of above adjustments | (374) | — | (1,051) | — |
| FFO, as Adjusted | $33,296 | $29,225 | $98,933 | $86,676 |

### Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base these estimates, judgments, and assumptions on historical experience, current trends, and various other factors that we believe to be reasonable under the circumstances. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, or different assumptions were made, it is possible that different accounting policies would have been applied, resulting in different financial results or a different presentation of our financial statements.

Our Annual Report on Form 10-K for the year ended December 31, 2021 contains a discussion of our significant accounting policies, which utilize relevant critical accounting estimates. During the nine months ended September 30, 2022, there were no material changes to the discussion of our significant accounting policies included in our Annual Report on Form 10-K for the year ended December 31, 2021.

## Market risk

As filed, 4,502 characters.

Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Our primary market risk results from our indebtedness, which bears interest at both fixed and variable rates. We manage and may continue to manage our market risk on variable rate debt by entering into swap arrangements to, in effect, fix the rate on all or a portion of the debt for varying periods up to maturity. This in turn, reduces the risks of variability of cash flows created by variable rate debt and mitigates the risk of increases in interest rates. Our objective when undertaking such arrangements is to reduce our floating rate exposure and we do not intend to enter into hedging arrangements for speculative purposes.

As of September 30, 2022, $1.2 billion, or 85.9% of our debt, excluding unamortized premiums and discounts, had fixed interest rates and $193.5 million, or 14.1% had variable interest rates. If market rates of interest on our variable rate debt fluctuate by 25 basis points, interest expense would increase or decrease, depending on rate movement, future earnings and cash flows, by $0.5 million annually.

In July 2017, the Financial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In March 2021, the ICE Benchmark Administration, the administrator of LIBOR, announced its intention to cease publication of certain LIBOR settings after 2021, while continuing to publish overnight and one-, three-, six-, and twelve-month U.S. dollar LIBOR rates through June 30, 2023. While this announcement extended the transition period to June 2023, the United States Federal Reserve Board and other regulatory bodies concurrently issued guidance encouraging banks and other financial market participants to cease entering into new contracts that use U.S. dollar LIBOR as a reference rate as soon as practicable and in any event no later than December 31, 2021. In the U.S., the Alternative Reference Rates Committee (“AARC”), which was convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended that the Secured Overnight Financing Rate (“SOFR”) plus a recommended spread adjustment as its preferred alternative to USD-LIBOR. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities.

We expect that all LIBOR settings relevant to us will cease to be published or will no longer be representative after June 30, 2023. As a result, any of our LIBOR-based borrowings that extend beyond such date will need to be converted to a replacement rate. Certain risks may arise in connection with transitioning contracts to SOFR or any other alternative variable rate, including any resulting value transfer that may occur. The value of loans, securities, or derivative instruments tied to LIBOR could also be impacted. Our senior unsecured revolving credit facility and term loan facilities provide for replacement of LIBOR if it becomes unavailable during the term of the facilities. However, for instruments into which we may enter in the future, the method of transitioning to an alternative rate may be challenging, as they may require substantial negotiation with each respective counterparty. If a contract is not transitioned to an alternative variable rate and LIBOR is discontinued, the impact is likely to vary by contract.

The discontinuation of LIBOR will not affect our ability to borrow or maintain already outstanding borrowings or swaps, but if our contracts indexed to LIBOR, including certain contracts governing our variable rate debt and our interest rate swaps, are converted to SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available. Additionally, although SOFR is the AARC’s recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in ways that would result in higher interest costs for us. It is not yet possible to predict the magnitude of LIBOR’s end on our borrowing costs given the remaining uncertainty about which rates will replace LIBOR.

## Controls and procedures

As filed, 1,407 characters.

#### Evaluation of Disclosure Controls and Procedures

We carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a -15(e) and Rule 15d-15 of the Exchange Act, as of September 30, 2022. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

#### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 2,139 characters.

Except to the extent updated below or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations”), there were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021.

***We cannot guarantee that we will repurchase our common stock pursuant to our share repurchase program or that our share repurchase program will enhance long-term stockholder value. Share repurchases could also increase the volatility of the price of our common stock and could diminish our cash reserves.***

The timing and amount of repurchases of shares of our common stock, if any, will depend upon several factors, including market and business conditions, the trading price of our common stock, our cost of capital and the nature of other investment opportunities. Our share repurchase program may be limited, suspended or discontinued at any time without prior notice. In addition, repurchases of our common stock pursuant to our share repurchase program could affect our stock price and increase its volatility. The existence of our share repurchase program could cause our stock price to be higher than it would be in the absence of such a program and could potentially reduce the market liquidity for our stock. Additionally, our share repurchase program could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. There can be no assurance that any share repurchases will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased shares of stock. Although our share repurchase program is intended to enhance long-term stockholder value, there is no assurance that it will do so and short-term stock price fluctuations could reduce the program’s effectiveness.

Filed Nov 1, 2022.
Source: SEC EDGAR, the filing index for accession 0000950170-22-020827. Last ingested by Listed: Oct 26, 2026, 16:31 ET. No prices; not investment advice.