Greetings and welcome to Easterly Government Properties' Second Quarter 2021 Earnings Conference Call. . It is now -- I would now like to turn the conference over to your host; Lindsay Winterhalter, Vice President Investor Relations. .

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 those safe harbor provisions..

Thank you, Lindsay. Good morning everyone and thank you for joining us for the 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. It was a very strong quarter for Easterly Government Properties.

We see the country opening up and as expected we have been identifying some pent-up opportunity for our business.

We have emerged from COVID stronger than we entered as measured by FFO growth, portfolio scale, age diversification and lease duration, as well as an actionable pipeline of acquisition opportunities that materially exceeds pre-pandemic levels. This all leads us to believe that it will be a very strong end to the year.

Today we have 84 properties across 39 important tenant agencies. We have a diverse portfolio of mission-critical facilities leased to the United States Federal Government. The quality of our portfolio in this space is excellent. The average age of our buildings is 13.4 years and the average duration of our leases is 8.6 years.

This translates into over $2.2 billion of cash embedded in our leases that is backed by the full faith and credit of the United States government..

Thanks Darrell and good morning. Thank you for joining us for our second quarter earnings call. The acquisitions team continues to add mission-critical bullseye properties with the second quarter acquisition of the National Weather Service central region headquarters, a 94000 square foot facility located in Kansas City, Missouri.

This build-to-suit facility is 100% leased on behalf of the National Weather Service for a 15-year term with a 5-year fixed renewal rate option which if exercised does not expire until December of 2038.

This highly specialized facility serves as the central region headquarters for the National Weather Service, one of six regional offices strategically located throughout the country.

The facility features a radar tower, secure satellite field and houses some of the most advanced technology in weather forecasting and advanced computer equipment, including doppler radar and the automated service observation system.

The acquisition of NWS - Kansas City serves as the perfect example of the type of asset, we'd like to introduce into our expanding portfolio. Here the mission of the tenant agency cannot be performed without the real estate to support it. This is the definition of a Bullseye property. In the second quarter, we disposed of SSA - Mission Viejo.

This is an example of a building whose agency, the Social Security Administration, houses government employees that can one day accomplish their goals and objectives outside of this facility.

Given its relatively small size and our belief regarding its long-term mission, we thought it best to use SSA - Mission Viejo as a source of funds for future Bullseye acquisitions..

Thank you, Bill. Good morning everyone. It gives me great pleasure to post another strong quarter here at Easterly. As of June 30, we owned 83 operating properties totaling approximately 7.6 million square feet of commercial real estate with one additional development project in design, comprised of approximately 162,000 square feet.

Through the acquisition of newer facilities, the weighted average age of our portfolio remains young at 13.6 years. Successful long-term renewals at existing properties have also allowed us to maintain our weighted average remaining lease term at its historic high of 8.6 years.

When compared to this time last year, we have lengthened the remaining lease term, which in turn provides clarity of future cash flows while also acquiring newer assets to keep the average age of the portfolio relatively young.

This combination allows us to prudently manage the company's balance sheet and support our highly accretive acquisition and development project pipeline. Turning to our quarterly results.

For the second quarter, net income per share on a fully diluted basis was $0.10, FFO per share on a fully diluted basis was $0.33, FFO as adjusted per share on a fully diluted basis was $0.31 and our cash available for distribution was $23.2 million.

The balance sheet at quarter end reflects the company's total indebtedness of approximately $1 billion with $313 million available on our line of credit for future acquisitions and development related expenses..

Thank you. We will now be conducting a question-and-answer session. Our first question is from Manny Korchman with Citigroup. Please proceed..

Hey. Good morning everyone. This is actually on for Manny. Thanks for taking the time.

Just in terms of the acquisition market, I was wondering if you guys could touch on, if you're seeing any additional competition or impact on pricing, just for some of those assets that you're looking at acquiring here over the next 12 months or, so?.

Hi. Good morning. Hi. It's Bill. I think that, the story is first of all that we're seeing more opportunities, than we've ever seen before in the acquisition pipeline. I think from a standpoint of the pricing, if you look where we came out on our most recent four acquisitions we're right, where we would think they'd be sort of in the low-6s on average.

But I will say that, I think from a competition standpoint, we're not seeing any new players in the market. We do have some strong competitors in the private equity space. I think we have a better cost of capital. So when we want to buy something, we seem to still be able to accretively get what we need to do.

I will say though, that as we're looking towards more and more brand new buildings and you've seen some of those in the past those cap rates are going to be a little further below the $6 billion cap range, just because I think people understand what 20-year leases on brand new mission-critical properties are worth, but from that standpoint no new competition..

Got it. Thank you. And then, just in terms of the SSA facility sale this quarter I understand that it's strategic sale and you guys gave some comments in your opening remarks. But should we just anticipate other sales like this one over the next 12 months as you look to sort of in a way recycle capital.

And try to reposition some of your sort of portfolio altogether?.

Yeah. I think the real answer there is, we are so pleased with our portfolio of 83 buildings that there are very few that are not young conducting mission for very important government agencies right in the middle of the bull's-eye.

We do have a few properties and this would be one of them that were a portfolio acquisition that we just felt the time was right to move it along. So I would never really think of our dispositions as an important part of our overall strategy. Let's talk about that in 10 years. But right now I think we own the best buildings we possibly can own.

And so we will move things along, when we think, either they don't fit in or maybe a source of fund for something better. But I don't think you're going to see a steady drumbeat of sales within this very young portfolio..

Okay. Thanks Bill. I appreciate it..

Yeah..

Thank you. The next question is from Michael Carroll with RBC Capital Markets. Please proceed..

Yeah. Thanks.

Bill, can you highlight the type of agencies DAC's the most opportunities to expand with today, and if there are any new agencies like the National Weather Service you'd like to add to the portfolio that's currently not in the portfolio?.

Yeah. Good morning, Michael. Yeah. I mean, I think the ones that you're going to see the most of, and I've mentioned with all the opportunities that are out there today, the only real major building program with brand new facilities going on within the federal government are in the FDA laboratories and we're building them.

And the other is in the VA space. And I think, you are going to see more of these brand new outpatient clinics available in the coming years. And so I imagine, we get our fair share of those wonderful opportunities in that space.

Other than that, I think with new agencies that it's always going to be ones that we care about the most that are not political footballs, not the poster child for either the Democrat or the Republican party. So I think you can expect anything in law enforcement will always be popular with us.

Mission-critical facilities within agencies like these National Weather Services. I mean I just – it's an amazing facility that we picked up in Kansas City.

Basically, if you've been in an airplane, you've been getting your – well any kind of aircraft you've been getting your weather from this particular facility and it might be one of the most important facilities in the country.

So you can expect to see no matter what the agency, if you've got to build it with a hierarchy omission like this, we're going to go ahead and take advantage of it. But the usual, I think you'll see a lot of law enforcement FBI, DEA the usual suspects going forward..

And then what is the growth opportunity with the National Weather Service? I mean, how many buildings are out there that kind of fits your bullseye target and are you able to out there and acquire some of those?.

I think you saw it. That would be the Kansas City facility. There are six and the rest are just not of the scale and that this one is a new facility handling all of air traffic weather for the United States. The others are smaller facilities. So, probably not as much of interest to us..

Okay. Great.

And then Meghan related to the sustainability-linked facility, can you briefly talk about what targets DEA needs to achieve to reduce those spreads and what's the company doing today to hit those targets?.

Sure. So out of the box, we are linking to our ISS environmental quality score and we are able to achieve that one basis points with – one basis point rather with a 10% improvement in that score and we think that's a great incentive and are working throughout the portfolio on numerous energy efficiency projects to be able to obtain that..

Okay. Great. Thank you..

Thank you. Ladies and gentlemen, there are no more questions. So I would like to turn the call back over to Darrell Crate for closing remarks..

Great. Thank you everyone for joining the Easterly Government Properties' second quarter 2021 conference call. We appreciate your time, and we'll continue to work hard to deliver strong risk-adjusted returns for our shareholders for years to come..

This ends today's conference. You may disconnect your lines at this time. Thank you very much for your participation, and have a great day..