Sign in

    Easterly Government Properties (DEA)

    DEA Q3 2024: Guides 2-3% Core FFO Growth on $1.5B Pipeline

    Reported on Jun 27, 2025 (Before Market Open)
    Pre-Earnings Price$33.70Last close (Nov 4, 2024)
    Post-Earnings Price$33.70Open (Nov 5, 2024)
    Price Change
    $0.00(0.00%)
    • Robust Pipeline and Accretive Acquisitions: Management highlighted a $1.5 billion pipeline with numerous accretive opportunities, including government-adjacent assets that can be acquired at a 50–100 basis point spread over their cost of capital.
    • Stable Lease Renewals and Favorable Rent Spreads: The team successfully completed all significant 2024 lease renewals and forecasts mid- to high-teens net effective rent spreads for 2025, supporting steady cash flows and future revenue growth.
    • Attractive Cost of Capital and Leverage Management: With a cost of debt in the low 6s and overall cost of capital in the low 7s, coupled with a balanced 50-50 debt and equity approach, the company is well-positioned to execute its acquisition strategy and drive its 2–3% core FFO growth guidance.
    • Acquisition Execution Risk: The company’s growth strategy relies heavily on executing a robust acquisition pipeline that can be inherently “lumpy.” If market dislocations or integration issues delay or reduce acquisitions, the anticipated core FFO growth might not materialize as planned.
    • Exposure to Political and Lease Uncertainties: Although management dismissed concerns regarding potential political risks—for example, questions on the Aurora asset in relation to possible government realignment—such uncertainties could impact lease renewals and long‐term tenant stability.
    • Dependence on Favorable Financing Conditions: The strategy assumes continued access to low-cost debt in the comfortable 6.5% to 7.5% leverage range. Any shifts in the cost of capital or tightening of debt markets could erode the intended spread between acquisition cap rates and cost of capital, adversely affecting returns.
    1. 2025 Guidance
      Q: What drives 2025 growth and leverage?
      A: Management emphasized a pipeline-driven strategy with $90M–$300M in acquisitions and leveraging strong property NOI to deliver 2–3% core FFO growth, while maintaining a comfortable leverage range around 6.5%–7.5%.

    2. Leverage Metrics
      Q: What leverage and cost spreads are expected?
      A: They noted a stable overall cost of capital in the low 7s, with new debt in the low 6s and targeting deals with yields in the high 7s–8%, ensuring spreads of 50–100 basis points.

    3. Lease Outlook
      Q: What is the update on lease renewals and spreads?
      A: Management confirmed that all significant 2024 leases were renewed and they expect net effective rent spreads to remain in the mid- to high-teens for 2025.

    4. Buyer Competition
      Q: Are private buyers affecting deal flow?
      A: They stressed that private buyer participation has largely evaporated, easing competitive pressures and enhancing access to attractive debt financing.

    5. Pipeline Composition
      Q: What comprises the $1.5B pipeline?
      A: The pipeline is robust and mainly consists of individual assets, with only a couple of small portfolios, and no mega-sized portfolios under consideration.

    6. G&A Expense
      Q: Why did G&A expenses drop this quarter?
      A: The decrease was driven by a voluntary resignation that resulted in forfeited equity awards; management expects run-rate G&A to remain flat going forward.

    7. Credit Loss Provision
      Q: What is behind credit loss provision fluctuations?
      A: It is an accounting construct that is updated quarterly based on loss estimates rather than actual defaults.

    8. Development Loan
      Q: How does the development loan fit into the pipeline?
      A: Management views it as a smart use of capital to support developers, with an attractive return during the lending period and potential future portfolio acquisition.

    Research analysts covering Easterly Government Properties.