The Landlord to Uncle Sam: A Safe Income Bet?
Real estate investment trusts (REITs) took an oversized hit within the higher-interest-rate environment. That’s because it’s a capital-intensive industry that borrows a lot of money. Higher interest rates make it more costly to borrow, which cuts into margins and profitability.
That was on the corporate side; on the tenant side, there were concerns that leaseholders who couldn’t pay their rent could default.
However, neither of these concerns was an issue for Easterly Government Properties Inc (NYSE:DEA).
The biggest reason why Easterly Government Properties is able to generate significant cash flow regardless of where we are in the economic cycle or in battling pandemics or higher interest rates, is because the U.S. government is the REIT’s biggest tenant. And if you can’t trust Uncle Sam to pay the rent, who can you trust?
Easterly Government Properties Inc acquires, develops, and manages commercial properties that are leased to various U.S. government agencies. In fact, according to the most recent data, a whopping 98% of Easterly Government Properties’ lease income is backed by the U.S. government. (Source: “Investor Presentation, December 2025,” Easterly Government Properties Inc, last accessed February 25, 2025.)
The REIT’s 100 properties are spread out across the country, covering 9.8 million square feet; that’s the equivalent of more than 170 NFL football fields. Of its properties, 97.5% are fully leased with an annual lease income per square foot of $35.92.
Easterly’s portfolio also includes more than one type of real estate. Department of Veterans Affairs (VA) outpatient clinics account for the bulk of Easterly Government Properties’ current portfolio (27%).
But the REIT also owns Federal Bureau of Investigation (FBI) regional headquarters properties (16%), built-to-suit specialized U.S. government spaces (13%), laboratories (9%), courthouses, (5%), Department of Defense Secure Command Center properties (3), and National Weather Service Control Center and satellite field facilities (1%).
It’s also important to keep in mind that, when it comes to the U.S. government, it tends to remain in place significantly longer than tenants in the private sector. A typical lease agreement for one of Easterly Government Properties’ sites usually has an initial term of 10 to 20 years and a renewal term of five to 10 years.
Having tenants that are willing to sign long-term leases adds stability to the REIT’s business. Moreover, leasing to the U.S. government has a high barrier to entry. The Department of Defense or FBI isn’t going to lease from just anybody.
A company wanting to become a landlord to Uncle Sam needs to have access to a substantial amount of capital and knowledge of the procurement process, protocols, and culture, as well as proven experience in acquiring, developing, and managing government properties.
Thanks to its understanding of U.S. General Services Administration (GSA) protocols, Easterly Government Properties has grown its portfolio from 2.1 million square feet and 29 properties at its 2015 inception to the current size of 9.8 million leased square feet and 100 operating properties.
The REIT is obviously still growing. It’s currently tracking an estimated $1.5 billion of properties and actively evaluating around $500.0 million worth.
Solid Q4 & 2024 Results
For the fourth quarter ended December 31, 2024, Easterly Government Properties reported total revenue of $78.2 million, up 7.7% from $72.6 million in the fourth quarter of 2023. (Source: “Easterly Government Properties Reports Fourth Quarter 2024 Results,” Easterly Government Properties Inc, February 25, 2025.)
The REIT reported fourth-quarter net income of $5.7 million, or $0.05 per share, up nearly 20% from $4.7 million, or $0.04 per share, in the same prior-year period. Core funds from operations (CFFO), a measure that REITs use to represent cash flow, grew 8.3% to $32.6 million, or $0.29 per share.
Easterly Government Properties’ full-year revenue increased 5.1% year over year to $302.0 million. Full-year net income slipped 2.2% to $20.6 million, or $0.19 per share. Its CFFO rallied 3.1% to $126.9 million, or $1.17 per share.
During the quarter, the REIT acquired the following:
- A 104,136-square-foot facility that’s 100%-leased to Northrop Grumman Systems Corporation located in Aurora, Colorado
- A leased 100,000-square-foot, level-4 secure facility fully occupied by the Internal Revenue Service (IRS) and located in Ogden, Utah
- A 97%-leased, combined 295,253-square-foot campus across three assets leased primarily to the Wake County Public School System (WCPSS), located in Cary, North Carolina
Commenting on the results, Darrell Crate, Easterly Government Properties’ president and chief executive officer, said, “Through the DOGE effort, the federal government has recognized the value and efficiency of leasing versus owning its real estate. We are specialists in delivering mission-critical facilities to key government agencies, and we remain committed to our ongoing public-private partnership.”
Quarterly Dividend of $0.265/Share
With 98% of annualized leased income backed by the U.S. federal government, it’s safe to say that Easterly Government’s cash flow is secure. And this is one big reason why the REIT is able to provide investors with a safe, growing dividend.
In February, it declared a quarterly dividend of $0.265 per share, or $1.06 on an annual basis, for a yield of 9.8%. (Source: “Easterly Government Properties Announces Quarterly Dividend,” Easterly Government Properties Inc, February 20, 2025.)
Easterly Government stock only went public on April 6, 2015, but the REIT has raised its dividend seven times since then. It held its payout at $0.26 per share throughout the pandemic. Easterly raised its dividend to $0.265 in August 2021, holding it at that level since then.
Does Easterly Government Stock Have 29% Upside Potential?
Easterly Government Properties reported solid financial results throughout 2024 and Easterly Government stock hit a new 52-week high of $14.52 on October 18. Despite the REIT reporting decent third-quarter results in November, Easterly Government stock fared poorly from November to February.
At least that was the case until the REIT reported solid fourth-quarter and full-year results and confirmed that the Department of Government Efficiency (DOGE) had reinforced its plans to lease rather than own real estate. Easterly Government stock popped on the news, rallying approximately 6.6%, and hitting an intraday high of $11.66.
Wall Street foresees more upside for Easterly Government stock over the coming quarters, with analysts providing a 12-month share price target range of $12.60 to $15.00. This points to potential upside of approximately eight percent to 29%.
Chart courtesy of StockCharts.com
The Lowdown on Easterly Government Stock
Easterly Government Properties is a great REIT with a rock-solid tenant base; 98% of its lease income is backed by the U.S. government. As a result, it clearly doesn’t have an issue with tenants paying their rent.
This helps the REIT generate reliable cash flow, which allows it to make accretive acquisitions and pay a reliable dividend.
Looking ahead, positive word from DOGE bodes well for Easterly Government Properties and its current and future property portfolio. This is also promising for those holding Easterly Government stock, including the 377 institutions that hold 80.95% of all outstanding shares. The three top holders of Easterly Government stock are BlackRock Inc, with an 18.03% stake, The Vanguard Group, with a 10.56% stake, and State Street Corp, with a 5.72% stake. (Source: “Easterly Government Properties, Inc. (DEA),” Yahoo! Finance, last accessed February 25, 2025.)