Some REITs (real estate investment trusts) are built for value creation and market-beating growth. Easterly Government Properties (NYSE: DEA) is not. The REIT is designed for income, consistency, and reliability no matter what the economy is doing, and it could actually be a great fit for the right type of REIT investor. In this article, we'll discuss Easterly Government Properties' business, recent developments, its performance history, and more.
Easterly Government Properties company overview
Easterly Government Properties is a real estate investment trust, which as the name implies, specializes in real estate leased to the United States government. The company is the second-largest owner of government-leased properties in the U.S., and virtually all (about 99%) of its properties are leased to various government agencies. 85% of the properties are leased to a single government tenant, and the rest are multiple-tenant properties.
As of mid-2021, Easterly Government Properties owned a portfolio of 84 properties with a total of 7.7 million leasable square feet of space. The portfolio is 71% office buildings, and there are smaller concentrations in VA outpatient facilities, laboratories, and courthouse properties. Tenants include the FBI, DEA, GSA, ICE, and several other sets of initials you'd probably recognize.
As you might imagine, tenant turnover isn't much of an issue. After all, government agencies don't tend to move from place to place all that often. The average tenant signs a lease of more than a decade, and most renew their leases when they expire.
There's a pretty strong investment case for government-leased real estate. For one thing, there are fewer tenants with higher credit quality than the United States government, so default risk is virtually nonexistent. There's also quite a bit of room for growth -- only about one-fourth of leased government properties are owned by major operators, so there's lots of potential for REIT consolidation.
Easterly Government Properties grows by a combination of strategic acquisitions and ground-up development of new properties. Through the first nine months of 2021, Easterly Government Properties has acquired six properties, including the Knoxville FBI field office and the National Weather Service office in Kansas City.
When it comes to acquisitions, Easterly Government Properties focuses on properties that are essential to their respective government agencies, and on the development side, the company focuses on build-to-suit opportunities, which effectively eliminates any leasing risk. As an example, Easterly Government Properties is currently developing a 162,000-square-foot facility in Atlanta that will serve as a regional FDA laboratory.
Easterly Government Properties maintains a solid balance sheet, which keeps borrowing costs to a minimum (average interest rate on its debt is below 3.4%) and maximizes financial flexibility. Just one-third of the company's total capitalization is made up of debt, and there is more than $300 million of available borrowing capacity under the company's current credit line.
Easterly Government Properties news
We admittedly struggled to find any significant news items to put in this writeup, and to be fair, that's kind of the point of an investment like Easterly Government Properties. The company is designed to generate worry-free income and growth over time with minimal surprises.
Even the COVID-19 pandemic, which has been the biggest news item affecting most REITs in recent history, didn't have a major impact on the company. Since its properties are almost entirely leased to the government, rent collection never became an issue as the pandemic started. In fact, in the second quarter of 2020 when most REITs were withdrawing their guidance due to uncertainty, Easterly Government Properties actually increased its full-year projections. As CEO William Trible said at the time, "Easterly’s ability to grow its platform at a time of economic and political uncertainty sets us apart from many of our peers."
Easterly Government Properties stock price
Easterly Government Properties was founded in 2011 and went public in February 2015 at an IPO price of $15 per share. As of September 13, 2021, the stock was trading for $20.60 per share, which translates to a 37% stock price gain.
Now, at first glance this might not sound like an excellent return for about six-and-a-half years as a publicly traded company. It translates to an annualized gain of about 5%. But the stock- price change doesn't come close to telling the full story.
Specifically, REITs are designed as total return investments -- that is, to provide a combination of steady income and share price growth. And this is especially true in cases of REITs that own stable, predictable properties, like a portfolio of buildings leased to the U.S. government. The point is that when analyzing the performance of a stock like Easterly Government Properties, you have to take dividends into consideration.
Easterly Government Properties is a higher-yielding REIT, with a dividend yield of more than 5% as of September 2021. And although we've only had a little over six years of history to assess, the company has a strong track record of dividend increases. In 2015, the company's first regular quarterly payout was $0.21 per share, and it has gradually risen to the current rate of $0.265. So not only does Easterly Government Property pay a high yield, but it does a great job of giving shareholders "raises" over time.
With all of that in mind, here's how Easterly Government Properties' stock has performed over time on a total return basis.