Hey, I'm Darrell Crate, and we're here for Easterly Government Properties. Allison Marino's with me, who's the CFO of the company, and Cole Bardawil, who runs investor relations and many more things. To my left is our fabulous moderator, John Kim, from BMO, and I will turn the presentation over to him. Great. Thank you so much. You should moderate as well. I just think maybe we should start off with an update on your company and for people and investors in here, why should people look at your stock today? Yeah. No, look, I think all CEOs are in love with their own puppies. We know that's true. I'll truly say that I think it's an exciting time to enter the stock. Allison and I started running the company day-to-day just a couple of years ago. Since then, every year, we've delivered 2%-3% FFO growth. We're committed to staying on that track to the medium to long term. The midpoint of our guidance for next year is also getting us to that 2%-3% spot. We've turned over a significant number of folks in senior management. We've built out our executive leadership team. We've expanded the pipeline of the business. To be candid, we have a very incredibly stable business. What we changed a couple of years ago is we were 100% federal government. Today, we're 90%. We're going to get that to be about 70%. Why is that? There is in what we call government adjacent and state and local leases, they're more commercial and what folks are familiar with. That allows us to have 60 basis points more growth than we would have otherwise. This company's history is we've done a fabulous job since being private equity funds and then ultimately public, because we managed this portfolio very well. We have a platform that has real insights into working with the government and supporting governments. What we did not do very well during COVID, as a company, was manage cash flows for equity investors in real estate. Accordingly, that's our focus. When Allison and I assumed responsibility, we ended up putting some portfolio management stuff in place, ended up cutting the dividend, and really putting ourselves on a growth strategy where we've got a much wider funnel of opportunity than we ever have before. We're managing that well in the context of our cost of capital, and we're delivering accretion and growing the business. When you look at those things, you look at the full faith and credit to the U.S. government that backs our tenant leases. You'll find yourself with really strong cash flows at an incredible premium to Treasuries, and we're very excited about what that provides and the growth it'll deliver to investors over time. Can you talk about the non-GSA leases going from 10%- 30% GSA, going from 90% - 70%? How long do you think that will take, and can you talk about some of these other non-GSA tenants that you're looking at? What's attractive to you? Yeah. No, sure. This last year, we added again, about 10% of the portfolio became what is state and local, as well as what we call government adjacent. State and local, we have a triple A tenant down in Wake County in North Carolina that houses their school system. It's one of the fastest-growing counties in the country. What that leads to is a building that is permanent. It's a great fixture for what they do, they're not going anywhere, it's terrific tenant credit. Government adjacent are buildings that look just like the ones that we manage, which are fundamentally mission-critical facilities with SCIF space, which is special rooms that you cannot penetrate with listening devices, they have no windows. They're very secure facilities. Doing that for generally defense manufacturers and defense contractors. Anybody with a contract with the U.S. government falls into that space. I think if we make progress over the next two to three years, getting to that 30% threshold, I think we'll be doing a great job. I'll give you an example of in Florida, the law enforcement buildings. They have these facilities that they're building. We're building them from the ground up. We just did one in Fort Myers. It'll deliver probably September to December. It'll be on budget. It'll be early, crazy as that sounds. The state of Florida's really happy with that building. We are building it to a very attractive cap rate relative to our cost of capital. They have three or four more to build, and I think we're well-positioned to do exactly that, and it'd be a great way to have leases that are 35 years with a wonderful state that's growing. GSA is a large entity, but you have a very focused bullseye approach within the GSA tenants that you look at and assets. In your mind, and can you maybe refresh us, what makes a building truly mission-critical from your perspective? Yeah. We don't own any federal buildings in Washington, principally because that's where bureaucracy is happening. Our facilities are close to the mission, close to the people. Think of that as law enforcement. That's the FBI. Almost a quarter of our business is the Veterans Administration caring for veterans in their cities and neighborhoods. It's rule of law, which is courthouses. They've only left two courthouses since the Civil War. Again, very sticky assets. We're talking about border control. Again, our borders aren't changing. Forget about the politics. We will always have border work to do. The Drug Enforcement Administration. We have a drug problem in the country. As long as we're making babies, we're going to make a couple more addicts. The DEA and drug enforcement is something that will continue to be important. Each of these facilities have special spaces that facilitate those missions. We're excited to maintain those buildings well, and the government's excited to satisfy its mission. Just moving on to the acquisitions and acquisition pipeline. Your pipeline today is $1.5 billion. It's been at that level for a while. Can you just talk about how much of that you actually move to the next phase in terms of due diligence and making a bid for, and just compare that versus your acquisition guidance, which is much lower than that? Yeah. As you can imagine, we have to manage an enormously wide funnel to be able to acquire and develop with our cost of capital today. What that looks like in terms of overall composition is about a third federal, a third state and local, and a third what we call government adjacent, as Darrell mentioned. Between that, you'll see another roughly third to half is development versus pure play acquisition. When we talk about the spectrum of things that we can do and what is actionable, we have a very deep network with a lot of fragmented ownership groups throughout this country. Most GSA owners outside of the institutional players like ourselves are regional family office sort of ownership groups. For us, we're in constant dialogue with a very large network of those owners, and some of them are just waiting on us. Right. It's we can agree to a price that makes both people happy. Then there are others that we are in more advanced stages of discussion to acquire or bring into the portfolio or to develop and win that procurement. We intentionally keep our acquisition guidance to a place where we have an executed LOI. I think that helps us put forth what we know versus what potential can look like. If you've noticed in our guidance this year, particularly while our acquisition number is low, our stated growth rate is still the 2%-3% that we've always talked about. That is driven by a combination of factors, including same store growth, internal operating metrics and efficiencies, as well as continuing to deliver on the things that we've already executed. Particularly to Darrell's point, we have a Florida Department of Law Enforcement lab that delivers in Q4. That is a piece of that growth for this year. We look to next year and we start to talk about what does growth look like in future years, we have two courthouses that are in our development pipeline that will deliver. We are actively managing that $ 1.5 billion. Things come in, things come out. I would share that we're fairly far along on a number of pokers in the fire. It's just about execution as we move forward, When you look at acquisitions, what kind of spread are you looking to versus your cost of capital? Yeah. I would say, typically it's about 50 to 100 basis points. 100 basis points is obviously the goal. If we can create more for the right value-generating building, we have to be cognizant of where our cost of capital is, obviously. At the same point, we're looking to leverage the expertise we have created over the last decade to find places where there's price dislocation in the market and value creation opportunities in the market. Over the last year, we've bought assets that have slightly lower WALT, but that we have a lot of certainty around what renewal looks like and the value that building is to that particular tenant and mission. Mission's a very funny word when you think about the government because it sounds very spy and Department of Defense-y. Most of the government thinks about their work as what they call mission. In our most recently developed FDA lab in Atlanta, Georgia, development is an area where we seek to get about 150 basis points plus spread to our cost of capital. That building is responsible for a few things. If you ever open a canned good in the United States, the testing of the sanctity of that can so that you don't get botulism and die when you eat green beans runs through a lab like that. They also test much of the infant formula in the country to make sure it is safe for your children to use. It sounds very obtuse when you hear mission and what that means for development yields and acquisition yields, but the work actually being done is what drives the value for us when we look to acquire or develop. They even have a smoking lab, so you just get the carcinogens that you pay for. No more, no less. This past quarter, you made a mezz investment, which was, I think, the first time for your company. Yeah, very sexy. A much higher yield and spread to your cost of capital. Is this something that you want to grow? How big do you want it to be? Just tell us about making this leap into mezz investments. Sure. Mezz is a super interesting place for us to think about programmatically. It's not a one-time ability to deploy into a high-yield exercise. It is a structural opportunity to create yield, but also have an opportunity to acquire and rights to potentially own that building in the future when it's developed. In this particular first case, we are lending roughly $8 million on a small Veterans Administration building in, I believe it's Washington State, and that will deliver in the next three-ish years. When that delivers, we'll have a right to buy the building. For us, that's obviously going to be a combination of cost of capital, among other things, but it's exactly the type of building we would like to own should we be able to come to terms at the time. Mezz as a platform, we would look to continue to deploy capital, I would say roughly between $30 million and $40 million total at any given point under active investment. We're going to build that pipeline up over the next one to two years. In the VA space alone, there are 20+ buildings that are in procurement and about to be developed. That pipeline of being able to keep a mezz program over the next five to ten years is very likely, and in fact, we think it's a really great value-driving opportunity. It's the first opportunity for us to create a different part of the funnel and the pipeline of things that we're actively involved in now to create the future opportunity, and that pipeline getting larger or staying the same as opportunities cycle in and out. I think generally what you'll see is that we bring the underwriting expertise we would to any acquisition or development to that pipeline as well. We really want to understand the risk associated with the building. While it's small dollars to most individuals or most companies, I think for us, we think about value creation with a long-term lens. 600 basis points of spread is a great way to create value. For us, there are definitely places where our cost of debt is very attractive, and in small increments, we can create some meaningful return on relatively small dollars. Is the investment purely a short-term investment, or do you plan to, in some cases, own the asset, or would you like to pursue that? Yeah. It's modeled as traditional mezz, so it would have a termination date or a maturity date. That being said, we would seek to embed ROFO opportunities within these deals so that we have a right to acquire the asset when it's delivered. Yeah. We wouldn't lend against a project that we weren't interested in buying that isn't in something that we want to do. We're not a mezz lender. This program will continue to be modest. We never want to have it in the magnitude where there's some sort of earnings cliff in the future. It's a great way to get your foot in the door. We're very good at developing. Michael Ibe has over 35 years of experience developing these buildings, who runs that area for the company. He's a great partner to younger folks who are developing these spaces. We end up with a higher quality product at the end that's either going to be worth more, that we may have some participation in, or it'll be a much more attractive buy for us, and we'll actually understand how to maintain it in the most efficient way going forward. Okay. You talked about some developments that are completing that will be added to earnings growth. You have a history of doing this. In today's environment, with the cost of capital being higher and cost overall being higher, what's the hurdle rate you need to move forward with the development today? Typically, we're hoping to achieve 150 basis points, roughly, spread to our cost of capital. For the right asset, it's not precise. It's never going to be 150.0. When we think about continuum, what we are trying to do is create a value opportunity where we have the best risk-adjusted return. That's typically 100 to 150 basis point spread on a yield basis for delivered developments. Costs are certainly higher. We have a number of cost protection mechanisms built into our development process. We have a guaranteed maximum price contract. At the point we're bidding rents, we know how much the building is going to cost to build for what we, as an owner, are required to deliver. The second component, which is very common in government development projects, is this concept of a lump sum, meaning the government has an above-standard TI that they would like the landlord to execute. When that design is finished, we would have a guaranteed maximum price for that work as well, we put a profit margin on top of that in terms of what we deliver and how we create additional return on the development projects. I think for us, it's still a place you're going to continue to see Easterly bid on procurements, look to continue to build sophistication there. We have a specialty in labs and courthouses. That's not to say we'll never do a non-lab or courthouse, but those are areas I think we see the most value-creating opportunities for our internal skill set. Our wide network of other development partners is where we would look to potentially do a forward take-on on development or mezz or something else, maybe just buy it outright when it's done. There's a lot of tools in the how do you get to the end goal of development toolkit, but I think we're really trying to put resources to the best places in each of those categories. Can we move on to state-level partnerships and investments? You recently made one in Richmond. I wanted to ask what features of the state leases are attractive to you, and are there certain states that you like to work with more than others? Yeah. We obviously like high-credit states. No offense. I love Chicago. We love doing business with people in Chicago. We just don't like the state of Illinois to be our tenant. We're looking for states that, again, are very creditworthy, that continue to have population growth. In these state and local projects, they have a different sticky criteria, which is, are they serving a critical function in that state government? What are governors in charge of? Governors are really just like mayors on steroids, and their job is public safety. It's to make sure the schools run properly. It's fundamentally to make sure that the social safety net is in place. Finding places that are properly located in order to serve that mission is important, and when they're established, they're known to be the place to get that state resource. We're very excited to align ourselves with those missions, with the very high creditworthy organizations. Are the leases structured flat or do they have escalations? No, they're generally structured to look like commercial leases, which is terrific. In that business, think of us more as a net lease business. I'm fond of saying, and when we talk a little bit about valuation, we are more of a net lease company than an office company. I love to say we're a net lease company with a scoop of office on top because we do have to work on making sure our buildings are improved. That's really something extra, beyond the value that we create in just owning these fantastic properties. Okay. Can we dig deeper into some of the government-adjacent tenants that you look to do business with? Defense tech manufacturing is a growing part of the overall ecosystem. How aggressive do you want to be with pursuing some of these private tenants investment opportunity? Yeah. Again, I think it's looking for companies that are growing, looking for high credit tenancy. Single A, triple B plus. Remember, most of our cash flow is double A plus cash flow that comes into the system. Mixing a little single A, triple B plus is like infusing a little disco into our party. Relative to most other real estate, it's very credit worthy. Finding folks with that strong credit rating who are doing something that also is facilitating important missions in the government is what we do well. Those, of course, are commercial leases with escalators and are on very attractive terms. We actually know how to service those buildings and make sure that the CapEx and the other activities that are there are efficient and make the building relevant and fight obsolescence. Can you talk about how AI has impacted your business, either directly or with your tenants? I think one can make the argument that some of your tenants require specialized infrastructure like SCIFs that you mentioned earlier. Does this make some of your tenants more sticky than a typical corporate tenant that other REITs may have? Yeah. It's hard to imagine a world where it's completely AI immune, but if you can think of the government as a monolith that does not move fast, AI is not their very first mover, right? Whereas many organizations, ourselves included, are thinking about how every single day it can change the work that we do. It's not generally the orientation of most government departments to embed that level of technology into their work. Many of the things that are unique about our buildings is that the work has to be done there. That is not just SCIF, that is also because it might serve as a distribution facility or it might be a healthcare facility. As much as we would love to believe that AI is going to revolutionize healthcare delivery in this country, it's not happening in the next half a decade. Certainly not the next decade either. Particularly when it comes to care like prosthetics. In our healthcare delivery system at our VA clinics, one of the largest areas that we're seeing patients in are auditory and ambulatory care like prosthetics. Those two things, they have to go to the VA clinic to be fitted. They have to go in for the hearing test. They have to be assessed by a healthcare professional. It's not AI immune by any stretch, but it's just on the lagging end of technology and innovation. We are AI immune with regard to our leases being terminated or changed because of AI. AI will get infused. It's not that it's nonexistent. It'll be infused into the work that's done. When we look at the certainty of rent payments, we have very little sense that those are going to be changing over the next couple of decades because of AI. Which I think is generally the fear in office. We're booked in office because truth is we're not retail, we're not multifamily, we're not industrial. We do have an office component, and the folks who show up are a workforce, and we actually do the work to maintain the buildings. That's how we got categorized at office. In a whole set of ways, all of the influences that you see in office and the risks are something that really aren't part of our portfolio day to day. Any questions from the audience? About a year ago, I moderated this panel with you, and we talked a lot about DOGE and the impact that would have on your business and maybe the government cutting office locations. That didn't really impact you, but can you just give an update on DOGE? Yeah. As I think we said at the time, DOGE is a tailwind for what we do because fundamentally, when you squint at DOGE, it's about bringing private sector practices into government. That's where the United States government has always found its efficiency. The U.S. government today realizes that what they are good at is when something's wrong with a building, calling and complaining, and having a landlord like us fix it quickly. Getting a light bulb changed in the government, crazy as it sounds, they're not really great at that. They can go catch cartel leaders, but they really can't maintain their buildings. That's for a whole set of reasons. The simplest one is that when Congress cuts a budget of an agency, the first thing they do is they cut the CapEx on the buildings that they own. What this has led to is $85 billion of deferred maintenance has piled up. Nobody intended for that to happen, but it did. For the first time since the Truman administration, we have somebody running the GSA who's a commercial person. This person was the Chief Administrative Officer at Goldman Sachs, ran Cushman & Wakefield. His name's Ed Forst. Terrific guy, and he's very motivated to work on behalf of the American people. He's infusing a culture of trying to find those private sector practices that can make government better for the taxpayers, while also not disrupting the bureaucracy that protects us all each and every day. What DOGE has done is it has opened the eyes of government to think about these private sector practices. We've had much more fertile ongoing conversations at every level within the GSA about what we're doing and what we do well. Allison is so fond of explaining that private enterprise went asset light a long time ago, and two decades later, we've got the U.S. government now looking at saying, w ell, why do we own so many of these buildings? A third of the U.S. government's inventory is leased. We believe that'll become about two thirds over the next decade. That would be a very wise choice for them. They'd have better buildings that serve their mission better. They would save a ton of dough for the taxpayers. Seeing them migrate in that direction is very helpful. DOGE and the concept of DOGE was the catalyst for that. Just moving on to your share price. It's performed well this year. It's outperformed REITs. Overall, still trades at a discount and multiple to the office and the net lease sectors. How do you convince investors that DEA is more than just a bond proxy? Yeah. I think it's just important to see our growth rate relative to office. One of the missions that I reference is that what Allison and I did a couple of years ago is essentially readjusted the metrics of the performance of the company to match something that would be top quartile in our sector. That said, we cut our dividend, we repositioned the cash flows, so that we could be delivering more growth to investors. It's crazy enough when you have about a third of your earnings in retained earnings, it's a little easier to grow a company in a hard asset business. We've positioned it that way. We get a free building a year from our retained earnings. We don't squander the capital. We really think about return on invested capital as an important part of growing the business. Accordingly, we've continued to grow what we're doing. It's really an exciting time. We're still at a multiple that's below office. I think if you comp us out relative to office and look at the risks, they're far lower. I'd argue that we should be certainly at a premium. That's another $3-$4 a stock just to get to median. I would argue that we're more like a net lease business. Fundamentally, we have the stickiness and we have the growth that will ultimately mandate it. Allison's going to work really hard in the next year to get us an investment grade rating from two agencies that you've heard of. Yeah, I think that the chances of that are very good. If you think about it, there's some other real estate businesses that you look out there that have very high credit tenant, sort of triple B plus, A minus kinds of money coming in the top of the business, and they tend to be graded two levels below. Single A, triple B plus turns into a triple B company. What's coming in the top of our business is double A plus. There's no way that this organization's operating in a way that's eight notches lower than the money that comes in the top. I cannot think about anything we do that's risky every day that would deserve that. We'll be making that argument to the agencies, and I think that'll be successful. That would add another 100 basis points of growth to what we do, which would turn us from a 2%-3% grower into a 3%-4% grower. That's very competitive with net lease. Our credit tenant is better than most net lease. The persistence of our leases is better than net lease. Our growth rate's going to be comparable. Our payout ratio is going to be in line. Those companies trade at a five to six times multiple, which doing the math is another $15 on top of the stock price where we are today. Even if we get half of that, we're going to do a great job for investors. The idea of investing in full faith and credit government leases and getting a 12%-13% compounded return for five to seven years, it's a kind of a set it and forget it kind of strategy. I think that's a compelling argument, but you'd be the one who would know how to make that more succinctly. We do have a question from the audience. Can you just talk about the balance sheet, cost of capital, AFFO, payout ratio, et cetera? Yep. We operate today an investment grade balance sheet. What that looks like is we have a target leverage ratio currently stated on an adjusted basis of 6.5%-7.5%. We have a plan to deleverage over the next 18-24 months to push that to something with a six handle on it on a cash basis, which as you can imagine with development would be lower on an adjusted basis. That is our plan. We are making headway to that every quarter. Part of that pathway is driven by the delivery of our next three development projects. If we just stand still and they deliver, we will have three natural delevering points over the next 18-ish, 24 months, in addition to looking to create leverage positive or leverage accretion scenarios throughout our portfolio. In terms of AFFO, we did reduce the dividend last year. That has right-sized our payout ratio to a very sustainable between 60%-70%. On an AFFO basis, we feel like the dividend is in a great place to allow us to grow. On a dividend yield basis, we are still in the eights or nines, depending on the day. It's a very attractive dividend yield for how safe that dividend is. When we talk about cost of capital, I think we're not immune as most of our peers are to the move in interest rates this year. However, this has been a really interesting year on a cost to debt basis. Bank markets are back open, spreads are still at all-time tights, and while the foundational and underlying rates have moved, all-in cost of capital is still at a better place than it was even last year. That is helping us maintain our cost of capital, even if our equity cost of capital isn't the perfect place we'd like it to be. I would say we're roughly in the nines from a cost of capital perspective, which allows us to execute and create yield north of that. We're out of time unless you want to make a bold prediction for this year? Well, I think it's going to be, for us, it's just going to be an exceptionally exciting year where we really appreciate everyone taking a little time to listen to our presentation. Follow the stock. We're here, we're available. We've got young Cole down here, who we hired in December. We used to have a lawyer in the position for investor relations. We hired some of those on the sell side, so he's pretty succinct, fast-talking and very capable of explaining what we're doing, and his job every day is to get the story out, and he's doing a great job doing exactly that. If you don't know him yet, introduce yourselves, and he'll help you learn a little bit more about Easterly Government Properties. Thanks so much. Thank you for attending.