Easterly Government Properties Inc: Patriotic REIT Offers Inflation-Trouncing Dividends
October 5, 2021
DEA Stock’s Dividends Continue to Rise
If you can’t trust the U.S. Government to pay its rent, who can you trust? With that in mind, Easterly Government Properties Inc (NYSE:DEA) is a real estate investment trust (REIT) that acquires, develops, and manages commercial properties that it leases to various U.S. government agencies. The arrangement has worked out well for the company and its shareholders.
Easterly Government Properties is the only internally managed REIT focused on U.S. Government leased rental properties. The company will likely continue to provide DEA stockholders with strong, steady, recurring dividends and superior risk-adjusted returns.
Because of who Easterly Government Properties Inc works with, Easterly Government Properties stock didn’t get hammered as much as other REIT stocks did during the March 2020 stock market crash. Moreover, DEA stock rebounded quicker than most stocks. That’s the joy of working with tenants that are part of an organization that’s in charge of the federal budget, the Department of the Treasury, and the money-printing presses.
Thanks to its steady, reliable cash flow, Easterly Government Properties Inc has been reporting solid financial results. Even in a wobbly bull market with a zig-zagging economic recovery, Easterly Government Properties stock has traded in a relatively tight $3.00 range over the last year.
That might not be ideal for investors seeking big share-price gains this year, but it is interesting for day traders. Furthermore, investors who don’t like the recent mini roller-coaster ride can take solace in DEA stock’s high-yield dividends.
Chart courtesy of StockCharts.com
Easterly Government Properties focuses on Class A commercial properties that are leased to U.S. Government agencies. The U.S. Government is the largest office tenant in the country. (Source: “Investor Presentation: September 2021,” Easterly Government Properties Inc, last accessed October 4, 2021.)
The REIT owns and operates 84 properties that are strategically located across the U.S., covering 7.7 million square feet.
The properties are 99% leased to 40 different agencies, with a weighted average remaining lease term of 8.6 years. The vast majority of its properties (71%) are offices, followed by Veterans Affairs outpatient (nine percent), labs (eight percent), courthouse/offices (four percent), and other (eight percent).
Because it can rely on the U.S. government to lease its properties, Easterly Government Properties Inc is always acquiring more properties. In 2020, it announced nine acquisitions. In 2021, it has announced six acquisitions.
This includes a 93,130-square-foot facility in Knoxville, TN, which is leased to the Federal Bureau of Investigation (FBI), and a 60,000-square-foot building in Louisville, KY, which is leased to the U.S. Attorney’s Office (USAO). The FBI’s Knoxville lease expires in August 2025 and the USAO’s Louisville lease expires in December 2031.
Both properties are built to suit the tenants, which means the tenants probably won’t pack up their boxes and move to new locations when their leases are up. Still, Easterly Government Properties Inc needs to negotiate lease renewals all the time.
The REIT has renewed the leases for five properties that have 2021 and 2022 lease renewals. There are 10 remaining notable leases expiring in 2021 and 2022. These 10 properties represent 9.6% of the company’s annual lease income and approximately 705,3000 square feet of combined space.
Because of Easterly Government Properties’ history of working with the U.S. Government, and because of a high barrier to entry, the government is more than happy to continue having the REIT as its landlord.
Easterly Government Properties Inc Increases Earnings Guidance & Acquisition Volume
For the second quarter ended June 30, Easterly Government Properties announced that its revenue increased by 13.4% year-over-year to $68.6 million. (Source: “Easterly Government Properties Reports Second Quarter 2021 Results,” Easterly Government Properties Inc, August 3, 2021.)
The REIT’s net income went up by 123% year-over-year to $9.3 million, or $0.10 per share.
Its funds from operations (FFO) were $31.2 million, or $0.33 per share, compared to $0.32 per share in the same prior-year period. Its adjusted FFO were $29.2 million, or $0.31 per share, while its cash available for distribution was $23.2 million.
“Easterly continues to demonstrate its ability to accretively scale the organization through the acquisition of Class A bullseye properties,” said William C. Trimble, CEO. (Source: Ibid.)
“With increased visibility of our pipeline and enduring confidence in the mission criticality of our facilities, Easterly was pleased to increase its dividend, earnings guidance and target acquisition volume as we deliver growth to our shareholders.”
For 2021, Easterly Government Properties Inc’s management raised its FFO guidance to the range of $1.30–$1.32 per share, up by $0.02 from the company’s previous FFO guidance range. The revised guidance is based on an increase in the company’s 2021 acquisition volume target from $200.0 to $300.0 million, and on the company’s gross development-related investments of up to $25.0 million during the year.
Easterly Government Properties Stock Gives Income Hogs a Raise
Because Easterly Government Properties leases exclusively to the world’s highest-quality tenants, has stable cash flow, follows an accretive acquisition strategy, and pursues opportunistic developments, it has been able to provide DEA stockholders with superior risk-adjusted returns.
In July, the company’s board of directors announced an increase in the quarterly cash dividend to $0.265 per share, or $1.06 per share annually. (Source: “Easterly Government Properties Announces Increased Quarterly Dividend,” Easterly Government Properties Inc, July 28, 2021.)
At the current price of Easterly Government Properties stock, this represents a dividend yield of 5.1%.
The Lowdown on Easterly Government Properties Inc
The biggest issue facing REITs is ensuring that they have stable tenants. Few REITS can claim to have more reliable tenants than Easterly Government Properties Inc does.
As mentioned earlier, it’s the only internally managed public REIT focused on U.S. Government leased real estate. This provides DEA stockholders with steady, recurring dividends and superior risk-adjusted returns. Because of who its tenants are, Easterly Government Properties stock is a great long-term play for investors who are worried about a possible stock market correction.
