Easterly Government Properties, Inc.: Form 10-Q for the period ended Jun 30, 2025

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, 2024 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;
• the loss of key personnel;
• 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 derivatives or hedging activity;
• 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; and
• adverse impacts from any future pandemic, epidemic or outbreak of any highly infectious disease on the U.S., regional and global economies and our financial condition and results of operations.

For a further discussion of these and other factors that could affect us and the statements contained herein, see the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, 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 accounting principles generally accepted in the United States of America (“GAAP”).

We are an internally managed real estate investment trust (“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 approximately 90% 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 primarily 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. We continue to pursue opportunities to add properties to our portfolio, including acquiring properties leased to state and local governments with strong creditworthiness and other opportunities that directly or indirectly support the mission of select government agencies. As of June 30, 2025, we wholly owned 92 operating properties and ten operating properties through an unconsolidated joint venture (the “JV”) in the United States, encompassing approximately 10.1 million leased square feet (9.5 million pro rata), including 93 operating properties that were leased primarily to U.S. Government tenant agencies, five operating properties leased to tenant agencies of a U.S. state or local government and three operating properties that were entirely leased to private tenants. As of June 30, 2025, our operating properties were 97% 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 three properties under development that we expect will encompass approximately 0.3 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 96.2% of the aggregate limited partnership interests in the Operating Partnership, which we refer to herein as common units, as of June 30, 2025. We have elected to be taxed as a REIT and 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.

Reverse Stock Split and Reduction in Authorized Shares

On April 28, 2025, we effected a 1-for-2.5 reverse stock split of our issued and outstanding common stock, which reverse stock split was previously approved by our Board of Directors (the “Reverse Stock Split”). As a result, every 2.5 shares of issued and outstanding common stock were consolidated into 1 share. Concurrently with the Reverse Stock Split, the Operating Partnership completed a corresponding 1-for-2.5 reverse unit split of outstanding common units and LTIP units (the “Reverse Unit Split”). All share and per share amounts, including earnings per share, in these financial statements have been retrospectively adjusted for all periods presented to reflect the Reverse Stock Split. Accordingly, the Reverse Stock Split reduced the number of shares outstanding on April 28, 2025 from 112,263,028 to 44,905,158. On May 8, 2025, we reduced the number of our authorized shares of common stock from 200,000,000 to 80,000,000, in proportion with the 1-for-2.5 Reverse Stock Split effected by us on April 28, 2025. The par value of the common stock remained unchanged at $0.01 per share following both the Reverse Stock Split and the reduction in authorized shares. For additional information, see Note 9, Note 10 and Note 11 to the Consolidated Financial Statements.

2025 Activity

Acquisitions

On April 3, 2025, we acquired a 289,873 square foot facility leased primarily to the District of Columbia Government with a lease through February 2038.

On May 7, 2025, we acquired a 74,549 leased square foot Department of Homeland Security (“DHS”) facility near Burlington, Vermont with a 10-year lease that does not expire until May 2031.

Development

On May 19, 2025, we acquired 100% of the membership interests in an entity that has the sole rights to a development project in Fort Myers, Florida for $1.8 million. On July 2, 2025, we acquired land to develop an approximately 64,000 square foot laboratory in Fort Myers, Florida for $5.8 million. The laboratory will be primarily leased to the Florida Department of Law Enforcement over a 25-year non-cancelable term.

On June 11, 2025, we acquired land to develop a 40,035 square foot Federal District and Federal Magistrate Courthouse in Medford, Oregon for $1.9 million. The courthouse will be primarily leased to the GSA for beneficial use of the Judiciary of the U.S. Government (“JUD”) over a 20-year non-cancelable term.

Operating Properties

As of June 30, 2025, our operating properties were 97% leased with a weighted average annualized lease income per leased square foot of $36.50 ($36.20 pro rata) and a weighted average age of approximately 16.3 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 June 30, 2025, and it includes properties held by the JV:

26

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

27

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

(1) OC=Outpatient Clinic; SF=Specialized Facility; O=Office; C=Courthouse; L=Laboratory; W=Warehouse.

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

(3) Private tenants occupy 109,234 leased square feet.

(4) Private tenants occupy 36,610 leased square feet.

(5) A state government tenant occupies 14,274 leased square feet.

(6) Private tenants occupy 54,677 leased square feet.

(7) A private tenant occupies 17,373 leased square feet.

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

(9) Private tenants occupy 20,299 leased square feet.

(10) A private tenant occupies 37,858 leased square feet.

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

(12) Asset is subject to a ground lease where the unconsolidated joint venture is 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 19.9 years as of June 30, 2025), 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 June 30, 2025:

(1) The year of lease expiration 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 June 30, 2025, nine tenants occupying approximately 5.3% of our leased square feet and contributing approximately 4.7% of our annualized lease income are currently operating under lease provisions that allow them to exercise their right to terminate their lease before the stated term of their respective lease expires.

Information about our development properties as of June 30, 2025 is set forth in the table below:

(1) L=Laboratory

(2) C=Courthouse

Results of Operations

Comparison of Results of Operations for the three months ended June 30, 2025 and 2024

The financial information presented below summarizes our results of operations for the three months ended June 30, 2025 and 2024 (amounts in thousands).

Revenues

Total revenues increased $8.0 million to $84.2 million for the three months ended June 30, 2025 compared to $76.2 million for the three months ended June 30, 2024.

The $8.2 million increase in Rental income is primarily attributable to the eight operating properties acquired since June 30, 2024 and a full period of operations from the three operating properties acquired during the quarter ended June 30, 2024.

The $0.9 million decrease in tenant reimbursements is primarily attributable to a decrease in tenant project reimbursement.

The $0.1 million increase in Asset management income is primarily attributable to the fee earned by us for asset management of the JV from the one property acquired since June 30, 2024.

The $0.7 million increase in Other income is primarily attributable to an increase in interest income.

Expenses

Total expenses increased $5.3 million to $62.9 million for the three months ended June 30, 2025 compared to $57.6 million for the three months ended June 30, 2024.

The $1.1 million increase in Property operating expenses is primarily attributable to the eight operating properties acquired since June 30, 2024 and a full period of operations from the three operating properties acquired during the quarter ended June 30, 2024.

The $0.6 million increase in Real estate taxes is primarily attributable to the eight operating properties acquired since June 30, 2024 and a full period of operations from the three operating properties acquired during the quarter ended June 30, 2024.

The $4.4 million increase in Depreciation and amortization is primarily attributable to the eight operating properties acquired since June 30, 2024 and a full period of operations from the three operating properties acquired during the quarter ended June 30, 2024.

The $0.1 million decrease in Corporate general and administrative is primarily due to a decrease in employee costs and non-cash compensation.

The $0.8 million decrease in provision for (recovery of) credit losses is primarily due to a downward adjustment to our credit loss allowance for a $15.0 million paydown of Real estate loan receivable and change in market conditions.

Income from unconsolidated real estate venture

The $0.5 million increase in Income from unconsolidated real estate venture is primarily attributable to the one operating property acquired by the JV since June 30, 2024.

Interest expense, net

The $3.8 million increase in Interest expense, net is primarily attributable to the fixed rate senior unsecured notes issued since June 30, 2024.

Comparison of Results of Operations for the six months ended June 30, 2025 and 2024

The financial information presented below summarizes our results of operations for the six months ended June 30, 2025 and 2024 (amounts in thousands).

Revenues

Total revenues increased $13.9 million to $162.9 million for the six months ended June 30, 2025 compared to $149.0 million for the six months ended June 30, 2024.

The $13.0 million increase in Rental income is primarily attributable to the eight operating properties acquired since June 30, 2024 and a full period of operations from the three operating properties acquired during the six months ended June 30, 2024.

The $0.9 million decrease in tenant reimbursements is primarily attributable to a decrease in tenant project reimbursement.

The $0.1 million increase in Asset management income is primarily attributable to the fee earned by us for asset management of the JV from the one property acquired since June 30, 2024.

The $1.7 million increase in Other income is primarily attributable to an increase in interest income.

Expenses

Total expenses increased $8.6 million to $121.7 million for the six months ended June 30, 2025 compared to $113.1 million for the six months ended June 30, 2024.

The $2.3 million increase in Property operating expenses is primarily attributable to the eight operating properties acquired since June 30, 2024 and a full period of operations from the three operating properties acquired during the six months ended June 30, 2024.

The $0.4 million increase in Real estate taxes is primarily attributable to the eight operating properties acquired since June 30, 2024 and a full period of operations from the three operating properties acquired during the six months ended June 30, 2024.

The $7.4 million increase in Depreciation and amortization is primarily attributable to the eight operating properties acquired since June 30, 2024 and a full period of operations from the three operating properties acquired during the six months ended June 30, 2024.

The $0.3 million decrease in Corporate general and administrative is primarily due to a decrease in employee costs and non-cash compensation.

The $1.0 million decrease in Provision for (recovery of) credit losses is primarily due to a downward adjustment to our credit loss allowance for a $15.0 million paydown of Real estate loan receivable and change in market conditions.

Income from unconsolidated real estate venture

The $0.9 million increase in Income from unconsolidated real estate venture is primarily attributable to the one operating property acquired by the JV since June 30, 2024.

Interest expense, net

The $8.3 million increase in Interest expense, net is primarily attributable to the fixed rate senior unsecured notes issued since June 30, 2024.

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, development activities at FDA – Atlanta, JUD – Flagstaff and JUD – Medford, planned and possible acquisitions of properties, stockholder distributions to maintain our qualification as a REIT, potential repurchases of common stock under our share repurchase program and other capital obligations associated with conducting our business. At June 30, 2025, we had approximately $4.7 million available in cash and cash equivalents, $9.4 million of restricted cash and there was approximately $122.3 million available under our 2024 revolving credit facility.

Our primary expected sources of capital are as follows:

• existing cash balances;
• operating cash flow;
• distribution of cash flows from the JV;
• available borrowings under our 2024 revolving credit facility;
• issuance of long-term debt;
• issuance of equity, including under our 2021 ATM Program (as described below); and
• asset sales.

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 FDA - Atlanta, JUD - Flagstaff and JUD - Medford and other individual properties;
• property acquisitions;
• tenant improvements, allowances and leasing costs;
• recurring maintenance and capital expenditures;
• debt repayment requirements;
• commitments to fund advancements through loan receivables;
• corporate and administrative costs;
• interest payments on our outstanding indebtedness;
• interest swap payments;
• distribution payments; and
• potential 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

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 2021 ATM Program during the six months ended June 30, 2025 (amounts in thousands, except share amounts):

(1) Share amounts have been retrospectively adjusted for all periods presented to reflect the Reverse Stock Split. Shares issued by us, which were all issued in settlement of forward sale transactions. As of June 30, 2025, we had settled all of our outstanding forward sale transactions under the 2021 ATM Program. We accounted for the forward sale transactions as equity.

As of June 30, 2025, we had approximately $253.1 million of gross sales of our common stock available under the 2021 ATM Program. The 2019 ATM Program was terminated on April 30, 2025 and there were no issuances under the 2019 ATM Program during the three or six months ended June 30, 2025.

Share Repurchase Program

On April 28, 2022, our Board of Directors authorized a share repurchase program whereby we may repurchase up to 1,815,597 shares of our common stock (adjusted for the Reverse Stock Split), or approximately 5% of our outstanding shares as of the original 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 our evaluation of market conditions and other factors.

No repurchases of shares of our common stock were made under the share repurchase program during the six months ended June 30, 2025.

Debt

Indebtedness Outstanding

The following table sets forth certain information with respect to our outstanding indebtedness as of June 30, 2025 (amounts in thousands):

(1) Effective interest rates are as follows: 2016 term loan facility 5.59%, 2018 term loan facility 5.30%, 2017 series A senior notes 4.15%, 2017 series B senior notes 4.23%, 2017 series C senior notes 4.37%, 2019 series A senior notes 3.82%, 2019 series B senior notes 3.91%, 2019 series C senior notes 4.04%, 2021 series A senior notes 2.74%, 2021 series B senior notes 2.99%, 2024 series A senior notes 6.74%, 2024 series B senior notes 6.73%, 2025 series A senior notes 6.36%, 2025 series B senior notes 6.51%, USFS II – Albuquerque 3.92%, ICE – Charleston 3.93%, VA – Loma Linda 3.78%, CBP – Savannah 4.12%.

(2) Our $400.0 million senior unsecured revolving credit facility (the “2024 revolving credit facility”) had available capacity of $122.3 million at June 30, 2025, in addition to an accordion feature that provides us with additional capacity of up to $300.0 million, subject to syndication of the increase and the satisfaction of customary terms and conditions.

(3) Our 2024 revolving credit facility is subject to one interest rate swap with an effective date of March 24, 2025 and a notional value of $100.0 million, of which $25.5 million is associated with our 2024 revolving credit facility, to effectively fix the interest rate at 5.17% annually. The spread over the secured overnight financing rate (“SOFR”) is based on our consolidated leverage ratio, as defined in our 2024 revolving credit facility agreement. Additionally, at June 30, 2025, $252.1 million of amounts outstanding under our 2024 revolving credit facility had a floating rate of 4.29% under USD SOFR with a five day lookback. As of June 30, 2025, excludes $4.2 million of net deferred financing costs that were included in "Prepaid expenses and other assets" in our balance sheet and are amortized through the current maturity.

(4) Our 2024 revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee.

(5) Our 2016 term loan facility (as amended, our “2016 term loan facility”) is subject to three interest rate swap with an effective date of December 23, 2024 and a notional value of $100.0 million, which effectively fixes the interest rate at 5.31% annually. The spread over SOFR is based on our consolidated leverage ratio, as defined in our 2016 term loan facility agreement.

(6) Our 2016 term loan facility has two one-year as-of-right extension options subject to certain conditions and the payment of an extension fee.

(7) Our 2018 term loan facility (as amended, our “2018 term loan facility”) is subject to three interest rate swaps, of which two of the swaps have an effective date of June 30, 2025 and one has an effective date of March 24, 2025. The three swaps have an aggregate notional value of $200.0 million, of which $174.5 million is associated with our 2018 term loan facility, to effectively fix the interest rate at 5.09% annually. The spread over SOFR is based on our consolidated leverage ratio, as defined in our 2018 term loan facility agreement.

(8) We entered into two $50.0 million treasury lock agreements to fix the Treasury rate of our 2025 series B senior notes. For a more complete description of the treasury lock agreements, see Note 7 to the Consolidated Financial Statements.

2016 Term Loan Facility

On January 8, 2025, we entered into the ninth amendment to our senior unsecured term loan agreement, dated as of September 29, 2016, to extend the maturity date of our 2016 term loan facility from January 30, 2025 to January 28, 2028.

2025 Senior Note Agreement

On March 20, 2025, we entered into a master note purchase agreement pursuant to which the Operating Partnership agreed to issue and sell an aggregate of up to $125 million of fixed rate, senior unsecured notes (“Senior Notes”) consisting of (i) 6.13% 2025 Series A Senior Notes due March 20, 2030 (“2025 series A senior notes”), in an aggregate principal amount of $25.0 million, and (ii) 6.33% 2025 Series B Senior Notes due March 20, 2032 (“2025 series B senior notes”), in an aggregate principal amount of $100.0 million. The Senior Notes were issued on March 20, 2025. We, together with various subsidiaries of the Operating Partnership, have guaranteed the series A senior notes and the series B senior notes.

Our 2024 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 June 30, 2025, we were in compliance with all applicable financial covenants.

The chart below details our debt capital structure as of June 30, 2025 (dollar amounts in thousands):

(1) Our 2016 term loan facility, 2018 term loan facility and $25.5 million of our 2024 revolving credit facility are swapped to be fixed and as such are included as fixed rate debt in the table above.

Material Cash Commitments

On April 1, 2025, the Borrower of the Real estate loan receivable paid off approximately $15.0 million of the outstanding balance of the loan reducing our total commitment. As of the date of this filing the net funded amount of the outstanding loan receivable was $32.8 million and our remaining obligation to fund was $3.9 million. We expect to fund the remaining commitment through the anticipated maturity of the loan on August 31, 2027, dependent on the borrower's election to use the commitments. For a more complete description of the real estate loan receivable, see Note 5 to the Consolidated Financial Statements.

Other than as described above, during the six months ended June 30, 2025, 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, 2024.

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 June 30, 2025, we had invested $310.5 million in the JV. As of June 30, 2025, we had committed capital, net of return of over committed capital, to the JV totaling $332.9 million and had a remaining commitment of $8.5 million available. 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.

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 (as adjusted to reflect the Reverse Stock Split and Reverse Unit Split) at the date of record is as follows:

(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 six months ended June 30, 2025 and 2024 (amounts in thousands):

Operating Activities

We generated $62.3 million and $80.9 million of cash from operating activities during the six months ended June 30, 2025 and 2024, respectively. Net cash provided by operating activities for the six months ended June 30, 2025 includes $59.0 million in net cash from rental activities net of expenses and $9.7 million related to distributions from investment in unconsolidated real estate venture, offset by $6.4 million related to the change in tenant accounts receivable, prepaid expenses and other assets, real estate loan interest receivable, 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 six months ended June 30, 2024 includes $52.7 million in net cash from rental activities net of expenses, $21.0 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 and $7.3 million related to distributions from investment in unconsolidated real estate venture.

Investing Activities

We used $191.9 million and $126.3 million in cash for investing activities during the six months ended June 30, 2025 and 2024, respectively. Net cash used in investing activities for the six months ended June 30, 2025 includes $144.8 million in real estate acquisitions and deposits, $36.0 million in additions to development properties, $15.7 million in additions to operating properties, offset by $4.6 million in repayment of (investment in) real estate loan receivable, net. Net cash used in investing activities for the six months ended June 30, 2024 includes $58.2 million in real estate acquisitions and deposits, $43.0 million in additions to development properties, $19.6 million in additions to operating properties and $5.5 million in investment in real estate loan receivable, net.

Financing Activities

We generated $115.9 million and $50.7 million in cash from financing activities during the six months ended June 30, 2025 and 2024, respectively. Net cash generated in financing activities for the six months ended June 30, 2025 includes $125.0 million in note payable issuances, $46.6 million in gross proceeds from issuance of shares of our common stock and $3.0 million in net draws under our 2024 revolving credit facility, offset by $51.6 million in dividend payments, $2.5 million in deferred financing costs, $2.3 million in mortgage notes payable repayment, $1.9 million in treasury lock settlement and $0.5 million in the payment of offering costs. Net cash generated by financing activities for the six months ended June 30, 2024 includes $150.0 million in note payable issuances and $8.0 million in gross proceeds from issuance of our common stock, offset by $57.5 million in dividend payments, $25.0 million in term loan repayments, $10.6 million in mortgage notes payable repayment, $7.4 million in deferred financing costs, $6.5 million in net paydowns under our revolving credit facility and $0.3 million in the payment of offering costs.

Non-GAAP Financial Measures

We use and present Funds From Operations (“FFO”) and Core FFO as supplemental measures of our performance. The summary below describes our use of FFO and Core FFO and 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 Core Funds From Operations

FFO is a supplemental measure of our performance. We present FFO calculated in accordance with the current National Association of Real Estate Investment Trusts (“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 Core FFO 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 Core FFO as an alternative measure of our operating performance, which, when applicable, excludes items which we believe are not representative of ongoing operating results, such as liability management related costs (including losses on extinguishment of debt and modification costs), catastrophic event charges, depreciation of non-real estate assets, recovery of credit losses and the unconsolidated real estate venture's allocated share of these adjustments. In future periods, we may also exclude other items from Core FFO that we believe may help investors compare our results. We believe Core FFO more accurately reflects the ongoing operational and financial performance of our core business.

FFO and Core FFO are presented as supplemental financial measures and do not fully represent our operating performance. Other REITs may use different methodologies for calculating FFO and Core FFO or use other definitions of FFO and Core FFO and, accordingly, our presentation of these measures may not be comparable to other REITs. Neither FFO nor Core FFO 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 Core FFO for the three and six months ended June 30, 2025 and 2024 (amounts in thousands):

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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, 2024 contains a discussion of our significant accounting policies, which utilize relevant critical accounting estimates. During the six months ended June 30, 2025, 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, 2024.

Supplemental U.S. Federal Income Tax Considerations

The following discussion supplements and updates the disclosures under the heading “Certain United States Federal Income Tax Considerations” in the prospectus dated February 28, 2024, contained in our Registration Statement on Form S-3 (File No. 333-277434) filed with the SEC on February 28, 2024 (the “Existing Tax Disclosure”). Capitalized terms herein that are not otherwise defined shall have the same meaning as when used in the Existing Tax Disclosure.

On July 4, 2025, H.R. 1, informally known as the One Big Beautiful Bill Act (the “OBBB”), was enacted. The OBBB makes major changes to the Code, including some provisions of the Code that affect the taxation of REITs and their investors. In particular,

• For taxable years beginning on or after January 1, 2026, the OBBB relaxed the REIT asset test requirement with respect to taxable REIT subsidiaries, providing that not more than 25% (relaxed from 20%) of the gross value of a REIT's assets may be represented by securities of one or more taxable REIT subsidiaries.
• The OBBB permanently extended the pass-through qualified business income deduction, generally allowing individuals to deduct 20% of the aggregate amount of ordinary REIT dividends distributed by a REIT. This deduction was due to expire for tax years beginning after December 31, 2025.
• While itemized deductions for individuals for state and local income, property and sales taxes remain subject to limitations on deductibility, the OBBB temporarily increased the limitation on such deductions for taxable years beginning prior to 2030, subject to certain phase outs.

To the extent the information set forth in the Existing Tax Disclosure is inconsistent with this supplemental information, this supplemental information supersedes the information in the Existing Tax Disclosure. This supplemental information is provided on the same basis and subject to the same qualifications as are set forth in the first five paragraphs of the Existing Tax Disclosure as if those paragraphs were set forth in this Quarterly Report on Form 10-Q.

The OBBB contains complex revisions to the U.S. federal income tax laws. Holders of our Common Stock are urged to consult with their tax advisors with respect to the OBBB and its potential effect on the acquisition, ownership and disposition of our Common Stock.

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. For more information on our interest rate swaps, see Note 7 to the Consolidated Financial Statements.

As of June 30, 2025, $1.5 billion, or 85.4% of our debt, excluding unamortized premiums and discounts, had fixed interest rates and $252.1 million, or 14.6%, had variable interest rates based on SOFR. If market interest rates on our variable rate debt fluctuate by 25 basis points, our interest expense would increase or decrease, depending on rate movement, by $0.6 million annually.

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 June 30, 2025. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2025, 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 June 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except 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, 2024.