Greetings, and welcome to the Easterly Government Properties Second Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Lindsay Winterhalter, Vice President of Investor Relations. Thank you, Ms. Winterhalter. You may begin..

Good morning. Before the call begins, please note the use of forward-looking statements by the company on this conference call. Statements made on this call may include statements which are not historical facts and are considered forward-looking.

The company intends these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Act Reform of 1995, and is making this statement for the purpose of complying with the Safe Harbor provisions..

Thank you, Lindsay. Good morning, everyone, and thank you for joining us on this second quarter conference call. Today, in addition to Lindsay, I'm also joined by Bill Trimble, the company's CEO; and Meghan Baivier, the company's CFO and COO. Halfway through the year, we’re pleased with the direction of our results.

Our new acquisition effort is generating bullseye properties and long dated leases and facilities that are early in their useful life. Our re-leasing efforts are being executed in partnership with the government by our seasoned team.

Our balance sheet is very well positioned with long dated obligations and plenty of available capacity under our revolver for future growth. Our strategy of enhancing portfolio values for development continues to grow. With the recent win of our third FDA laboratory in Atlanta. We have a ribbon cutting at the Alameda lab next month.

We delivered the Lenexa lab at the end of 2020. And this new ward in Atlanta is targeted for delivery in 2021and 2022. In our space deploying capitals into development is the most accretive use of our capital. It is a privilege to win these projects and our team is executing admirably.

We continue to be well positioned over the medium term to acquire the few portfolios that match the quality of our existing portfolio. Today, our weighted average cost to capital enables us to grow accretively without needing to stretch our underwriting criteria and risk profile..

Thanks Darrell and good morning. Thank you for joining us for our second quarter earnings call. What a quarter it has been, I’m excited to share the company’s achievements in the second quarter of 2019 starting with the acquisition of the 400,000 square feet U.S. Joint Staff Command facility located in Suffolk, Virginia.

This facility is comprised of two modern Class-A buildings that are 100% leased to the GSA and occupied by the Department of Defense’s U.S. Joint Staff Command Division. The JSC is the division responsible for unified strategic direction of U.S. combat forces.

The government is heavily invested in this highly secure facility as was demonstrated in their recent lease renewal for 10 years with an additional 5-year option. This is just a wonderful facility, truly center of a bullseye acquisition and a meaningful addition to Easterly's growing portfolio.

This quarter also marked the acquisition of FBI in New Orleans, the company’s ninth FBI field office. Just like the other eight, this facility handles some of the most important missions of the FBI and served as headquarter for its regional operations.

Specifically, FBI New Orleans oversees all of Louisiana, including six satellite offices in Baton Rouge, Alexandria, Lafayette, Lake Charles, Monroe, and Freeport. It is important to note that this site was specifically selected by the U.S. Government as the optimal location in which to conduct its mission.

In fact, the government attempted to purchase this property from the prior owner but was unable to do so due to budgetary constraints. As previously mentioned, Easterly is the largest private owner of these facilities and the FBI field offices are the exact type of property we wish to own.

They are highly specialized to the underlying tenants use which aids the tenants in fulfilling the most important of missions for the U.S. Government. As demonstrated in this quarter, the Easterly pipeline remains strong. With no dedicated public competitors, a highly fragmented market drives further opportunity for growth.

And while we have mentioned that we believe that our portfolio acquisition opportunities totaling approximately $2 billion, we still expect 2019 will be a year of incremental growth through the acquisition of one or two bullseye facilities at a time. This was also a rewarding quarter for Easterly on the development side of the house..

Thank you, Bill. As of June 30, we owned 66 operating properties comprising approximately 6.1 million square feet of commercial real estate with three additional projects totaling 2,91,000 square feet under development or in design. The weighted average remaining lease term for our portfolio was 7.4 years.

Remarkably the portfolio has exactly the same weighted average remaining lease term as it did in the first quarter of 2015 when the company IPO-ed.

This time defying specifics has been achieved by continuing to acquire young, mission-critical facilities upscale year-over-year and through the renewal of our leases which speaks to the enduring visibility of our cash flows. The average age of our portfolio has also defined the passage of time and remained young at 13 years.

Portfolio occupancy remains at a 100% and finally 98% of our annualized lease income continued to be backed by the full faith and credit of the United States Government. For the second quarter net income per share on a fully diluted basis was $0.08.

FFO per share on a fully diluted basis was $0.30, FFOs adjusted per share on a fully diluted basis was $0.29 and our cash available for distribution was $19.8 million. Our portfolio has grown from 47 to 66 properties since just this time last year.

And with this scale also comes a more diversified stream of cash flows supporting the company's dividend.

Turning to the balance sheet, at quarter end the company had total indebtedness of $896.5 million including $262 million outstanding on its unsecured revolving credit facility with $450 million of total capacity availability on our revolving line of credits stood at a healthy $188 million.

As of June 30, Easterly’s net debt to total enterprise value was 38.1% and it’s adjusted net debt to annualized quarterly EBITDA ratio was 6.3 times..

Thank you. Our first question comes from line of Manny Korchman from Citigroup. Please proceed with your question..

Hi, good morning everyone. I don’t know who this one is to, but I’ll just throw it out there.

Is there - the most recent development projects was that a full-on RFP and just sort of what do you think made you win that if it was? And secondly, how many other large development projects like that are you working on right now and could become reality over the next 6 to 12 months?.

Good morning Manny, it’s Bill. Yes absolutely, it was a full blown competition. There were a number of very, very strong national competitors involved in that project. As you know, this lab is extremely important to the FDA. There are 13 out there. We have been awarded the first three.

We cannot guarantee that we’re going to win everyone, but I think we’ve proven that we’re a terrific partner with the Federal Government. So I think that we’re looking at a program that could be lasting at least a decade within the FDA going forward.

And I think our expertise certainly now made us after two weeks ago were about 99.5% finished there and I was with Mike Ibe, our Head of Development going through the building from stem to stern.

And when you see what we've done and how we work with the FDA in partnership and the GSA and then doing this again in Lenexa, I think that for the FDA it is a really great solution for achieving their goals, because they – we've all been working together since the beginning on these projects.

So this one in Atlanta has taken I think almost 20 months to come to a fruition, so we’ve put a lot of work into it..

Thanks and then in terms of dispositions, is there anything else that you’re thinking about right now?.

I - we’re very pleased with our portfolio and what I’ve said in the past is when there’s an opportunity to call or harvest a property that might be older and put that money and redeploy it into, for instance a new development project, we’ll take advantage of that, but we have a very young portfolio and we’re very pleased with what we have..

Thanks..

Our next question comes from the line of Jason Adoni with RBC Capital Markets. Please proceed with your question..

Hi, thanks for taking my question.

I’m touching on the dispositions, you had previously discussed that you are interesting in maybe disposing some assets and then obviously I know you had the smart sale during the quarter, but I’m wondering how we should be thinking about that through the end of 2019 and then for 2020? And then also has that strategy changed at all and what impact did that have on guidance?.

I’d say that, just what I've just said to Manny, I think that obviously as we - our buildings do get a year older in market every year and remarkably we’ve actually kept, as Megan mentioned we’ve kept the age of our portfolio fairly consistent for purchasing and building some incredible new properties.

However, with the property that we sold in California, which by the way we just renewed with a brand new 10-year lease, we think it’s terrific, it’s Customs and Border Protection, important mission, but you’re looking at one of our oldest buildings, though, even though hard to believe in the 1990s I know it was just a great time to maximize value.

So, I'd say that dispositions to us are taken when we think that there’s another or better opportunity for the money going forward..

Got it, thank you..

And none of that had any effect on the guidance..

And then, could you also touch on the current competitive landscape that you’re seeing in the market today?.

I would say that the landscape is fairly consistent. We have no public market competitors. When we get to very large projects, we’ll see sovereign wealth funds, large insurance companies, even South Korean insurance companies involved. We have several private equity funds that we’ve enjoyed competing with over the years. We see them on a regular basis.

There was a public market competitor that was in the market last year for a property in Baltimore that I think is probably no longer participating in that market. So it's been very consistent..

Got you, thank you..

Our next question comes from the line of John Peterson with Jefferies. Please proceed with your question..

Hi, this is Peter on for John.

Just on the acquisition front, how high would you be willing to take your leverage if you are seeing more deals that are sort of bullseye acquisitions in your sweet spot at attractive cap rates?.

Yes, I think we, yes, we have the range that guide us, development is going to be the best use of capital that will push leverage to the higher – higher into that range, but we feel confident in our ability to call our pipeline and continue to generate growth while keeping a strong balance sheet..

Got you.

And on lease maturities, do you have any update on sort of near term maturities and there is not a lot of huge ones, but things that are coming up sort of where you’re expecting rents to trend directionally?.

Sure, so as you look at the next, remainder of this year and the next two years and you look at sort of the cross-section of properties that are coming up for renewal, there is a vast majority of those that fall into the bullseye and so every day we’re working to get those replacement cost driven renewal bumps that we think about..

Got it, that’s it from me, thank you..

There are no further questions in the queue. I would like to hand the call back over to Darrell Crate for closing remarks..

Thank you everyone for joining the Easterly Government Properties second quarter 2019 conference call. We appreciate your time and we look forward to getting back to you in November..

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day..